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July/August 2007

Frontiers in Monetary Policy Research

Posted 2007-07-01

Contributing Authors

Posted 2007-07-01

An Estimated DSGE Model for the United Kingdom

by Riccardo DiCecio and Edward Nelson

The authors estimate the dynamic stochastic general equilibrium model of Christiano, Eichenbaum, and Evans (2005) on U.K. data. Their estimates suggest that price stickiness is a more important source of nominal rigidity in the United Kingdom than wage stickiness. Their estimates of parameters governing investment behavior are only well behaved when post-1979 observations are included, which reflects government policies until the late 1970s that obstructed the influence of market forces on investment.

Posted 2007-07-01

Commentary on "An Estimated DSGE Model for the United Kingdom"

by Martin Fuka─Ź and Adrian R. Pagan

Posted 2007-07-01

Macroeconomic Implications of Changes in the Term Premium

by Glenn D. Rudebusch, Brian P. Sack, and Eric T. Swanson

Linearized New Keynesian models and empirical no-arbitrage macro-finance models offer little insight regarding the implications of changes in bond term premiums for economic activity. This paper investigates these implications using both a structural model and a reduced-form framework.

Posted 2007-07-01

Commentary on "Macroeconomic Implications of Changes in the Term Premium"

by John H. Cochrane

Posted 2007-07-01

Long-Run Risks and Financial Markets

by Ravi Bansal

The recently developed long-run risks asset pricing model shows that concerns about long-run expected growth and time-varying uncertainty (i.e., volatility) about future economic prospects drive asset prices. These two channels of economic risks can account for the risk premia and asset price fluctuations.

Posted 2007-07-01

Commentary on "Long-Run Risks and Financial Markets"

by Thomas J. Sargent

Posted 2007-07-01

Arbitrage-Free Bond Pricing with Dynamic Macroeconomic Models

by Michael F. Gallmeyer, Burton Hollifield, Francisco J. Palomino, and Stanley E. Zin

The authors examine the relationship between changes in short-term interest rates induced by monetary policy and the yields on long-maturity default-free bonds. The volatility of the long end of the term structure and its relationship with monetary policy are puzzling from the perspective of simple structural macroeconomic models.

Posted 2007-07-01

Commentary on "Arbitrage-Free Bond Pricing with Dynamic Macroeconomic Models"

by Pamela Labadie

Posted 2007-07-01

Monetary Policy as Equilibrium Selection

by Gaetano Antinolfi, Costas Azariadis, and James Bullard

Can monetary policy guide expectations toward desirable outcomes when equilibrium and welfare are sensitive to alternative, commonly held rational beliefs? This paper studies this question in an exchange economy with endogenous debt limits in which dynamic complementarities between dated debt limits support two Pareto-ranked steady states: a suboptimal, locally stable autarkic state and a constrained optimal, locally unstable trading state. The authors identify feedback policies that reverse the stability properties of the two steady states and ensure rapid convergence to the constrained optimal state.

Posted 2007-07-01

Commentary on "Monetary Policy as Equilibrium Selection"

by Peter N. Ireland

Posted 2007-07-01

Model Fit and Model Selection

by Narayana Kocherlakota

This paper uses an example to show that a model that fits the available data perfectly may provide worse answers to policy questions than an alternative, imperfectly fitting model. The author argues that, in the context of Bayesian estimation, this result can be interpreted as being due to the use of an inappropriate prior over the parameters of shock processes.

Posted 2007-07-01

Commentary on "Model Fit and Model Selection"

by Lee E. Ohanian


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