Building research skills in the Macalester economics major

Economics majors at Macalester College have won numerous awards for their research papers, and this success has helped them land jobs in finance, consulting, and the nonprofit sector, as well as gain admission to top graduate programs. This article describes how the Economics Department at Macalester promotes economic research among its students

"Liquidity, Uncertainty, and the Declining Predictive Power of the Paper-bill Spread"

This paper addresses two questions. First, what causes the paper-bill spread to vary over time in anticipation of income fluctuations’? Second, why has the predictive power of the spread declined in recent years? Consistent with previous empirical work, the paper provides evidence for the default-risk, monetary, and cash-flow hypotheses. Moreover, new evidence is provided for the liquidity hypothesis by showing that uncertainty has a strong impact on the paper-bill spread. This finding holds for two different approaches used to measure uncertainty - financial market volatility and forecaster discord - and for uncertainty about five different variables: the federal funds rate, the Treasury bill rate, the long-term corporate bond rate, stock returns, and industrial production. Using a Kalman filter to recursively estimate the reduced-form model for the paper-bill spread, the paper shows that the impact of monetary policy and uncertainty on the spread declined during the 1980s, while the impact of default risk increased. These findings are explained by two financial market developments occurring during the 1980s: 1) the rapid growth in the volume and liquidity of the commercial paper market, and 2) increased financial fragility of commercial paper issuers.

"Credibility of the Interwar Gold Standard, Uncertainty, and the Great Depression"

This paper constructs a theoretical model to show how the credibility of a country’s commitment to an international gold standard regime is driven by fundamental determinants such as: 1) shifts in domestic policy, 2) a breakdown in cooperation between central banks, and 3) unilateral devaluations by foreign central banks. Because the credibility of the gold standard regime is an important determinant of domestic interest rate uncertainty, the latter is endogenously linked to changes in the fundamental determinants. Applying this analysis to the inter-war period, the paper shows that GARCH measures of interest rate uncertainty rose dramatically in the U.S. during the early 1930s and that movements in this series can be explained by events which affected the credibility of the U.S. commitment to the gold standard. Also, interest rate uncertainty explains a great deal of the variation in aggregate output and its components during the interwar period. Thus there is evidence that the breakdown in the gold standard contributed to the Great Depression by injecting increased uncertainty into the U.S. economy.

The Credibility of the Federal Reserve's Monetary Targets

In the 1970s the Federal Reserve began a policy of targeting monetary growth. Those who viewed this as a positive development felt that such a policy would allow the Fed to signal its intentions to be firm in its pursuit of an antiinflationary agenda. Moreover, if the Fed could pursue its agenda in a credible manner, the social costs of undertaking such a policy could, presumably, be reduced. In addition, credible monetary growth targets cause the money supply to follow a mean-reverting process. If the money supply and the aggregate price level are strongly related, monetary targets cause the aggregate price level to be mean reverting as well, thereby reducing long-run uncertainty about prices, raising allocative efficiency in capital markets, and increasing economic growth. In this working paper, J. Peter Ferderer explores the history of monetary targeting since the 1970s to determine the extent to which Fed actions have been seen as credible at reducing inflation, and the factors affecting credibility.

Peculiar Velocity Limits from Measurements of the Spectrum of the Sunyaev-Zel'dovich Effect in Six Clusters of Galaxies

We have made measurements of the Sunyaev-Zel'dovich (SZ) effect in six galaxy clusters at z > 0.2 using the Sunyaev-Zel'dovich Infrared Experiment (SuZIE II) in three frequency bands between 150 and 350 GHz. Simultaneous multi-frequency measurements have been used to distinguish between thermal and kinematic components of the SZ effect, and to significantly reduce the effects of variations in atmospheric emission which can otherwise dominate the noise. We have set limits to the peculiar velocities of each cluster with respect to the Hubble flow, and have used the cluster sample to set a 95% confidence limit of < 1410 km/s to the bulk flow of the intermediate-redshift universe in the direction of the CMB dipole. This is the first time that SZ measurements have been used to constrain bulk flows. We show that systematic uncertainties in peculiar velocity determinations from the SZ effect are likely to be dominated by submillimeter point sources and we discuss the level of this contamination.Comment: Submitted to Astrophysical Journal. 32 pages, 13 tables, 9 figure

The Impact of Perceived Expectations and Uncertainty on Firm Investment

This paper analyses the (differential) impact of perceived expectations and uncertainty on investment spending in small and large firms. We analyse two types of investment, viz. aggregate investment and investment in energy-saving technologies, using Dutch firm level data. The results show that expectations and uncertainty about input- and output prices and domestic demand have substantial but different effects on investment spending in firms of different sizes. Furthermore, we find evidence, at least for small firms, that there are important differences between the effects of uncertainty about input and output variable

A meta-analysis of the investment-uncertainty relationship

In this article we use meta-analysis to investigate the investment-uncertainty relationship. We focus on the direction and statistical significance of empirical estimates. Specifically, we estimate an ordered probit model and transform the estimated coefficients into marginal effects to reflect the changes in the probability of finding a significantly negative estimate, an insignificant estimate, or a significantly positive estimate. Exploratory data analysis shows that there is little empirical evidence for a positive relationship. The regression results suggest that the source of uncertainty, the level of data aggregation, the underlying model specification, and differences between short- and long-run effects are important sources of variation in study outcomes. These findings are, by and large, robust to the introduction of a trend variable to capture publication trends in the literature. The probability of finding a significantly negative relationship is higher in more recently published studies. JEL Classification: D21, D80, E22 1