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Journal Article
Consistent margin requirements: are they feasible?
Report
Generalized canonical regression
This paper introduces a generalized approach to canonical regression, in which a set of jointly dependent variables enters the left-hand side of the equation as a linear combination, formally like the linear combination of regressors in the right-hand side of the equation. Natural applications occur when the dependent variable is the sum of components that may optimally receive unequal weights or in time series models in which the appropriate timing of the dependent variable is not known a priori. The paper derives a quasi-maximum likelihood estimator as well as its asymptotic distribution ...
Journal Article
The yield curve as a leading indicator: some practical issues
Since the 1980s, economists have argued that the slope of the yield curve-the spread between long- and short-term interest rates-is a good predictor of future economic activity. While much of the existing research has documented how consistently movements in the curve have signaled past recessions, considerably less attention has been paid to the use of the yield curve as a forecasting tool in real time. This analysis seeks to fill that gap by offering practical guidelines on how best to construct the yield curve indicator and to interpret the measure in real time.
Journal Article
Capital ratios as predictors of bank failure
The current review of the 1988 Basel Capital Accord has put the spotlight on the ratios used to assess banks? capital adequacy. This article examines the effectiveness of three capital ratios?the first based on leverage, the second on gross revenues, and the third on risk-weighted assets?in forecasting bank failure over different time frames. Using 1988-93 data on U.S. banks, the authors find that the simple leverage and gross revenue ratios perform as well as the more complex risk-weighted ratio over one- or two-year horizons. Although the risk-weighted measures prove more accurate in ...
Report
Aggregate supply and demand shocks: a natural rate approach.
There is wide agreement that the dynamics of inflation and unemployment are influenced by supply and demand shocks, such as oil price and monetary policy surprises, and by systematic factors such as overlapping contracts. There is less agreement about the relative importance of those determinants. The natural rate model of this paper uses a structural VAR approach to decompose movements in U.S. postwar unemployment and inflation into three orthogonal components. These components correspond, respectively, to systematic or predictable changes, supply shocks, and demand shocks. Orthogonality ...
Journal Article
The price risk of options positions: measurement and capital requirements
This article evaluates supervisory approaches to the measurement and capital treatment of the price risk of options positions. The authors find that approximate value-at-risk rules tend to provide better estimates of potential losses than simple strategy-based rules. The value-at-risk rules are particularly effective when they adjust for nonlinear changes in options prices. The authors also consider the reporting burdens posed by the different approaches and the consistency of the rules with existing and proposed supervisory frameworks.