Evaluating international economic policy with the Federal Reserve's global model

FRB/Global is a large-scale macroeconomic model developed and maintained by the Board's staff. This article provides a historical perspective on the development of the model, gives an overview of its structure, and highlights its dynamic properties with three simulation experiments: a reduction in U.S. government purchases; a depreciation of the U.S. dollar; and an increase in the price of oil exported by OPEC. The article illustrates other uses of FRB/Global by examining the spillover effects of fiscal and monetary policy under alternative European monetary policy regimes.Econometric models ; Economic policy

Testing for rational expectations in foreign exchange markets

Rational expectations (Economic theory)

ABS Inflows to the United States and the Global Financial Crisis

The “global saving glut” (GSG) hypothesis argues that the surge in capital inflows from emerging market economies to the United States led to significant declines in long-term interest rates in the United States and other industrial economies. In turn, these lower interest rates, when combined with both innovations and deficiencies of the U.S. credit market, are believed to have contributed to the U.S. housing bubble and to the buildup in financial vulnerabilities that led to the financial crisis. Because the GSG countries for the most part restricted their U.S. purchases to Treasuries and Agency debt, their provision of savings to ultimately risky subprime mortgage borrowers was necessarily indirect, pushing down yields on safe assets and increasing the appetite for alternative investments on the part of other investors. We present a more complete picture of how capital flows contributed to the crisis, drawing attention to the sizable inflows from European investors into U.S. private-label asset-backed securities (ABS), including mortgage-backed securities and other structured investment products. By adding to domestic demand for private-label ABS, substantial foreign acquisitions of these securities contributed to the decline in their spreads over Treasury yields. Through a combination of empirical estimation and model simulation, we verify that both GSG inflows into Treasuries and Agencies, as well as European acquisitions of ABS, played a role in contributing to downward pressures on U.S. interest rates.

Gardens of happiness: Sir William Temple, temperance and China

This is the author accepted manuscript. The final version is available from Taylor & Francis via the DOI in this recordSir William Temple, an English statesman and humanist, wrote “Upon the Gardens of Epicurus” in 1685, taking a neo-epicurean approach to happiness and temperance. In accord with Pierre Gassendi’s epicureanism, “happiness” is characterised as freedom from disturbance and pain in mind and body, whereas “temperance” means following nature (Providence and one’s physiopsychological constitution). For Temple, cultivating fruit trees in his garden was analogous to the threefold cultivation of temperance as a virtue in the humoral body (as food), the mind (as freedom from the passions), and the bodyeconomic (as circulating goods) in order to attain happiness. A regimen that was supposed to cure the malaise of Restoration amidst a crisis of unbridled passions, this threefold cultivation of temperance underlines Temple’s reception of China and Confucianism wherein happiness and temperance are highlighted. Thus Temple’s “gardens of happiness” represent not only a reinterpretation of classical ideas, but also his dialogue with China.European CommissionLeverhulme Trus

Testing for Rational Expectations in Foreign Exchange Markets

The rational expectations hypothesis implies that if investors are risk neutral (and if transactions costs are zero), the current price for foreign exchange for future delivery -- the forward price -- will be unbiased predictor of the actual spot price at the time the forward contract matures. This proposition is conventionally tested by regressing the level of the current spot price on the level of the lagged forward price. This note proposes as alternative test, in which the chagne in the spot price, or rate of depreciation, is regressed on the forward discount rate. In general the two tests yield different results; it is further argued that the alternative test provides additional insight into the behavior of the forward exchange market. The two test equations are estimated for several exchange markets, and the alternative test is shown to reject rational expectations in a case where the conventional test does not.</jats:p

The French franc in the 1920's.

Thesis. 1979. Ph.D.--Massachusetts Institute of Technology. Dept. of Economics.MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY.Bibliography: leaves 184-187.Ph.D