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This paper examines whether the monetary policy deliberations of the FOMC have been influenced by regional considerations. We explain individual interest rate preferences by district, and use real-time data to estimate Taylor-type rules (sample 1990 to 2008). In line with the literature, this paper confirms that regional variables are explanatory factors of the interest rate preferences of most Reserve Bank Presidents. A new finding is that only few Reserve Bank Presidents display a regional bias in their interest rate preferences. Given their nature and size, these biases did not impede on the Fed's capacity to set interest rates with a nationwide focus. [ABSTRACT FROM AUTHOR]

Abstract: In this paper it was studied the cyclical and structural convergence between Romanian and Euro Zone''s economies in a Minnesota Priors framework. For this purpose we called the Bayesian econometrics to estimate a Structural Vector Autoregression model SVAR with Gibbs Sampling. The methodological framework called in this paper is proposed by experts from the Federal Reserve Bank of Minnesota and from here the name of Minnesota Prior where a priori were introduced the hypothesis that endogenous variables follow different forms of a Markov first order autoregressive model, namely a Random Walk or an AR model. Focusing here especially on consumption cycles and using the relations provided by the theory, I was intended in study the asymmetries between supply and demand shocks in the case of Romanian and Euro Area economies. A higher correlation of shocks between the two studied economies indicates a structural similarity. In addition, for this purpose I involved several methods to ensure robustness checks in regard with the correlation of the two types of structural shocks. [Copyright &y& Elsevier]

Abstract: This paper examines the interaction between monetary policy and financial stability and provides an assessment of the implications of banks’ risk management practices for monetary policy. By considering the desire of the central bank to stabilize different types of the “basis” risk as a contribution to financial stability, we derive a set of plausible interest-rate rules characterized by either backward or forward interest-rate smoothing. The paper investigates the determinacy conditions of the rational expectations equilibria obtained under such rules. Contrary to what previously found in the literature, we find that the practice of smoothing interest rates backward does not in general alleviate problems of equilibrium indeterminacy. Moreover, basis risk stabilization may lead to policy rules embedding “forward” interest-rate smoothing, where a new kind of indeterminacy may arise following excessive concern for financial stability. [Copyright &y& Elsevier]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jet.2010.01.012 Byline: Borys Grochulski (a), Narayana Kocherlakota (b)(c)(d) Keywords: Private skill shocks; Nonseparable preferences; Retrospecitive taxation; Social security systems Abstract: In this paper, we consider economies in which agents are privately informed about their skills, which evolve stochastically over time. We require agents' preferences to be weakly separable between the lifetime paths of consumption and labor. However, we allow for intertemporal nonseparabilities in preferences like habit formation. In this environment, we derive a generalized version of the Inverse Euler Equation and use it to show that intertemporal wedges characterizing optimal allocations of consumption can be strictly negative. We also show that preference nonseparabilities imply that optimal differentiable asset income taxes are necessarily retrospective in nature. We show that under weak conditions, it is possible to implement a socially optimal allocation using a social security system in which taxes on wealth are linear, and taxes/transfers are history-dependent only at retirement. The average asset income tax in this system is zero. Author Affiliation: (a) Federal Reserve Bank of Richmond, PO Box 27622, Richmond, VA 27622, United States (b) University of Minnesota, United States (c) Federal Reserve Bank of Minneapolis, United States (d) NBER, United States Article History: Received 30 March 2009; Revised 2 November 2009; Accepted 28 January 2010 Article Note: (footnote) [star] The views expressed in this paper are those of the authors and not necessarily those of the Federal Reserve Banks of Minneapolis and Richmond or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jet.2010.03.017 Byline: Arantxa Jarque Keywords: Moral hazard; Repeated agency; Persistence Abstract: I study a problem of repeated moral hazard where the effect of effort is persistent over time: each period's outcome distribution is a function of a geometrically distributed lag of past efforts. I show that when the utility of the agent is linear in effort, a simple rearrangement of terms in his lifetime utility translates this problem into a related standard repeated moral hazard. The solutions for consumption in the two problems are observationally equivalent, implying that the main properties of the optimal contract remain unchanged with persistence. For illustration, I present the computed solution of an example. Author Affiliation: Federal Reserve Bank of Richmond, Research Department, PO BOX 27622, Richmond, VA 23261, United States Article History: Received 26 October 2005; Revised 20 November 2009; Accepted 10 March 2010 Article Note: (footnote) [star] I would like to thank Harold Cole, Huberto Ennis, Juan Carlos Hatchondo, Nicola Pavoni and especially Hugo Hopenhayn and Ivan Werning for very useful suggestions and discussions. I thank an anonymous referee for feedback on an earlier version of the article. The paper benefited from comments by seminar audiences at CEMFI, the University of Iowa, the Federal Reserve Bank of Richmond, and the Meetings of the SED 2005. I thank the Ministry of Education, Culture and Sports of Spain for its support through the Research Project SEJ2004-08011ECON. This article is based on part of my dissertation; I gratefully acknowledge financial support from the Banco de EspaA[+ or -]a during my Ph.D. The views expressed in this paper represent my own opinions and not those of the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2010.04.004 Byline: Andrea Ferrero Abstract: The US external deficits have been the most striking manifestation of global imbalances. This paper investigates the contribution of productivity growth, demographics and fiscal policy in accounting for the evolution of the US external imbalances against industrialized countries during the last three decades. Productivity growth plays a dominant role. Demographics explain a non-negligible and nearly permanent component of the US trade deficit. Furthermore, the international demographic transition is crucial for large US external imbalances to be consistent with the persistent decline of world real interest rates observed in the data. Fiscal policy is of minor importance. Author Affiliation: Federal Reserve Bank of New York, New York, NY 10045, USA Article History: Received 26 June 2008; Revised 6 April 2010; Accepted 6 April 2010 Article Note: (footnote) [star] I am indebted to David Backus, Pierpaolo Benigno, and especially Mark Gertler for their guidance and advice. I am grateful to the editor of this journal, Robert King, the associate editor, Mario Crucini, and an anonymous referee for useful criticisms and suggestions, and to Cedric Tille for his discussion. I have also benefited from comments by seminar participants at various universities, institutions and conferences. All errors are exclusively my own responsibility. The views expressed in this paper do not necessarily reflect the position of the Federal Reserve Bank of New York or of the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2009.11.001 Byline: Paul Gompers (a)(b), Anna Kovner (c), Josh Lerner (a), David Scharfstein (a) Keywords: Private equity; New ventures; Venture capital Abstract: This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence. Author Affiliation: (a) Harvard Business School, Harvard University, Baker Library 239, Soldiers Field, Boston, MA 02163, USA (b) NBER, National Bureau of Economic Research, Cambridge, MA, USA (c) Federal Reserve Bank of New York, New York, NY 10045, USA Article History: Received 18 August 2008; Revised 5 March 2009; Accepted 6 April 2009 Article Note: (footnote) [star] An earlier version of this paper was called 'Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs.' We thank Tim Dore and Henry Chen for exceptional research assistance on this project. Harvard Business School's Division of Research and the National Science Foundation provided financial assistance. Participants at various seminars and the Western Finance Association Meetings, especially Morten Sorensen, provided helpful comments. All errors and omissions are our own. The views expressed in this paper are the authors' and should not be attributed to the Federal Reserve Bank of New York or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2008.11.001 Byline: Evan W. Anderson (a), Eric Ghysels (b)(c)(d), Jennifer L. Juergens (e) Abstract: We study asset pricing in economies featuring both risk and uncertainty. In our empirical analysis, we measure risk via return volatility and uncertainty via the degree of disagreement of professional forecasters, attributing different weights to each forecaster. We empirically model the typical risk-return trade-off and augment these models with our measure of uncertainty. We find stronger empirical evidence for an uncertainty-return trade-off than for the traditional risk-return trade-off. Finally, we investigate the performance of a two-factor model with risk and uncertainty in the cross section. Author Affiliation: (a) Northern Illinois University, Department of Economics, Zulauf 515, DeKalb, IL 60115, USA (b) Department of Finance, Kenan-Flagler Business School, University of North Carolina -- Chapel Hill, Chapel Hill, NC 27599-3305, USA (c) Department of Economics, University of North Carolina -- Chapel Hill, Chapel Hill, NC 27599-3305, USA (d) Research Department, Federal Reserve Bank of New York, USA (e) University of Texas at Austin, Red McCombs School of Business, Department of Finance, Austin, TX 78712, USA Article History: Received 5 April 2007; Revised 6 November 2008; Accepted 14 November 2008 Article Note: (footnote) [star] We thank Lars Hansen, Peter Hansen, Chris Jones, Leonid Kogan, Jianjun Miao, Athanasios Orphanides, Simon Potter, Eric Renault, Robert Rich, Tom Sargent and Raman Uppal for very helpful comments. This paper was presented at Northern Illinois University, SAMSI Opening Workshop, 2006 EFA meetings, 2006 Winter Meetings of the Econometric Society, the SAMSI Conference on Model Uncertainty, 2006 NBER Summer Institute Asset Pricing Workshop, 2007 AFA meetings, UC Santa Cruz, University of Illinois at Urbana-Champaign, and University of Wisconsin-Madison. Early versions of the ideas in this paper were also presented at the Board of Governors, the FDIC, the Federal Reserve Bank of New York, Simon Fraser University and Stanford University. We thank seminar participants for helpful comments.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2008.01.001 Byline: Edward Nelson (a), Anna J. Schwartz (b) Keywords: Monetarism; New Keynesian economics; Inflation; Price controls; Great Depression Abstract: Paul Krugman's essay 'Who Was Milton Friedman?' seriously mischaracterizes Friedman's economics and his legacy. In this paper, we provide a rejoinder to Krugman on these issues. In the course of setting the record straight, we provide a self-contained guide to Milton Friedman's impact on modern monetary economics and on today's central banks. We also refute the conclusions that Krugman draws about monetary policy from the experiences of the United States in the 1930s and of Japan in the 1990s. Author Affiliation: (a) Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166-0442, USA (b) NBER, 365 Fifth Avenue, 5th Floor, New York, NY 10016-4309, USA Article History: Received 17 October 2007; Revised 9 January 2008; Accepted 10 January 2008 Article Note: (footnote) [star] We are indebted to David Laidler and Lawrence White for helpful correspondence on the subject matter of this paper, and to Robert King, Allan Meltzer, Declan Murphy, Mark Wynne, and an anonymous referee for comments on an earlier draft. Justin Hauke and Faith Weller provided research assistance. The views expressed in this paper are those of the authors, and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2008.04.003 Byline: Monika Piazzesi (a), Eric T. Swanson (b) Abstract: Many researchers have used federal funds futures rates as measures of financial markets' expectations of future monetary policy. However, to the extent that federal funds futures reflect risk premia, these measures require some adjustment. In this paper, we document that excess returns on federal funds futures have been positive on average and strongly countercyclical. In particular, excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business-cycle indicators such as Treasury yield spreads and corporate bond spreads. Excess returns on eurodollar futures display similar patterns. We document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy. We also show that risk premia matter for some futures-based measures of monetary policy shocks used in the literature. Author Affiliation: (a) University of Chicago, NBER, Chicago, USA (b) Federal Reserve Bank of San Francisco, USA Article History: Received 7 August 2006; Revised 4 April 2008; Accepted 4 April 2008 Article Note: (footnote) [star] We are particularly indebted to Charlie Evans and Frank Schorfheide (our discussants at the Stanford/FRBSF conference), and Donald Kohn for helpful suggestions. We thank Claire Hausman for excellent research assistance, and John Cochrane, Lou Crandall, Darrell Duffie, Bob Hall, David Laibson, Andy Levin, Brian Sack, Martin Schneider, Jiang Wang, Jonathan Wright, and seminar participants at the Bundesbank, European Central Bank, Federal Reserve Board, Universities at Columbia, Heidelberg, Mannheim, Stanford, Rochester, Harvard, and the Wharton School, the IMA Workshop at the University of Minnesota, the NBER Summer Institute, and the Society of Economic Dynamics Meetings for comments. The views expressed in this paper, and any errors and omissions, are those of the authors, and are not necessarily those of the individuals listed above, the management of the Federal Reserve Bank of San Francisco, or any other individual within the Federal Reserve System.

Abstract: This paper compares the economic forecasts of members of the Board of Governors and presidents of the Federal Reserve Banks, and then investigates the value of each group's forecasts in supplementing the forecasts of the Board of Governors' staff. We find that the presidents tend to forecast higher inflation and real GDP growth, and lower unemployment than the members of the Board of Governors. We also find that the presidents' real GDP and unemployment rate forecasts add value to the real economy forecasts of the staff, while the governors' inflation forecasts add value to the staff's inflation forecasts. [Copyright &y& Elsevier]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2005.04.008 Byline: Antoine Martin, Stacey L. Schreft Keywords: Currency competition; Hayek; Outside money; Private money; Fiat money Abstract: This paper establishes the existence of equilibria for environments in which outside money is issued competitively. Such equilibria are typically believed not to exist because of a classic overissue problem: if money is valued in equilibrium, an issuer produces money until its value is driven to zero. By backward induction, money cannot have value in the first place. This paper shows that overissuance is not a problem if agents believe that if an issuer produces more than some threshold number of notes, then only those notes issued up to the threshold will be valued; additional notes will be worthless. This result is very general, applying to any monetary economy in which equilibria with and without valued money exist if the money supply is finite. The paper also compares the allocation achieved by a monopolist to that achieved with competitive issuance in both a search and an overlapping-generations environment. The results depend on the environment considered, but two general conclusions arise. First, it is ambiguous whether competitive issuers can achieve a more desirable allocation than a monopolist. Second, with competitive issuance, a licensing agency can always improve on pure laissez-faire and achieve the efficient allocation in the long run. Author Affiliation: Research Department, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, USA Economic Research Department, Federal Reserve Bank of Kansas City, 925 Grand Building, Kansas City, MO 64198, USA Article History: Received 27 October 2004; Revised 5 April 2005; Accepted 11 April 2005 Article Note: (footnote) [star] The authors thank Warren Weber, Randy Wright, and participants in the Federal Reserve Bank of Cleveland's 2003 Banking and Payments Workshop, the 2004 SED Conference in Paris, and various university seminars for helpful comments. They also thank Aarti Singh for valuable research assistance. The views expressed are the authors' and do not necessarily reflect those of the Federal Reserve Bank of New York, Federal Reserve Bank of Kansas City, or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2005.05.011 Byline: Caroline M. Betts (a), Timothy J. Kehoe (b) Keywords: Real exchange rates; Relative prices; Trade relations Abstract: Traditional theory attributes fluctuations in real exchange rates to changes in the relative price of nontraded goods. This paper studies the relation between the United States' bilateral real exchange rate and the associated bilateral relative price of nontraded goods for five of its most important trade relationships. We find that this relation depends crucially on the choice of price series used to measure relative prices and on the choice of trade partner. The relation is stronger when we measure relative prices using producer prices rather than consumer prices. The relation is stronger the more important is the trade relationship between the United States and a trade partner. Even in cases where there is a strong relation between the real exchange rate and the relative price of nontraded goods, however, a large fraction of real exchange rate fluctuations is due to deviations from the law of one price for traded goods. Author Affiliation: (a) University of Southern California, USA (b) University of Minnesota and Federal Reserve Bank of Minneapolis, USA Article History: Received 3 May 2005; Accepted 18 May 2005 Article Note: (footnote) [star] The first version of this paper was circulated in February 2003. The authors gratefully acknowledge the financial support of the National Science Foundation. We would like to thank David Backus, Rudolfs Bems, Paul Bergin, Mario Crucini, Mick Devereux, Charles Engel, Gonzalo Fernandez de Cordoba, Patrick Kehoe, Kristian Jonsson, Beverly Lapham, seminar participants at the Federal Reserve Bank of Minneapolis, Federal Reserve Bank of New York, Federal Reserve Bank of Philadelphia, NYU, Stanford, UC-Davis, UCLA, the University of Kansas, USC, the 2001 Annual Meeting of the Society for Economic Dynamics, the 2003 Workshop of the Jornadas Beticas de Macroeconomia Dinamica, and two anonymous referees for very helpful comments and suggestions. We also thank Jim MacGee, Ananth Ramanarayanan, and Kim Ruhl for extraordinary research assistance. The data used in this paper are available at http://www.econ.umn.edu/~tkehoe, and at http://www-rcf.usc.edu/~cbetts. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2005.03.011 Byline: Joao A.C. Santos, Adrienne S. Rumble Abstract: This paper investigates the equity investments and voting rights that American banks control through their trust business. The paper also studies whether the voting rights American banks control through their trust business help explain their presence on firms' corporate boards. We find that on average the largest 100 American banks control 10% of the voting rights of S&P 500 firms. We also find that there are several firms in the S&P 500 index in which the top banks control more than 20% of their voting rights, and several firms in the country in which these banks control more than 60% of their voting rights. Our investigation into the presence of American bankers on corporate boards shows that bankers are more likely to join the boards of firms in which they control a large voting stake. We also find that banks' lending relationships help explain bankers' board memberships. Our results further show that bankers who have both a voting stake in a firm and a lending relationship with it have a higher likelihood of joining the firm's board of directors. Author Affiliation: Federal Reserve Bank of New York, Research Department, 33 Liberty St., New York, NY 10045, USA Article History: Received 12 January 2004; Revised 20 January 2005; Accepted 22 March 2005 Article Note: (footnote) [star] The authors thank Tony Saunders (our referee), Chris James, Galina Hale, Andy Winton, Michael Schussler, Charles Himmelberg, and seminar participants at Carlson School of Management, University of Minnesota for useful comments. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of New York, or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2004.10.012 Byline: William L. Silber Keywords: Federal Reserve; Gold standard; Financial crises; World War I Abstract: The outbreak of World War I shut the New York Stock Exchange for more than 4 months. The conventional explanation maintains that the closure prevented a collapse in stock prices that threatened a repetition of the Panic of 1907. This paper shows that the Wilson Administration encouraged the suspension of trading to pave the way for launching the Federal Reserve System, which was in the process of being born. Federal Reserve insiders considered an adequate stock of gold crucial to the success of the new monetary system. Closing the Exchange helped to forestall an outflow of gold. Central bankers can learn how crisis control is supposed to work from the 1914 experience. Author Affiliation: Stern School of Business, 44 West 4th Street, New York, NY 10012, USA Article History: Received 25 August 2004; Accepted 14 October 2004 Article Note: (footnote) [star] The author is the Marcus Nadler Professor of Finance and Economics, Stern School of Business, New York University. He wishes to thank Stephen Cecchetti, Yang Lu, Allan Meltzer, Anna Schwartz, Richard Sylla, Josh Sullivan, Paul Wachtel, Ingo Walter, an anonymous referee and the Editor of the JME, Charles Plosser, for helpful comments. Special thanks to Ken Garbade who treated this paper as though it were his own.

Abstract: This paper studies the monetary policy of the Federal Reserve (Fed) and the European Central Bank (ECB) with respect to stock or/and foreign exchange markets from 1979 to 2009. I find that during the Greenspan era stock markets played a role in US monetary policy. The Fed lowered interest rates when stock prices fell, but did not raise interest rates in response to rising stock prices. This asymmetry put a downward pressure on interest rates. For the ECB, the exchange rate to the dollar played a role in monetary policy decisions. While I do not find evidence of asymmetric monetary policy with respect to the stock market, the ECB may be argued to have indirectly followed the asymmetric US monetary policy via the exchange rate channel until 2006, the period until which the dollar depreciated heavily against the euro. With asset markets putting a downward pressure on interest rates, it is likely that the Fed and ECB contributed to recent boom-and-bust cycles by providing low-cost liquidity to flourishing markets. Relevance and implications of the findings are discussed. [Copyright &y& Elsevier]

Abstract: This paper explores whether there are systematic patterns as to when members of the decision-making committees of the Federal Reserve, the Bank of England and the European Central Bank communicate with the public, and under what circumstances such communication has the ability to move financial markets. The findings suggest that communication is generally seen as a tool to prepare markets for upcoming decisions, as it becomes more intense before committee meetings, and particularly so prior to interest rate changes. At the same time, markets react more strongly to communication prior to policy changes. Other instances where communication becomes more intense, or where financial markets become more responsive are also identified; even though these are more specific to the individual central banks, they are consistent with differences in the central banks’ monetary policy strategies and communication policies. [Copyright &y& Elsevier]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2010.08.003 Byline: Giovanni Olivei (a), Silvana Tenreyro (b) Abstract: Systematic differences in the timing of wage-setting decisions among industrialized countries provide an ideal framework to study the importance of wage rigidity for the transmission of monetary policy. Synchronization in wage-setting decisions is prevalent in Japan and the United States, yielding varying degrees of wage rigidity within the year; instead, in France, Germany, and the United Kingdom decisions are more uniformly spread over time. Exploiting within-year variation in the timing of wage-setting decisions in these economies, we find support for the long-held but scarcely tested view that wage rigidity plays a critical role in the transmission of monetary policy. Author Affiliation: (a) Federal Reserve Bank of Boston, United States (b) London School of Economics and Political Sciences, CEP, CREI, CEPR, St. Clement's Building, Houghton St., London WC2A 2AE, United Kingdom Article History: Received 2 September 2009; Revised 10 August 2010; Accepted 10 August 2010 Article Note: (footnote) [star] For insightful suggestions, we thank Robert Barro, Francesco Caselli, Jeff Fuhrer, Nobu Kiyotaki, Ricardo Reis (the associate editor), and an anonymous referee. For superb research assistance, we thank Regis Barnichon, Ryan Chahrour, Chad Stecher, and Gaoyan Tang. The views expressed in this paper do not necessarily reflect those of the Federal Reserve Bank of Boston or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jedc.2010.06.008 Byline: Anthony Landry Abstract: This paper presents a two-country DSGE model with state-dependent pricing as in in which firms discriminate across countries by setting prices in local currency. In this model, a domestic monetary expansion has greater spillover effects to foreign prices and foreign economic activity than an otherwise identical model with time-dependent pricing. In addition, the predictions of the state-dependent pricing model match the business-cycle moments better than the predictions of the time-dependent pricing model when driven by monetary policy shocks. Author Affiliation: Federal Reserve Bank of Dallas, 2200 North Pearl Street, Dallas, TX 75201, USA Article History: Received 14 June 2007; Accepted 5 February 2010

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2010.06.001 Byline: Romain Baeriswyl (a), Camille Cornand (b) Abstract: In an economy affected by shocks that are imperfectly known, the monetary instrument takes on a dual stabilizing role: as a policy response that directly influences the economy and as a vehicle for information that reveals the central bank's assessment to firms. Because mark-up shocks cannot be neutralized by monetary policy, providing firms with more information about these shocks exacerbates their reaction and creates a larger distortion. Recognizing the signaling role of its instrument, the central bank distorts its policy response in order to optimally shape firms' beliefs. While providing firms with more information is always detrimental to the output gap, it has a more subtle effect on price dispersion depending on whether information is provided through the transparency channel or through the signaling channel. Although more transparency is always detrimental to welfare, the information that is conveyed by the monetary instrument improves welfare when firms' coordination is highly valuable. Author Affiliation: (a) Munich Graduate School of Economics and Swiss National Bank, Boersenstrasse 15, P.O. Box, CH-8022 Zurich, Switzerland (b) CNRS - BETA and University of Strasbourg, France Article History: Received 13 July 2007; Revised 31 May 2010; Accepted 4 June 2010 Article Note: (footnote) [star] An earlier version of this paper was presented at the conference on 'Monetary Policy, Transparency, and Credibility' at the Federal Reserve Bank of San Francisco, March 2007.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jue.2009.10.007 Byline: Fernando Ferreira (a), Joseph Gyourko (a), Joseph Tracy (b) Keywords: Household mobility; Negative equity; Mortgage lock-in Abstract: Using two decades of American Housing Survey data from 1985 to 2007, we revisit the literature on lock-in effects and provide new estimates of the impacts of negative equity and rising interest rates on the mobility of owners. Both lead to substantially lower mobility rates. Owners suffering from negative equity are one-third less mobile, and every added $1000 in real annual mortgage costs lowers mobility by about 12%. Our results cannot simply be extrapolated to the future, but they do have potentially important implications for policy makers concerned about the consequences of the housing bust that began as our data series ended. In particular, they indicate that we need to begin considering the consequences of lock-in and reduced household mobility because they are quite different from those associated with default and higher mobility. Author Affiliation: (a) The Wharton School, University of Pennsylvania and NBER, 1461 Steinberg-Detrich Hall, Philadelphia, PA 19104, United States (b) Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, United States Article History: Received 20 November 2008; Revised 18 October 2009 Article Note: (footnote) [star] The views expressed in this paper do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2010.04.005 Byline: Huberto M. Ennis (a), Todd Keister (b)(c) Abstract: When policy makers have limited commitment power, self-fulfilling bank runs can arise as an equilibrium phenomenon. We study how such banking panics unfold in a version of the model. A run in this setting is necessarily partial, with only some depositors participating. In addition, a run naturally occurs in waves, with each wave of withdrawals prompting a further response from policy makers. In this way, the interplay between the actions of depositors and the responses of policy makers shapes the course of a crisis. Author Affiliation: (a) Federal Reserve Bank of Richmond, USA (b) Federal Reserve Bank of New York, USA (c) European University Institute, Italy Article History: Received 24 December 2009; Revised 7 April 2010; Accepted 7 April 2010 Article Note: (footnote) [star] An earlier version of this paper circulated under the title 'Commitment and Equilibrium Bank Runs.' We thank seminar participants at the AutA[sup.2]noma de Barcelona, Carlos III, Delaware, the European University Institute, Kansas, Kentucky, Michigan State, Penn State, Pompeu Fabra, Rice, Southampton, Toulouse, University at Albany (SUNY), the Federal Reserve Banks of Chicago, Cleveland and Philadelphia, the Latin American Meetings of the Econometric Society, the Midwest Macroeconomics Meetings, the SAET meetings, the SED meetings, and the conference on Money, Banking, and Asset Markets at the University of Wisconsin. We are particularly grateful to Francesca Carapella, Ed Green, Bob King, Guido Lorenzoni, James Peck, Karl Shell, Harald Uhlig, Ludo Visschers, and Neil Wallace for useful comments. Part of this work was completed while Ennis was a visiting professor at Universidad Carlos III, whose hospitality and support is gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York, the Federal Reserve Bank of Richmond, or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jet.2009.10.007 Byline: Lee E. Ohanian (a)(b) Keywords: Great Depression; Herbert Hoover; Unionization; Deflation Abstract: Herbert Hoover. I develop a theory of labor market failure for the Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation/low nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation. Author Affiliation: (a) UCLA, United States (b) Federal Reserve Bank of Minneapolis, United States Article History: Received 14 September 2009; Accepted 14 September 2009 Article Note: (footnote) [star] I thank Monique Ebel, Robert Himmelberg, David Levine, Nelson Lichtenstein, Fabrizio Perri, Albrecht Ritschl, Jean-Laurent Rosenthal, and Rob Shimer for helpful discussions. Very special thanks to Bob Lucas, Ed Prescott, Nancy Stokey, and two referees for detailed comments on earlier drafts of this paper, and to Hal Cole for joint work on the topic of union hold-up. Giang Ho, David Lagakos, Ruy Lama, and Paulina Restrepo provided excellent research assistance. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or of the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2009.06.009 Byline: Sharon Kozicki (a), P.A. Tinsley (b)(c) Abstract: Briefing forecasts prepared for the Federal Open Market Committee (FOMC) are used to estimate changes in the design of US monetary policy and in the implied policy target for inflation from 1970 through 1997. Both estimated policy rate responses and FOMC transcripts are consistent with intermediate targeting of monetary aggregates throughout the Great Inflation of the 1970s. The unpublished FOMC targets for M1 growth are tabulated. Empirical results support an effective inflation target of roughly 7% in the 1970s and 3% thereafter. A notable difference in the 1970s monetary policies of the US and Germany is the absence of explicit public objectives for US long-run inflation. Author Affiliation: (a) International Economic Analysis Department, Bank of Canada, Ottawa, Ontario, Canada K1A 0G9 (b) Department of Economics, Birkbeck College, University of London, London WC1E 7HX, UK (c) Visitor, Department of Economics, George Washington University, Washington, DC 20052, USA Article History: Received 26 January 2007; Revised 24 June 2009; Accepted 25 June 2009 Article Note: (footnote) [star] We are grateful for suggestions of the editor and referee, and comments on earlier drafts by participants of the 2006 Workshop on Macroeconomic Forecasting, Analysis and Policy with Data Revision, hosted by CIRANO and the Institute for Policy Analysis of the University of Toronto, and seminar participants at the Federal Reserve Board, Bank of Canada and Birkbeck College. Thanks also to the staff of the FOMC Secretariat for access to historical documents. The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2008.08.003 Byline: Galina Hale (a), Joao A.C. Santos (b) Abstract: Theory suggests that banks' private information lets them hold up borrowers for higher interest rates. Since new information about a firm is revealed at the time of its bond IPO, it follows that banks will be forced to adjust their loan interest rates downwards after firms undertake their bond IPO. We test this hypothesis and find that firms are able to borrow at lower interest rates after their bond IPO. Importantly, firms that get their first credit rating at the time of their bond IPO benefit from larger interest rate savings than those that already had a credit rating. These findings provide support for the hypothesis that banks price their informational monopoly. We also find that it is costly for firms to enter the public bond market. Author Affiliation: (a) Federal Reserve Bank of San Francisco, San Francisco, CA 94105, USA (b) Federal Reserve Bank of New York, New York, NY 10045, USA Article History: Received 25 April 2008; Revised 14 July 2008; Accepted 12 August 2008 Article Note: (footnote) [star] A previous version of this paper was circulated under the title 'Evidence on the Costs and Benefits of Bond IPOs.' The authors thank an anonymous referee, and Yingmei Cheng, Jean Helwege, Anand Srinivasan, William Megginson, participants at the 2009 AFA meetings, the 2008 CICF conference, the 2007 EFA meetings, and seminar participants at Instituto Superior de CiA*ncias do Trabalho e da Empresa and Faculdade de Economia da Universidade do Porto for valuable comments. The authors thank Chris Candelaria, Alex Vogenthaler, and Becky Trubin for outstanding research assistance, and Anita Todd for help with the draft. The authors also thank Arthur Warga for his help on the National Association of Insurance Commissioners' bond database. The views stated herein are those of the authors and are not necessarily the views of the Federal Reserve Banks of San Francisco or New York, or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.eeh.2009.04.001 Byline: Leslie McGranahan Keywords: Charitable bequests; Bequests; Altruism; Gender differences; Charitable giving; Blinder-Oaxaca decomposition Abstract: Researchers and commentators have compared men and women's charitable giving patterns and have concluded that one sex was more generous than the other. Most research based on modern data has found women to be more philanthropic than men. In this article, I compare charitable donations of unmarried men and women in a sample of wills from 17th Century England. I find that men are more likely to make donations than women and make larger average donations. This difference in giving can be explained by differences in wealth and family structure and should not be ascribed to differences in charitable impulses. Author Affiliation: Federal Reserve Bank of Chicago, 230 S. LaSalle Street, Chicago, IL 60604, USA Article History: Received 13 May 2008 Article Note: (footnote) [star] The opinions expressed in this paper are those of the author and do not reflect the opinions of the Federal Reserve Bank of Chicago or of the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2008.12.005 Byline: David Andolfatto (a)(b), Ed Nosal (c) Abstract: The business of money creation is conceptually distinct from that of intermediation. Yet, these two activities are frequently -- but not always -- combined together in the form of a banking system. We develop a simple model to examine the question: When is banking essential? There is a role for money due to a lack of record-keeping and a role for intermediation due to the existence of private information: both money and intermediation are essential. When monitoring costs associated with intermediation are sufficiently low, the two activities can be separated from one another. However, when monitoring costs are sufficiently high, a banking system that combines these two activities is essential. Author Affiliation: (a) Department of Economics, Simon Fraser University, Burnaby, British Columbia, Canada V5A 1S6 (b) Rimini Centre for Economic Analysis, Italy (c) Financial Markets Group, Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, IL 60604-1413, USA Article History: Received 19 January 2006; Revised 9 December 2008; Accepted 9 December 2008 Article Note: (footnote) [star] We would like to thank a referee for extremely perceptive and helpful comments and observations, as well as John Chant, David Laidler, Peter Rupert, Shouyong Shi, Bruce Smith, Nurlan Turdaliev, Steve Williamson, and Randy Wright for their comments on earlier drafts of this paper. We are grateful for the comments received on our presentations of this work at: Hitotsubashi University (Tokyo), the Institute for Advanced Studies (Vienna), the Institute for Monetary and Economic Studies (Bank of Japan), the Canadian Macro Study Group, Philadelphia Fed/University of Pennsylvania Monetary Economics Conference, and the Cleveland Fed Payments and Banking Workshop. This research was funded in part by Social Sciences and Humanities Research Council of Canada. The views expressed here do not necessarily reflect those of the Federal Reserve Bank of Chicago or of the Board of Governors of the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2008.10.002 Byline: Diego Comin (a)(b), Erica L. Groshen (c), Bess Rabin (d) Keywords: Transitory wage volatility; Firm volatility; PSID; Turbulence; COMPUSTAT Abstract: Has greater turbulence among firms fueled rising wage instability in the U.S.? We find strong support for the hypothesis that rising turbulence in the sales of large publicly-traded U.S. firms over the past three decades has raised their workers' high-frequency wage volatility. Through controls and instrumental variable probes, we rule out straightforward compositional churning as an explanation for the link between firm sales and wage volatility. We also observe that the relationship between sales and wage volatility at the firm level is stronger since 1980, is present only in large companies and is stronger in services than in manufacturing companies. Author Affiliation: (a) Harvard Business School, Morgan Hall 269, Boston, MA 02163, USA (b) NBER -- National Bureau of Economic Research Inc., 1050 Massachusetts Avenue, Cambridge, MA 02138-5398, USA (c) Federal Reserve Bank of New York, New York, NY 10045, USA (d) Formerly of the Federal Reserve Bank of New York, NY 10045, USA Article History: Received 5 May 2008; Revised 14 October 2008; Accepted 15 October 2008 Article Note: (footnote) [star] We thank Michael Strain for his excellent research assistance and Mark Bils, Peter Gottschalk and Luigi Pistaferri for very useful comments and advice. We also thank participants in the Carnegie-Rochester Conference, HBS and the MaRS/MMS brownbag lunch at the Federal Reserve Bank of New York for their comments and suggestions. The views expressed in this paper are those of the individual authors and do not necessarily reflect the positions of the Federal Reserve Bank of New York or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2008.05.010 Byline: Domenico Giannone (a), Lucrezia Reichlin (b), David Small (c) Abstract: A formal method is developed for evaluating the marginal impact that intra-monthly data releases have on current-quarter forecasts (nowcasts) of real gross domestic product (GDP) growth. The method can track the real-time flow of the type of information monitored by central banks because it can handle large data sets with staggered data-release dates. Each time new data are released, the nowcasts are updated on the basis of progressively larger data sets that, reflecting the unsynchronized data-release dates, have a 'jagged edge' across the most recent months. Author Affiliation: (a) European Central Bank, ECARES and CEPR, Germany (b) European Central Bank and CEPR, Germany (c) Board of Governors of the Federal Reserve System, Germany Article History: Received 27 September 2005; Revised 29 April 2008; Accepted 1 May 2008 Article Note: (footnote) [star] We would like to thank the Division of Monetary Affairs of the Board of Governors of the Federal Reserve System for providing financial support to Lucrezia Reichlin. Domenico Giannone was supported by a PAI contract of the Belgian Federal Government and an ARC grant of the Communaute Francaise de Belgique. We thank our research assistants, Ryan Michaels and Claire Hausman, at the Board of Governors and Michele Modugno at ECARES, Universite Libre de Bruxelles; David Wilcox and William Wascher for their comments; seminar participants at the Board of Governors; our discussant, Athanasios Orphanides, at the EABCN conference in Brussels in June 2005; and an anonymous referee. The Appendix, files and data set are available upon request from the authors or at http://homepages.ulb.ac.be/[approximately equal to]dgiannon/ and http://homepages.ulb.ac.be/[approximately equal to]lreichli/. The opinions in this paper are those of the authors and do not necessarily reflect the views of the European Central Bank or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2005.08.014 Byline: Toshihiko Mukoyama (a)(b), AyAegul Sahin (c) Abstract: Unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers. Moreover, unskilled workers earn less income, which limits their ability to self-insure. We examine how this heterogeneity in unemployment risk and income across different skill groups translates into heterogeneity in the cost of business cycles. We find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers. Author Affiliation: (a) Department of Economics, University of Virginia, Charlottesville, VA 22904, USA (b) CIREQ, C.P. 6128, Succursale Centre-ville, Montreal, Que. H3C 3J7, Canada (c) Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, USA Article History: Received 5 May 2005; Revised 10 August 2005; Accepted 15 August 2005 Article Note: (footnote) [star] This paper was previously entitled 'Heterogeneous costs of business cycles with incomplete markets'. We thank Robert King, the Editor, for detailed comments and suggestions. Discussions with Per Krusell and Tony Smith were very helpful. We thank Sun-Bin Kim for his help in Fortran programming. We also thank Kartik Athreya, Mark Bils, Emanuela Cardia, Rui Castro, Stefano Eusepi, Andreas Hornstein, Igor Livshits, and seminar participants at Bank of Japan, Doshisha, Illinois at Urbana-Champaign, Indiana, Keio, Kobe, New York Fed, Richmond Fed, Texas A&M, Tokyo, Waseda, the Montreal Macro Reading Group, the Rochester Wegmans Conference, the CEA Annual Meetings 2003, and the SED Meetings 2003 for comments and suggestions. We thank Vera Brencic, Roxanne Stanoprud, and Ted Rosenbaum for excellent research assistance. Mukoyama thanks FQRSC and SSHRC for financial support. The views expressed in this article are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2005.05.008 Byline: David C. Mills, Abstract: I explore alternative central bank policies for liquidity provision in a model of payments. I use a mechanism design approach so that agents' incentives to default are explicit and contingent on the credit policy designed. In the first policy, the central bank invests in costly enforcement and charges an interest rate to recover costs. I show that the second-best solution is not distortionary. In the second policy, the central bank requires collateral. If collateral does not bear an opportunity cost, then the solution is first best. Otherwise, the second best is distortionary because collateral serves as a binding credit constraint. Author Affiliation: Federal Reserve Board, Mail Stop 188, 20th & C Streets, NW, Washington, DC 20551, USA Article History: Received 17 March 2005; Accepted 19 May 2005 Article Note: (footnote) [star] The author thanks Charles Plosser, Robert Reed, an anonymous referee, and seminar participants at the University of Kentucky, Federal Reserve Banks of New York and Richmond, the Federal Reserve Board, the European Central Bank, 2004 Money, Banking and Payments Workshop at the Federal Reserve Bank of Cleveland, the 2004 Summer Meeting of the Econometric Society, the 2004 Midwest Macroeconomics Meetings and the Fall 2003 Midwest Economic Theory Conference. The views in this paper are solely the responsibility of the author and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or any other person associated with the Federal Reserve System. All errors are my own.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2006.02.001 Byline: Dean Croushore (a), Charles L. Evans (b) Abstract: Monetary policy research using time-series methods has been criticized for using more information than the Federal Reserve had available. To quantify the role of this criticism, we estimate VARs with real-time data while accounting for the latent nature of many economic variables, such as output. Our estimated monetary policy shocks are closely correlated with typically estimated measures. The impulse response functions are broadly similar across estimation methods. Our evidence suggests that the use of revised data in VAR analyses of monetary policy shocks may not be a serious limitation for recursively identified systems, but presents more challenges for simultaneous systems. Author Affiliation: (a) Robins School of Business, University of Richmond, Economics, 1 Gateway Road, Richmond, VA 23173, USA (b) Federal Reserve Bank of Chicago, Chicago, IL, USA Article History: Received 13 December 2002; Revised 13 April 2005; Accepted 10 May 2005 Article Note: (footnote) [star] We thank Ryan Hayward, James Sherma, and Judy Yoo for valuable research assistance. We thank Chris Sims for helpful comments on this research, as well as other seminar participants at Princeton University, Michigan State University, the University of Richmond, the Division of Monetary Affairs at the Board of Governors, the Federal Reserve Banks of Chicago and Philadelphia, the Southern Economic Association meetings, the American Economic Association meetings, the 2000 Econometric Society World Congress, and the Federal Reserve System Committee on Macroeconomics. This paper represents the views of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2005.03.012 Byline: Craig Burnside (a), Martin Eichenbaum (b), Sergio Rebelo (c) Abstract: We address three questions: (i) Can classical models be reconciled with the fact that many crises are marked by high rates of depreciation and small increases in seignorage revenue? (ii) What are the implications of different financing methods for post-crisis rates of inflation and depreciation? (iii) How do governments pay for the fiscal costs associated with currency crises? To study these questions we use a general equilibrium model in which prospective government deficits trigger a currency crisis. We then use our model in conjunction with fiscal data to interpret government financing in the wake of three recent currency crises: Korea (1997), Mexico (1994) and Turkey (2001). Author Affiliation: (a) Duke University and NBER, USA (b) Northwestern University, NBER and Federal Reserve Bank of Chicago, USA (c) Northwestern University, NBER and CEPR, USA Article History: Received 14 October 2004; Revised 19 February 2005; Accepted 14 March 2005 Article Note: (footnote) [star] We are grateful for an NSF grant through the National Bureau of Economic Research and a grant from the World Bank. The opinions in this paper are those of the authors and not necessarily those of the Federal Reserve Bank of Chicago or the World Bank. We thank Martin Bodenstein, Pedro Garcia Duarte, Yuliya Mescheryakova, Carlos Vegh, and Jeffrey Wood for valuable comments and Selim Elekdag, Su Youne Lee and Mi Hwa Park for invaluable assistance with data.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2004.06.003 Byline: Allen N. Berger (a), Nathan H. Miller (b), Mitchell A. Petersen (c), Raghuram G. Rajan (d), Jeremy C. Stein (e) Abstract: Theories based on incomplete contracting suggest that small organizations have a comparative advantage in activities that make extensive use of 'soft' information. We provide evidence consistent with small banks being better able to collect and act on soft information than large banks. In particular, large banks are less willing to lend to informationally 'difficult' credits, such as firms with no financial records. Moreover, after controlling for the endogeneity of bank-firm matching, we find that large banks lend at a greater distance, interact more impersonally with their borrowers, have shorter and less exclusive relationships, and do not alleviate credit constraints as effectively. Author Affiliation: (a) Board of Governors of the Federal Reserve System and Wharton Financial Institutions Center (b) University of California, Berkeley, USA (c) Northwestern University and NBER, USA (d) University of Chicago and NBER, USA (e) Department of Economics, Harvard University, Cambridge, MA 02138 and NBER, USA Article Note: (footnote) [star] The opinions in this paper do not necessarily reflect those of the Federal Reserve Board or its staff. This work has been supported by the National Science Foundation (Rajan, Stein), and the George J. Stigler Center for Study of the State and Economy (Rajan). We are grateful to Phil Ostromogolsky for outstanding research assistance. Thanks also to seminar participants at Yale, the Federal Reserve Banks of New York and Atlanta, Tulane, Babson, Dartmouth, Washington University, the University of Illinois, the Federal Reserve Bank of Chicago Bank Structure Conference, the NBER, and the Western Finance Association meetings, as well as to Abhijit Banerjee, Michael Kremer, David Scharfstein, Andrei Shleifer, David Smith, Greg Udell, Christopher Udry, James Weston, Michael Whinston, and the referees for helpful comments and suggestions.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2004.05.004 Byline: Sharon Kozicki (a), P.A. Tinsley (b) Abstract: The expectations hypothesis of the term structure of interest rates describes a conventional view of the transmission mechanism of monetary policy where bond rates reflect current and expected movements in the policy-controlled rate. However, empirical rejections of the expectations hypothesis are commonplace and lead many to question this description of policy transmission. This paper argues that failure to account for imperfect policy credibility may explain empirical rejections. Empirical rejections may occur even when changing anticipations of future short rates are the primary source of variation in bond rates and the standard term structure transmission channel remains valid. Author Affiliation: (a) Federal Reserve Bank of Kansas City, 925 Grand Boulevard, Kansas City, MO 64198, USA (b) The George Washington University, Washington, DC 22052, USA Article History: Received 12 April 2001; Revised 6 April 2004; Accepted 3 May 2004 Article Note: (footnote) [star] We are grateful for comments from an anonymous referee, Mark Gertler, Bennett McCallum, session participants at the American Economic Association meetings, the Canadian Economics Association meetings, the Monetary Economics sessions of the NBER summer institute, and seminar participants at the Federal Reserve Bank of Kansas City, the University of Missouri-Columbia, the Bank of Canada, the Federal Reserve Bank of San Francisco, the Deutsche Bundesbank, the Bank of England, the University of Cambridge, the University of Kansas, and the Federal Reserve Board. Special thanks go to Jeff Fuhrer who provided code to estimate forward-looking models using AIM and to Matthew Cardillo for research assistance. The views expressed herein are solely those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Board of Governors of the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2004.09.002 Byline: Harold L. Cole (a)(b), Lee E. Ohanian (a)(b)(c), Alvaro Riascos (d), James A. Schmitz (c) Keywords: Latin America Abstract: Latin American countries are the only Western countries that are poor and that are not gaining ground on the U.S. This paper evaluates why Latin America has not replicated Western economic success. We find that this failure is primarily due to TFP differences. Latin America's TFP gap is not plausibly accounted for by human capital differences, but rather reflects inefficient production. We argue that competitive barriers are a promising channel for understanding low Latin TFP. We document that Latin America has many more international and domestic competitive barriers than do Western and successful East Asian countries. We also document a number of microeconomic cases in Latin America in which large reductions in competitive barriers increase Latin American productivity to Western levels. Author Affiliation: (a) Department of Economics, University of California, Los Angeles, Los Angeles, CA 90024, USA (b) National Bureau of Economic Research, Cambridge, MA 02138, USA (c) Federal Reserve Bank of Minneapolis, Minneapolis, MN 55480, USA (d) Banco de La Republica de Colombia, Bogota, D.C. Article History: Received 23 April 2004; Revised 27 September 2004; Accepted 27 September 2004 Article Note: (footnote) [star] We would like to thank our discussant, Bill Easterly, as well as Michele Boldrin, Tom Holmes, Ed Prescott, Ken Rogoff, and John Tilton for their comments. We would like to thank Otsu Keisuke, Sanghoon Lee and Mauro Rodrigues for their able research assistance. Finally, we would like to thank Alan Stockman who has long served as a mentor, guide and inspiration to many of us. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, or the Federal Reserve System. Cole acknowledges NSF grant SES 0137421. Ohanian acknowledges NSF grant SES 00099250.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2004.02.004 Byline: Roberto Rigobon (a)(b), Brian Sack (c) Abstract: Estimating the response of asset prices to changes in monetary policy is complicated by the endogeneity of policy decisions and the fact that both interest rates and asset prices react to numerous other variables. This paper develops a new estimator that is based on the heteroskedasticity that exists in high-frequency data. We show that the response of asset prices to changes in monetary policy can be identified based on the increase in the variance of policy shocks that occurs on days of FOMC meetings and of the Chairman's semi-annual monetary policy testimony to Congress. The identification approach employed requires a much weaker set of assumptions than needed under the 'event-study' approach that is typically used in this context. The results indicate that an increase in short-term interest rates results in a decline in stock prices and in an upward shift in the yield curve that becomes smaller at longer maturities. The findings also suggest that the event-study estimates contain biases that make the estimated effects on stock prices appear too small and those on Treasury yields too large. Author Affiliation: (a) Room E52-434, Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, MA 02142, USA (b) NBER, Cambridge, MA 02138, USA (c) Board of Governors of the Federal Reserve System, Washington, DC 20551, USA Article History: Received 15 May 2003; Revised 16 January 2004; Accepted 5 February 2004 Article Note: (footnote) [star] The authors would like to thank Ricardo Caballero (Editor) and an anonymous referee for excellent suggestions. Additionally, we would like to thank Andrew Ang, Antulio Bomfim, Darrel Cohen, William English, James Hamilton, and seminar participants at the Federal Reserve Board and the American Economic Association meetings for useful comments. Comments are welcome to bsack@frb.gov or rigobon@mit.edu. The opinions expressed are those of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System or other members of its staff.