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311. Finding Numerical Results to Large Scale Economic Models Using Path-Following Algorithms: A Vintage Capital Example

Author:
Brett Berger
Publication Date:
06-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper describes the numerical optimization methods used in Berger (2001) to find the complete time paths of key economic variables in neoclassical vintage capital models. An interior and a non-interior point method are discussed. Both of the methods are part of the general class of “path-following” algorithms. These algorithms can be efficiently applied to convex programming problems; and due to the standard shape of production and utility functions, many economic problems can be written as convex programming problems. Vintage capital models add scale and complexity to standard growth models because one must now handle the dynamics of multiple capital stocks. This increase in complexity will often prevent the discovery (or existence) of closed form solutions, making numerical solutions of the type found in Berger (2001) necessary.
Topic:
Economics, Industrial Policy, and International Trade and Finance
Political Geography:
United States

312. Preventing Deflation: Lessons From Japan's Experience in the 1990s

Author:
Jane Haltmaier, Alan J. Ahearne, Joseph Gagnon, and Steve Kamin
Publication Date:
06-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper examines Japan's experience in the first half of the 1990s to shed some light on several issues that arise as inflation declines toward zero. Is it possible to recognize when an economy is moving into a phase of sustained deflation? How quickly should monetary policy respond to sharp declines in inflation? Are there factors that inhibit the monetary transmission mechanism as interest rates approach zero? What is the role for fiscal policy in warding off a deflationary episode? We conclude that Japan's sustained deflationary slump was very much unanticipated by Japanese policymakers and observers alike, and that this was a key factor in the authorities' failure to provide sufficient stimulus to maintain growth and positive inflation. Once inflation turned negative and short-term interest rates approached the zero-lower-bound, it became much more difficult for monetary policy to reactivate the economy. We found little compelling evidence that in the lead up to deflation in the first half of the 1990s, the ability of either monetary or fiscal policy to help support the economy fell off significantly. Based on all these considerations, we draw the general lesson from Japan's experience that when inflation and interest rates have fallen close to zero, and the risk of deflation is high, stimulus–both monetary and fiscal–should go beyond the levels conventionally implied by baseline forecasts of future inflation and economic activity.
Topic:
Economics, Industrial Policy, and International Trade and Finance
Political Geography:
Israel

313. Report on Allied Contributions to the Common Defense 2002

Publication Date:
06-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The Responsibility Sharing Report presents the Department of Defense's annual assessment of the relative contributions toward the common defense and mutual security by our NATO allies, our Pacific allies (Japan and the Republic of Korea), and the Gulf Cooperation Council (GCC) nations. The cornerstone of effective alliance relationships is the fair and equitable sharing of the full range of mutual security responsibilities, and the appropriate balancing of costs and benefits.
Topic:
Security, Defense Policy, and NATO
Political Geography:
Japan, Australia/Pacific, and Korea

314. International Comparisons of Productivity Growth: The Role of Information Technology and Regulatory Practices

Author:
Christopher Gust and Jaime Marquez
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
While information technologies (IT) are credited with the recent acceleration in productivity in the United States, many other industrial countries have not experienced a pickup in productivity growth. To explain this productivity divergence, we use panel data from 1992 to 1999 for 13 industrial countries and find that this divergence is driven in part by differences in both the production and adoption of information technologies. Based on this finding, we proceed to investigate what factors might play a role in explaining differences in IT adoption. Our results support the view that burdensome regulatory environments and in particular regulations affecting labor market practices have impeded the adoption of information technologies and slowed productivity growth in a number of industrial countries. We then develop a theoretical model with vintage capital and labor to evaluate the effect of more stringent labor market regulations on a firm's decision to adopt new technologies. We establish conditions under which a tax on firing workers delays the adoption of IT technology. These conditions occur when technological change is skill-biased and a firm must upgrade the quality of its workforce through labor turnover. The resulting delay in adopting IT technology then has negative implications for economy-wide productivity and is largely consistent with our empirical results.
Topic:
Economics, International Trade and Finance, and Science and Technology
Political Geography:
United States

315. A Guide to Choosing Absolute Bank Capital Requirements

Author:
Mark Carey
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Resampling implementation of a stress-scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk. Estimates are presented for stress scenarios of varying severity. Implications of use of different analysis time horizons are analyzed. Results for a numeraire portfolio are quite sensitive to such variations. Although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks, the arguments and results are also relevant for bankers making capital structure decisions.
Topic:
Economics and International Trade and Finance
Political Geography:
United States

316. To What Extent Will the Banking Industry be Globalized? A Study of Bank Nationality and Reach in 20 European Nations

Author:
David C. Smith, Allen N. Berger, Qinglei Dai, and Steven Ongena
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We model two dimensions of bank globalization – bank nationality (a bank from the firm's host nation, its home nation, or a third nation) and bank reach (a global, regional, or local bank) using a two-stage nested multinomial logit model. Our data set includes over 2,000 foreign affiliates of multinational corporations operating in 20 European nations. We find that these firms frequently use host nation banks for cash management services, and that bank reach may be strongly influenced by this choice of bank nationality. Our results suggest limits to the degree of future bank globalization.
Topic:
Economics, Globalization, and International Trade and Finance
Political Geography:
United States

317. Resolving Conflicts In The Caucasus And Moldova: Perspectives On Next Steps

Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
On 6-7 May 2002, the National Intelligence Council and the Department of State's Bureau of Intelligence and Research sponsored a conference that examined the prospects for resolving regional conflicts involving four states of the former Soviet Union: Georgia, Armenia, Azerbaijan, and Moldova. The conference brought together outside scholars, regional experts and officials to discuss the conflicts in Abkhazia, South Ossetia, Nagorno-Karabakh, and Transnistria. The purpose was not to arrive at a consensus but to deepen understanding of the complex geopolitical dynamics at work in the region.
Topic:
Conflict Resolution, International Relations, and Peace Studies
Political Geography:
Moldova, Eastern Europe, Armenia, Azerbaijan, Georgia, South Ossetia, and Abkhazia

318. The Defense Science Board Summer Study on Defense Science and Technology

Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Technology has been and must continue to be a key enabler of military advantage, both in conflict and in situations where conflict is close at hand. Over the years, the Department of Defense (DoD) science and technology progrme has discovered, invented, harnessed, and demonstrated such enabling technologies. As industry becomes more global, as scientific endeavors in other countries become more competitive, and as affordable technology increasingly issues from commercial sources, the DoD science and technology program needs to continue to meet challenges and exploit opportunities that arise. The Defense Science Board 2001 Summer Study task force has asked to examine three aspects of the DoD science and technology program: How the Department's S investment should be spend. The level of investment in science and technology. How the military can realize the most value from this investment.
Topic:
Defense Policy, Industrial Policy, and Science and Technology
Political Geography:
United States

319. Third Annual Report

Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The U.S. Commission on International Religious Freedom (the Commission or USCIRF) is the first government commission in the world with the sole mission of reviewing and making policy recommendations on the facts and circumstances of religious freedom violations abroad. The Commission's impact and its success in accomplishing its mission are dependent on bringing advice and accountability to U.S. foreign policy in its promotion of international religious freedom. By providing reliable information and analysis, and careful and creative policy recommendations, the Commission provides the U.S. government and the American public the tools necessary to promote this fundamental freedom throughout the world.
Topic:
Foreign Policy, Diplomacy, Human Rights, and Religion
Political Geography:
United States

320. Report on Indonesia

Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Indonesia is a country in major transition. After 40 years of authoritarian rule, a fledgling democratic system has yet fully to take root. The country's first post - authoritarian president, Abdurrahman Wahid, was impeached after two years by the parliament on the grounds of incompetence and replaced by Megawati Sukarnoputri in July 2001. The economy, imbued with corruption during the decades of state control, collapsed in 1997 and has yet to recover. Accustomed to playing a central political and economic role, the Indonesian military remains reluctant to accept civilian control and accountability for its actions. The discontent of the people of several regions with incorporation into the Indonesian state was met for decades with harsh military repression, leaving the essential issues unsolved and, in some cases, aggravated.
Topic:
Foreign Policy, Diplomacy, Human Rights, and Religion
Political Geography:
United States, Indonesia, and Southeast Asia