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Journal Article
What is the effect of financial stress on economic activity
Despite the apparent risk that financial stress poses to the real economy, the relationship between financial stress and economic activity is complex and not well understood. The experience of the United States and other countries has shown that businesses and households often pull back on new investments and purchases in response to the tighter credit conditions and greater uncertainty caused by financial stress. Yet important gaps remain in our understanding of this critical relationship. ; One potential complication is that the relationship may change when financial stress is elevated and ...
Journal Article
The effects of budget deficit reduction on the exchange rate
Public sector debt in the industrialized world has increased dramatically over the last 15 years. At the June 1996 Economic Summit in Lyon, France, leaders of the seven major industrialized democracies discussed the problems posed by large budget deficits and debt, as well as the potential benefits of regaining fiscal balance. The G-7 leaders agreed that while economic fundamentals in their countries are sound, investment growth, income growth, and job creation all depend on enacting credible fiscal consolidation programs and successful anti-inflationary policies.> While there is general ...
Working Paper
Global inflation dynamics
This paper examines the dynamics of various measures of national, regional, and global inflation. The paper calculates the first two common factors for four measures of industrial country inflation rates: total CPI, core CPI, cyclical total CPI, and cyclical core CPI. The paper then demonstrates that the first common factor is sometimes helpful in forecasting national inflation rates. It also shows that the second common factor and the first common factor for cyclical inflation is sometimes helpful in forecasting national CPI inflation rates. Finally, the paper suggests that the commonality ...
Journal Article
Are longer-term inflation expectations stable?
Bundick and Hakkio use survey data to evaluate the stability of forecasters' long-term inflation expectations.
Working Paper
Exchange rates in the long run
If Purchasing Power Parity holds in the long run, then real exchange rates are mean stationary. To test this hypothesis, monthly data on bilateral real exchange rates between the United States and five countries extending back to the 1920s are calculated. The null hypothesis of mean stationarity is tested against a variety of nonstationary alternatives. Our results strongly favor mean stationarity over models that permit long-run trends in real exchange rates. The data also favor stationarity over a unit root process with no drift. We show that the realized path of the real exchange rate lies ...
Journal Article
The discount window : time for reform?
For many years, the Federal Reserve's discount window has played an important role in monetary policy. Discount window borrowing helps individual depository institutions manage their reserve accounts in the presence of unexpected deposit and payments flows. Improved reserve management, in turn, helps stabilize the overnight federal funds market by reducing the volatility of short-term interest rates. Moreover, announced changes in the Federal Reserve's discount rate have often signaled important shifts in the stance of monetary policy and have frequently been associated with large changes in ...
Journal Article
Long-term survey-based inflation expectations have become better anchored
Craig S. Hakkio finds that while the median of some long-term inflation forecasts has declined, the distribution of individual forecasts suggests long-term inflation expectations have in fact become better anchored.