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  • 1
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    Chicago, IL: Federal Reserve Bank of Chicago
    Publication Date: 2018-07-03
    Description: Forward rate guidance, which has been used with increasing regularity by monetary policymakers, relies on the manipulation of expectations of future short-term interest rates. We identify shocks to these expectations at short and long horizons since the early 1980s and examine their effects on contemporaneous macroeconomic outcomes. Our identification uses sign restrictions on survey forecasts incorporated in a structural VAR model to isolate expected deviations from the monetary- policy rule. We find that expectations of future policy easing that materialize over the subsequent four quarters - similar to those generated by credible forward guidance - .have immediate and persistent stimulative effects on output, inflation, and employment. The effects are larger than those produced by an identical shift in the policy path that is not anticipated. Our results are broadly consistent with the mechanism underlying forward guidance in New Keynesian models, but they suggest that those models overstate the persistence of the inflation response. Further, we find that changes in short-rate expectations farther in the future have weaker macroeconomic effects, the opposite of what most New Keynesian models predict.
    Keywords: ddc:330
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 2
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    Frankfurt a. M.: Deutsche Bundesbank
    Publication Date: 2018-07-03
    Description: There has been increased interest in the use of "big data" when it comes to forecasting macroeconomic time series such as private consumption or unemployment. However, applications on forecasting GDP are rather rare. In this paper we incorporate Google search data into a Bridge Equation Model, a version of which usually belongs to the suite of forecasting models at central banks. We show how to integrate these big data information, emphasizing the appeal of the underlying model in this respect. As the choice of which Google search terms to add to which equation is crucial - for the forecasting performance itself as well as for the economic consistency of the implied relationships - we compare different (ad-hoc, factor and shrinkage) approaches in terms of their pseudo-real time out-of-sample forecast performance for GDP, various GDP components and monthly activity indicators. We find that there are indeed sizeable gains possible from using Google search data, whereby partial least squares and LASSO appear most promising. Also, the forecast potential of Google search terms vis-avis survey indicators seems th have increased in recent years, suggesting that their scope in this field of application could increase in the future.
    Keywords: C22 ; C32 ; C53 ; ddc:330 ; Big Data ; Bridge Equation Models ; Forecasting ; Principal Components Analysis ; Partial Least Squares ; LASSO ; Boosting
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 3
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    Chicago, IL: Federal Reserve Bank of Chicago
    Publication Date: 2018-07-03
    Description: Explanations of why changes in the relative quantities of safe debt seem to affect asset prices often appeal informally to a portfolio balance mechanism. I show how this type of effect can be incorporated in a general class of structural, arbitrage-free asset-pricing models using a numerical solution method that allows for a wide range of nonlinearities. I consider some applications in which the Treasury market is isolated, investors have mean-variance preferences, and the short-rate process is truncated at zero. Despite its simplicity, a version of this model incorporating inflation can fit longer-term yields well, and it suggests that fluctuations in Treasury supply explain a sizeable fraction of the historical time-series variation in term premia. Nonetheless, under plausible parameterizations central-bank asset purchases have a fairly small impact on the yield curve by removing duration from the market, and these effects are particularly weak when interest rates are close to their zero lower bound.
    Keywords: C63 ; E43 ; E44 ; E52 ; E58 ; G11 ; G12 ; ddc:330 ; Yield curve ; LSAP ; quantitative easing ; preferred habitat ; forward guidance
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 4
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    Chicago, IL: Federal Reserve Bank of Chicago
    Publication Date: 2018-07-03
    Description: We use matched, bank-level panel data on Libor submissions and credit default swaps to decompose bank-funding spreads at several maturities into components reflecting counterparty credit risk and funding-market liquidity. To account for the possibility that banks may strategically misreport their funding rates in the Libor survey, we nest our decomposition within a model of the costs and benefits of lying. We find that Libor spreads typically consist mostly of a liquidity premium and that this premium declined at short maturities following Federal Reserve interventions in bank funding markets. At longer maturities, credit risk explains much of the time variation in Libor, reflecting in part fluctuations in the degree to which default risk is priced in the interbank market. Our results are consistent with banks both under- and over-reporting their funding costs during the crisis but suggest that the incidence of this behavior may have subsequently declined.
    Keywords: ddc:330 ; LIBOR ; Liquidity ; Credit Risk ; Misreporting
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 5
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    Chicago, IL: Federal Reserve Bank of Chicago
    Publication Date: 2018-07-03
    Description: I study unconventional monetary policy in a structural model of risk-averse arbitrage, augmented with an effective lower bound (ELB) on nominal rates. The model exposes nonlinear interactions among short-rate expectations, bond supply, and term premia that are absent from models that ignore the ELB, and these features help it replicate the recent behavior of long-term yields, including event-study evidence on the responses to unconventional policy. When the model is calibrated to long-run moments of the yield curve and subjected to shocks approximating the size of the Federal Reserve.s forward guidance and asset purchases, it implies that those policies worked primarily by changing the anticipated path of short-term interest rates, not by lowering investors.exposures to interest-rate risk. However, the effects of short-rate expectations were more attenuated than the effects of bond-supply shocks during the ELB period.
    Keywords: ddc:330
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 6
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    Frankfurt a. M.: Deutsche Bundesbank
    Publication Date: 2018-07-03
    Description: We analyze Granger causality testing in a mixed-frequency VAR, where the difference in sampling frequencies of the variables is large. Given a realistic sample size, the number of high-frequency observations per low-frequency period leads to parameter proliferation problems in case we attempt to estimate the model unrestrictedly. We propose several tests based on reduced rank restrictions, and implement bootstrap versions to account for the uncertainty when estimating factors and to improve the finite sample properties of these tests. We also consider a Bayesian VAR that we carefully extend to the presence of mixed frequencies. We compare these methods to an aggregated model, the max-test approach introduced by Ghysels et al. (2015a) as well as to the unrestricted VAR using Monte Carlo simulations. The techniques are illustrated in an empirical application involving daily realized volatility and monthly business cycle fluctuations.
    Keywords: C11 ; C12 ; C32 ; ddc:330 ; Granger Causality ; Mixed Frequency VAR ; Bayesian VAR ; Reduced Rank Model ; Bootstrap Test
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 7
    Publication Date: 2018-10-03
    Description: To simultaneously consider mixed-frequency time series, their joint dynamics, and possible structural changes, we introduce a time-varying parameter mixed-frequency VAR. To keep our approach from becoming too complex, we implement time variation parsimoniously: only the intercepts and a common factor in the error variances vary over time. We can therefore estimate moderately large systems in a reasonable amount of time, which makes our modifications appealing for practical use. For eleven U.S. variables, we examine the performance of our model and compare the results to the time-constant MF-VAR of Schorfheide and Song (2015). Our results demonstrate the feasibility and usefulness of our method.
    Keywords: C32 ; C51 ; C53 ; ddc:330 ; Mixed Frequencies ; Time-Varying Intercepts ; Common Stochastic Volatility ; Bayesian VAR ; Forecasting
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 8
    Publication Date: 2018-02-02
    Description: This study evaluates the impact of the agricultural insurance program on agricultural producers in Central Visayas (Region VII) on the premise that agricultural crop insurance is a potential risk-mitigating tool. Agricultural insurance, through the Philippine Crop Insurance Corporation (PCIC), is seen as a mechanism that can be used by farmers to manage risks and improve their well-being. The Cebu provincial government allocated PHP 8 million in 2015 and PHP 10 million in 2016 for agricultural insurance. The corn farmers need only to comply with the administrative requirements to enjoy the benefits of agricultural insurance.Data were gathered through on-site observation and a survey instrument designed by PIDS in collaboration with the regional partner universities. For Central Visayas, 510 corn farmers listed in either the PCIC client list or the RSBSA were randomly chosen from the municipalities in the region. They were categorized into three types corresponding to the treatment and control groups of the study. Findings showed that agricultural insurance has a positive and significant impact on incomes of corn farmers, particularly those with corn farms greater than 0.5 hectare. Six variables were found to have significant impacts to availment of agricultural insurance by corn farmers. These were membership in farmers' organization, size of farmlands, educational attainment of the farmer, location of the farmer's household relative to the PCIC office, status of land tenure, and access to community-level facilities. Given the importance of the agricultural sector and its positive impact to corn farmers in Central Visayas, what is important is to address how corn farmers can be motivated to avail themselves of agricultural insurance and enjoy its benefits.
    Keywords: ddc:330 ; Agricultural Crop Insurance ; Central Visayas ; Corn ; Philippine Crop Insurance Corporation ; Impact Evaluation
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 9
    Publication Date: 2015-08-20
    Description: Food insecurity is one of the most, if not the most, significant, nutrition-related public health issue confronted in the US. Unfortunately, we know very little about the determinants of food security except that it is not synonymous with poverty. Many households above the poverty line are food insecure; many below are not. We investigate a lack of financial literacy as a potential salient determinant of household-level food security. In light of the recent financial crisis and the burgeoning literature on financial literacy, we know that inadequate financial skills and practices are a significant problem that spans all socioeconomic groups. Using original survey data collected among food pantry clients in North Texas, we assess the causal effect of financial literacy on food security. Our results indicate a strikingly significant effect, both economically and statistically.
    Keywords: I12 ; I18 ; ddc:330 ; food security ; financial literacy ; poverty
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 10
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    Chicago, IL: Federal Reserve Bank of Chicago
    Publication Date: 2019-07-23
    Description: This paper presents new evidence on bilateral securities financing based on the Federal Reserve's Senior Credit Officer Opinion Survey, which was launched in the wake of the financial crisis to provide a window into this otherwise opaque market. The survey asks large broker-dealers about terms at which they fund client positions, and the demand for such funding, across several different collateral types. Within asset classes, reported changes in spreads, haircuts, and other financing terms move closely together, and we show that they also covary with the state of the underlying cash securities markets. Funding conditions are particularly highly correlated with measures of cash-market liquidity, and, by exploiting dealers' self-reported reasons for changing terms, we show that most of this correlation results from dealers responding to liquidity, rather than the other way around. Controlling for securities-market conditions, haircuts and spreads are unresponsive to shifts in funding demand; however, they do tend to tighten when measures of dealer condition deteriorate.
    Keywords: ddc:330
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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