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14991. Indeterminacy with Inflation-Forecast-Based Rules in a Two-Bloc Model

Author:
Nicoletta Batini, Paul Levine, and Joseph Pearlman
Publication Date:
04-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We examine the performance of forward-looking inflation-forecast-based rules in open economies. In a New Keynesian two-bloc model, a methodology first employed by Batini and Pearlman (2002) is used to obtain analytically the feedback parameters/horizon pairs associated with unique and stable equi-libria. Three key findings emerge: first, indeterminacy occurs for any value of the feedback parameter on inflation if the forecast horizon lies too far into the future. Second, the problem of indeterminacy is intrinsically more serious in the open economy. Third, the problem is compounded further in the open economy when central banks respond to expected consumer, rather than pro-ducer price inflation.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

14992. Sand in the Wheels of the Labor Market: The Effect of Firing Costs on Employment

Author:
Andrea De Michelis
Publication Date:
04-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper examines the effects of firing costs in a dynamic general equilibrium model where firms face stochastic demand. It derives analytically two simple closed-form equations, one for the supply of labor, the other for its demand. These equations determine the comparative static effects of changes in firing costs on the labor market. When negative shocks are more likely to occur than positive shocks, and when the frequency of these shocks is high, firing costs have a substantial negative impact on aggregate employment. In addition, product market integration, as it has occurred in the formation of the European Union, induces firms to be more wary of future possible downturns and therefore intensifies the negative consequences of firing costs.
Topic:
International Relations, Economics, and International Trade and Finance

14993. Price-level Determinacy, Lower Bounds on the Nominal Interest Rate, and Liquidity Traps

Author:
Dale W. Henderson and Ragna Alstadheim
Publication Date:
04-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We consider monetary-policy rules with inflation-rate targets and interest-rate or money-growth instruments using a flexible-price, perfect-foresight model. There is always a locally-unique target equilibrium. There may also be below-target equilibria (BTE) with inflation always below target and constant, asymptotically approaching or eventually reaching a below-target value, or oscillating. Liquidity traps are neither necessary nor sufficient for BTE which can arise if monetary policy keeps the interest rate above a lower bound. We construct monetary rules that preclude BTE when fiscal policy does not. Plausible fiscal policies preclude BTE for any monetary policy; those policies exclude surpluses and, possibly, balanced budgets.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

14994. Patterns of Global Terrorism 2003

Publication Date:
04-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In 2003, terrorists struck at targets around the world, even as Iraq became a central front in the global war against terrorism and the locus of so many deadly attacks against civilians. Al-Qaida and other terrorist groups made clear once again their relentless pursuit of evil in defiance of any law—human or divine. The year saw heinous crimes against the international community, humanitarian organizations, and people dedicated to helping mankind.
Topic:
Defense Policy, Terrorism, and War
Political Geography:
United States

14995. Landmine Policy Reply by DoD to a GAO Report

Publication Date:
03-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This is the Department of Defense (DoD) response to the GAO draft report GAO-02- 1003, “MILITARY OPERATIONS: Information on U.S. Use of Land Mines in the Persian Gulf War,” dated August 6, 2002 (GAO code 350068). The Department found a number of factual inaccuracies in the draft report. These inaccuracies were pointed out to GAO representatives during the August 7, 2002 draft report meeting and in subsequent exchanges. This response addresses DoD concerns with the report in general, rather than reiterating a list of line-by- line corrections.
Topic:
Security, Defense Policy, Arms Control and Proliferation, and Human Welfare

14996. Landmine Policy

Author:
Rebecca Spyke
Publication Date:
03-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
On Friday, February 27, 2004, the Administration announced a new United States policy on landmines. This policy is a significant departure from past approaches to landmines. It will ensure protection for both military forces and civilians alike, and will continue U.S. leadership in humanitarian mine action – those activities that contribute most directly toward eliminating the landmine problem.
Topic:
Security, Defense Policy, Arms Control and Proliferation, and Human Welfare

14997. Annual Industrial Capabilities Report to Congress, 2004

Publication Date:
03-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Section 2504 of title 10, United States Code, requires that the Secretary of Defense submit an annual report to the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives, by March 1st of each year.
Topic:
Defense Policy, Industrial Policy, Science and Technology, and Terrorism
Political Geography:
United States

14998. Study on Impact of Foreign Sourcing of Systems

Publication Date:
01-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Recent operations in Iraq raised concerns that foreign nations might restrict or preclude shipments of defense articles for DoD applications during internationally unpopular engagements. Given this possibility, the Department of Defense decided to review the extent to which it depends on foreign suppliers for operationally important defense systems.
Topic:
Defense Policy, Industrial Policy, and Science and Technology
Political Geography:
Iraq and Middle East

14999. Report of the Defense Science Board Task Force on Missile Defense Phase III: Modeling and Simulation

Publication Date:
03-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This report covers Phase III of the work of the Defense Science Board (DSB) Task Force on Missile Defense. Phase I examined mid-course discrimination. Phase II, a 2002 DSB Summer Study, examined the four issues shown in the chart above. Following completion of the Phase II report, the Director, Missile Defense Agency (MDA) asked the Task Force to examine modeling and simulation (M). The Under Secretary Defense for Acquisition, Technology and Logistics (USD [AT]) concurred. The request was further refined to the five areas shown. After a brief introduction, this report will cover each of the five issues in turn.
Topic:
Defense Policy, Science and Technology, and Weapons of Mass Destruction

15000. Foreign Participation in Local-Currency Bond Markets

Author:
Francis E. Warnock and John D. Burger
Publication Date:
02-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We analyze the development of, and foreign participation in, 49 local bond markets. Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. Less developed bond markets have returns characterized by high variance and negative skewness, factors eschewed by U.S. investors. Results based on a three-moment CAPM indicate, however, that it is diversifiable idiosyncratic risk that U.S. investors appear to shun. Taken as a whole our results hint at a virtuous cycle of bond market development: Creditor friendly policies and laws can spark local bond market development that enables the development of derivatives markets and, in turn, attracts foreign participation.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States