This paper considers the “real-time” forecast performance of the Federal Reserve staff, time-series models, and an estimated dynamic stochastic general equilibrium (DSGE) model – the Federal Reserve Board’s new Estimated, Dynamic, Optimization-based (Edo) model. We evaluate forecast...

This paper examines welfare-maximizing monetary policy in an estimated micro-founded general equilibrium model of the U.S. economy where the policymaker faces uncertainty about model parameters. Uncertainty about parameters describing preferences and technology implies uncertainty about the...

The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel-regression techniques—following Bernanke and Lown (1991) and Hancock and Wilcox (1993,...

This paper develops a new-Keynesian model with nominal depreciation allowances to consider the effects of temporary tax-based investment incentives on capital spending and real activity. In particular, we investigate the effects of a temporary expensing allowance on investment in partial and...

The 1990s appreciation of the US$ has been blamed on the “irrational exuberance” of investors in the US IT boom. A core of these investors appeared to believe that technology-related productivity growth (due, in part, to knowledge spill-over externalities) would raise the relative US rate of...

We examine the relation between US stock market returns and the US business cycle for the period 1960-2003 using a new methodology that allows us to estimate a time-varying equity premium. We identify two channels in the transmission mechanism. One is through the mean of stock returns via the...

In earlier papers (McKibbin and Nguyen (2001, (2002)) we introduced demographic features into the MSG3 model of the world economy, following the approach of Bryant and McKibbin (2001). In this paper we use the same theoretical technique to develop a series of models based on a consistent...

This paper analyses the effectiveness of the spread between short and long term interest rates for predicting GDP growth in Australia, and whether the predictive relation deteriorates, as theory suggests, with the adoption of a credible inflation-targeting regime. We test whether predic- tive...

To succeed in reducing carbon dioxide emissions, a climate policy must establish credible long-term incentives for investments in the new energy-sector capital and in research and development. We argue that credibility implies that international agreements should focus on enhancing coordination...

We present a macroeconomic market experiment on the financial determination of exchange rates, and consider whether the assumption that belief formation be treated as a classical hypothesis test, which we label inferential expectations, can explain the effect of uncertainty on exchange rates. In...