This paper discusses a practical estimation issue for time-varying transition probability (TVTP) Markov switching models. Time-varying transition probabilities allow researchers to capture important economic behavior that may be missed using constant (or fixed) transition probabilities. Despite...

Should central banks respond to asset price bubbles? This paper explores this monetary policy question in a hypothetical economy subject to asset price bubbles. Despite the highly stylized structure of the model, the results reveal several practical monetary policy lessons. First, a monetary...

This paper examines past evidence of prolonged periods of reserve accumulation in Asian emerging market economies and the direct and indirect implications for monetary stability through the potential impact of such episodes on financial stability. The empirical research focuses on identifying...

Inventories play an important role in business cycles. Inventory build-ups add momentum to the economy during expansions, while inventory liquidations sap economic strength during recessions. In addition, because inventory fluctuations are notoriously difficult to predict, they present...

Over the last 35 years, the U.S. economy has created service sector jobs at a faster pace than manufacturing sector jobs. Not only has this trend led to a significant shift in the composition of the labor force from manufacturing to services, but it has also fundamentally changed the...

The Federal Reserve has made significant progress toward price stability over the last two decades. The annual inflation rate has declined from 13 percent in the early 1980s to roughly 2 percent today. But, to be sure, the current low-inflation environment has come at a price. One key cost of...

With the current U.S. economic expansion now in its sixth year, the economy appears to be on a path of stable growth. Such a development would be beneficial because it would foster steady gains in employment, income, and investment, all of which would help boost the overall standard of living....

The U.S. economy continues to advance briskly, defying forecasts of more moderate growth. Beginning in March 1991, the current expansion has become the longest peacetime expansion on record and is less than a year away from becoming the longest in U.S. history. To the surprise of some observers,...

In the 1990s, conventional measures of productivity growth, or the growth in output per worker, have indicated a dramatic rise. If these measures are correct, the economic benefits are clear. In the short run, sustained, faster productivity growth would enable the economy to expand more rapidly...