Board of Governors of the Federal Reserve System

International Finance Discussion Papers Number 561 August 1996

INFLATION-ADJUSTED POTENTIAL OUTPUT

Jane T. Haltmaier

NOTE: Intematioml Finance Discussion Papers are prel imi.narymaterials circulated to stimulate discussion and critical comment. References in publications to International Finance Discussion Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors.

paper estimatespotentialoutput for sevencountriesusing a multivariateversion of the Hodrick-l?rescott filter in which observationson inflationare used to help separate trend from cyclicalmovementsin output. The potentialseriesare estimatedfwston an aggregatebasis,and then by disaggregatingoutputinto three major components: labor productivity,the employment-populationatio, and population. Potentiallevelsof r productivityand the employment-populationatios are calculatedusing the multivariatefilter r and combinedwith actualpopulationto derive an alternative,“disaggregated” estimateof potential. The methodis then appIiedto forecastingpotentialgrowth.

Inflation-AdjustedPotentiaIOutput Jane Haltmaier~

I. Introduction Measuresof potentialoutput, both Ieve{sand grow&rates, are quite importantas
guides for macroeconomicpolicymakers. This is especiallythe case for monetaryauthorities

trying to determinethe appropriate stance of monetarypolicy. At Ieast in theory, inflation should deceleratewhen output is below potential and vice versa. Thus, expansionary monetarypolicy shouIdnot mn the risk of resulting inan increasein inflation as Iongas output is belowpotential. Similariy, a centrai bank that is trying to engineer a reductionin the inflationrate will need to pursue a contractiomry policyif output is at or abovepotential. Thus, knowledgeof the cumentoutput gap is critical, Given the sizablelags with which monetarypolicyaffectsthe economy, it is also output is growing. For instance, importantto have an estimateof the rate at which potential the British Chancellorrecently suggested that monetarypolicycould afford to be a little looser becauseof his belief that the rate of potentialoutputgrowth had increased, suggesting that a higher rate of growth of actual output than in the recentpast would not be infiatiomry. Estimatedpotentialoutput growth is also a key eIementin the determination of monetary

o ‘ The author is an Economistin the Divisionof InternationalFinance,Board of Governors f the Federal ReserveSystem. This paper represents the viewsof the authorand should not be interpreted as reflectingthe viewsof the Board of Governors of the FederalResene Systemor other membersof its staff.

-2targets in thosecountriesin whichmonetaryaggregatesare used as principal policy guides. IIIa monetaryruIe regime, a constantrate of inflationcan theoreticallybe achievedby setting the rate of moneysupplygrowth equal to the targeted inflationrate, plus the rate of potential output growth, minusthe expectedrate of change of veiocity. This is in fact the methodused by the GermanBundesbankin setting its money growth targets. In other countrieswhere money supplyrules are not the primary guide to policy, the rate of growth of potentialoutput is still taken into considerationh determiningthe non-inflationaryrate of actual output
grOVAL

However, despite its importance,potentialoutput is probablyeven more difilcuitto

estimateaccuratelythan the related concept of the NAIRLJ. types of approachesto estimatingpotentialoutput.2 One is t. There are basically tSVO use some type of filter to separatetrend tiom cyclicalcomponentsin the aggregateoutput data. An ahernativemethod is the so-caIIed“production-tictionwapproach, which decomposespotentialoutput into its technology,labor, and capitalcomponents,and estimates MI-employmentlevels of each. Each approachhas both advantagesand disadvantages. A commonly-usedfiltering techniqueis that introducedby Hodrick and Prescott (1980). The Hodrick-Prescott(HP) filter smoothsactual output so that potential output is a weightedaverage of past and future actual values. Althoughthis techniquecan be very usefid, it also has several drawbacks. For instance, it suffers horn an “endpoint”problem that occurs because, althoughthe smoothedseries is calculatedas a centered weighted average of actual observationstioughout most of the period analyzed, it dependsoniy on

2 Laxtona

T

(

p

area.

a comprehensive summay of muchof the literaturein t r

-3-

past values at the end (and on fi~re vaiues at the beginning). In addition, this methodwill
u p ap
OUtpUtsefies hat a

t g h t

a a o

l v m

of actual output
c a

over time, that is, the estfiated output g zero. T
t
thUSdoes not allow f

w t

to

p

potential more often than it is below or vice versa. In addition, output gaps derived from the W filter will not necessarilybe consistent with the concurrentbehavior of inflation. Kuttner (1994)addressesthe latter problem by using a Kahnan filter to derive estimates of potentiaIoutputfor the United States that are consistentwith observed inflation rates. However, this approachassumes that the potentialoutputgrowth rate followsa random walk, which may be true for the United States, but does not appear to be the case for most of the foreign industrialcountries. An alternativemethod, developedby Laxton and Tetlow (1992) uses an expandedversion of the HP filter, whichdoes allow mean growth rates to vary over time, to adjust gaps for inflation. This techniqueis termed a muItivariate

(

filter. The productionfimctionmethod should in theory producean estimate of potential

output that is related to the actual behavior of inflation, since employment,a k

component,

can be adjusted to its fill-employmentlevel using estimatesof the NAIRU that are compatible with inflation data. This methodgeneralIy also requires informationon capital stock and labor force participation,as well as some techniquefor adjustingthe latter to its ‘Memployment”leveL (The capital stock is generaiIyassumedto be either fiJIIyutilized or utilized at its “average”level at p cyclical variation. The OECD p
) Totai factor productivitymust also be adjusted f p o

estimatesfor most of its member

countries using a

productionfinc~im

approach in whichthe HP filter is used to adjusttotal

factor productivity,with tie s~e advantagesand disadvantagesthat apply to adjustingtotal output. However, one adv~~ge to tie production finction approach is tit, beca~e it has a structuralas well as a time series eiement, it is somewhatmore usefhl for extrapolating potentialgrowth rates than the aggregate filtering techniques. In fact, the ability to project potential output growth, at least over a forecasthorizon of a couple of years, wouldappear to be critical for such measuresto really be usefulfor poiicymakers. Althoughit may be important for some purposesto lmow the size of historical output gaps, it is clearly much more importantto how the size of the current gap as weil as how it is Iikelyto changeover the relevant forecastperiod. Simply adjustingthe outputgap so that it is consistentwith the current behavior of inflationdoes not really give us much more informationthan simp~ylookingat inflationitself.
o

if our estimatesof

potentialoutput can give us some insightinto how the gap is Iikeiy to change given the current and projectedbehavior of actual output that
h r

gained anything.

This paper combineselementsof the MV filter and the productionfhnctionmethodsin an attempt to produce estimatesof potentiaioutput for the G-7 countriesthat are both adjusted for inflationand able to be extrapolated.3 The methodis f~st applied to aggregate GDP, and then to a decompositionof GDP into its labor productivityand labor components (a pafiial production%mctionapproach). The latter is representedby the employmentpopulationratio, as working-agepopulationis assumednot to have a cyclical component.

b

3W 1

Germany used in placeof unifiedGermany was because the lackof unified of data

-5-

Potentialoutpul growth can then be extrapolatedby using actual projections of working-age population(one variablefor which we do have fairly accurateforecasts), as well as assumptionsabout trend productivitygrowth and the fhI1+mpIoymenteveIof the I employment-population ratio. The disaggrega~d methodthus allows us to make use of a much larger informationset in forecasting than does the aggregateapproach Section II describesthe technique in more detail, SectionIII presents t estimation resul~, and Section~ uses the estimates to project potentialoutput growth over the next two years. Section V concludeswith some suggestionsfor fkther analysis. IL The MuitivariateFilter The Hodrick-Prescott(HP) filter calculatesa smoothedseries by minimizingthe expression:

(1)

[(q -

where Y is actual output and Y is the smoothed output series. The smoothedseries is thus calculatedby trading off deviationsbetween the actualand smoothedseries (the frostterm) for variations in the growth mte of the smoothed series fkomone period to the next (the second term). The parameter k determines how closelythe smoothedseries followsthe actual; a higher value of Z will produce a smoother series, while a lower value will produce one that is closer to the actual. The choice of A, althoughimportantto the fmI result, is somewhatarbitrary, althoughit has been suggestedthat it shouIdrepresent the ratio of the variance of the cycIe to the varianceof the trend. The value most ofien used for quarterly researchers, and this value was also used here. data is 1600, as done by the original

-6-

The multivariatefilter augmentsthe above expressionwith an output-inflation equation,and then calculates a Dotentialoutput series that minimizesthe entire expression. In the equationused here, the current inflationrate dependsprimarilyon past inflationand the laggedoutputgap. Changesin the exchangerate and, where applicable,the value-addedtax, are includedas additionalexplanatoryvariables for inflation. The inflationequationis:
( I =A +B + C(L)(Yt-l

‘yt-l)+~t

.

where H is the quarterly change in the log of the price level, and Z represents the vector of other variables that affect the current inflationrate. The weightsin A(L) are assumedto sum to 1. The expressionto be minimizedis:

(

x=

pi

f-z

t+z

where a is the weighting factor for the inflation expression. Rearranging(2) and substituting into (3), the expression to be minimizedbecomes:
T

r-l

T

(4)

q

where ~ is the accelerationin Mation relative to its past valuesthat is not due to changesin other variablessuch as the exchangerate or taxes. The resultingpotentialoutput series will thus differ from that ob~ined from m applicationof the simpleHP filter to the extent that it explainsmore of the change in inflation. It will, however, still be subjectto a smoothness

-

con,straint,meaningthat suddenchanges horn accelerationto decelerationh inflationwill not be allowed to produce overly sharp swings in the rate of growth of potential output. There are two problemswith this techniquethat need to be addressed before it can be appiied empirically. T fust k that estimatesof the parametersof (2) are required to h

calcuiate the potentiaioutput series, but estimatesof the potentiaioutput series are also needed to calculatethe parameters. In theory, they could ail be estimatedjointly, but in practice, this is very difficult.4 The solution used here was a two-stepprocedure. First, an initial potential output series was obtainedusing the traditionalHP filter, and this series was used to estimateequation(2). The resulting parameters were then used to minimize (4). AS a check, the new estimateswere then used to reestimated inflationequation, but the the changes were so trivial that no fimher iterations were done. The secondproblem is the choice of a, the weightpiaced on the inflation component. Intuitively, it should be apparent why such a weight is needed. The inflation acceleration texm, measuredas the unexplainedpart of the quarteriy change in the log of the price level, is of an order of magnitudesimilar to the change in the trend, which is weighted by a factor of 1600. Unweighed, the inflationterm will have no impacton the minimizationproblem.
H S t e

less theory to guide the choice of a than there is in choosingL

different values were tried, ranging fkom200 to 800. Altiough the resulting

differences were not large, 400 seemedto produce the most sensibleresults, and so that was the value used for the main results. Some further discussionof this issue, along with results obtained using a’s of 2 and 800 are contained in the Appendix.

4I w

h

t s

t

i i i

b

i i c

b

thescopeo t

paper.

m

The

disaggregate Mation equationdecomposesthe differencebetweenactualand

potentialoutputinto W components:the gap betweenactual and trend laborproductivityand the gap betweenthe actualand trend employment-to-working-age populationratio. (Working-age populationis assumedto be invariantto the cycle.) Variationsin the unemploymentate and the participationrate, both of whichare cyclical,are thus r consolidated the employment-population into ratio. While it wouldprobablybe more satisfactoryto treat these W elementsseparately,that wouldproducean expressionthat wouldbe too unwieldy. The disaggregate inflationequation,&en, is:
( I =A +B +D +E +E

whereP is labor productivityand R is the employment-population ratio. The expressionto be minimizedis:

T-1

(6) r
t=2

+

t

@

-

-

E

III. Empirical Results The HP filter was used to calculatepotentialoutputseries for westernGermany, France, Italy, the UnitedKingdom,Camda, Japan, and the UnitedStates, for the period 1968through1995. The resulting series were used to estimateinflationequationsfkom 1

-

through 1993, t most uncertain.s

e

t

periodsfor whichthe estimatesof potentialoutputare the

ASindicatedabove, in additionto the “gap”terms, the estimatedinflationequations includepast lags of inflation,with the weightsconstrainedto sum to one, as well as current and/or Iaggedchangesin t
( o

the exchangerate and oil prices, and changesin the for the period of unification. of the i
T e a

value-addedtax.6 The Germanequationalso includeda d-y

The precise lags used vary tiom one equationto another, since the t exchangerate and oil p includedone and two l
c a

of

differ across c

of the gap terms.

The results fkomthe estimationof the aggregateinflationequationsare summarizedin
t

following table. Sevenof the fourteenGAP variableswere significantat least at the 5 h
l

p

and severalotherswere close. GeneraIlythe coefficienton the fwstlag was

positiveand that on the secondwas smallerand negative, suggestinga “speedeffect”horn changes in the output gap. h fact, the speedeffect, measuredas the coefficienton the secondgap term (sign reversed),is generallylarger than the leveleffect (the sum of the two coefficients). The main exceptionis France, where both coefficientsare positiveand neither are significant.

ST o e T r t t o g T p t r t s 6T V c

w t J
1 p e w p c l

e

w e g c C B

w e o v h i t d n s a D L

t a

n w r

1 av h

s

E
Germany

R F J ( . ( ( . n • ( . ( ( . (

f

A

O U . ( q 2 ( ( . n q ~ ( . ( ( ( n n . ( (

G E C . ( . ( . “ . n n ( ( ( ( . ( .1 ( ( . n ( . ( . ( ( . = n a . ( ( . S ( . ( ( n . . ( n ( ( n ( . n n
q

I . ( .

J . ( .

Us.
q 5

I-I.,
H

. O ( . ( • (

( ( . n n n

l A A A A . ( 4 G S . ( (

. n . ( ( n n

. n . ( ( n n . ( n . ( ( . *! g t “ n m e (

( n . (

n

. ( . ( . ( .

. t 1 %l

. t 5 70ievei.

Charts 1 through7 show O multivariatefalter. Also i
t

obtainedwith both the HP filter and the
a t c i c t p t

current-periodi
e r

r o p

t

by either p
t

VAT,

inflationaccelerationand gap

terms are plottedas fourquarter movingaveragesto showthe trend more clearly.) As

-11-

expected, the MV fiker output gaps follow the pattern of inflationmuch more closelythan the HP filter gaps. For example, the long period of disinflationin Western Germanyin the 1980’ssuggeststhat the output gap was more negativethan the HP filter shows, while the period of inflationaccelerationthat fo~lowed suggeststhat the output gap was much narrower than the HP filter gap. ~ tie current period, the downwardtrend in inflationsuggeststhat the output gap is wider w the w filter shows. Similar adjustmentsoccur for the 1980’s

for the other European countries. For Cana&, the differencesbetweenthe two gap series tend to be somewhatsmaller, althoughthe pattern of inflationcurrentiy suggeststhat the output gap is close to zero rather than in the positive range as the HP falterseries implies. The Japanese MV output gap series is currently closer to zero now than the simple HP filter series. For the United Stat.M,the MV filter series suggeststhat the output gap is close to zero, rather than in the positive range as indicatedby the HP filter series. ed &rod One advantageto disaggregation,apart fkompossibledifferentialimpactsof inflation on the productivityand labor components,is simply that it ailows incorporationof trends in working-agepopulationgrowth ~d 1aborforce participation,which may shift over time. The resuhs fkomthe estimationof the equationsthat break output into its productivityand labor componentsare shown in the followingtable. The coe!llcientson lagged inflation,the VAT, the oil price term, and the exchangerate are similar to those obtainedusing aggregate GDP. The coefficientson the gap terms in these equationsare less often significantthan those in the aggregate equations. This may be due to multicollinearity,since the productivity and employmentgaps are generally correlatedwith one another. It is interestingthat the

-12-

II
r ml rI* I l’?,
I-r.
Germany

Estimation Resultsfor Dkaggregated Gap Equations Output France Italy U.K.

II
Japan q j43**

Canada .599** (.101) .156 (.116) .069 (.118) .176
n.a. n.a.

Us. .506** (.090) .019 (.105) .475
n.a. n.a. n.a.

.484** (.097) .107 (.104) .227* (.100) .182
n.a.

.656** (.096) .173 (.112) -.115 (.118) .286
n.a.

.661 ** (.104) .116 (.130) .133 (.124) .090
n.a.

.654** (.107) .203* (.124) -.068 (.121) .211
n.a.

(.116) .138 (.133) .219
n.a. n.a. q W*

AVAT AEx ,
Aix.,

.002
(.002)

.)03**
(.001)

-.032** .009 (.O1l) (.018)
n.a. n.a.

.Ooo (0006) .o~* (.027)
n.a. n.a.

.~2* (.OO1) .002 (.029) -.024 (.029) -.026 (.029)
n.a. n.a.

(.002) -.004 (.014) -.021 (.015) -.029* (.013) -.002 (.003) .O1l** (.003) .124 (.085) -.062 (.080) J~* (.063) -.100 (.070) -.002 (.015)
n.a. n.a.

-.008 (.011) -.005 (.011) -.015 (.010) .01* I (.003)
n.a.

r AEX.2 APo I o., AP I GAPE.,‘ GAPE.Z GAPP.,2 GAPP.Z ,R2
~mpioyment

-.020 (.017)
n.a.

.Q(j5** .013** (.002) (.003)
n.a. q ~3* n.a.

.012* (.006) .018**
(.006)

.(XI5 (.006) .009 (.006) .411 (.277)

(.162) -.192 (.158) .073* (.040) .a)(j7* (.036) .86
gap.

.107 (.093) -.039 (.084) .Ooo (.070) -.000 (.070) .93

.X()* (.152) .e~()*
n.a.

.142 (.306) -.042 (.300) .145 (.104) .010 (.105)

.440** (.095) -.236 .0401** (.261) (.091) .271* (.116) ..~4* (.124) .049 (.046)

.158* (.092) -.158*
n.a.

2. prductlvl~ Gap

-.049 (.046) , .90 .82 .89 .81 .91 **Sigmhcantat the 1% level. *Signihcant t the 5% level. a

“productivitygap” tCXTXI k significantmore often than the “employmentgap” t

suggesting

that only adjustinglabor market data to reflect tiation, as in the production filnction approach, may not be sufficient. Charts 8 through M show the inflation-adjusted gaps for both the aggregate and disaggregate series. Althoughmost of the differencesare fairly minor, there are some rather large discrepancies. Probably the most notable is for Germany in the late 1980’s, when the aggregateseries shows a slightly negativeoutputgap, while the disaggregated shows a fairly substantialpositive gap. As chart 15 shows, the difference is in large part due to the sizable swings in working-agepopulationgrowth experiencedby western Gexmany over this period. In particular, the very low rate of populationgrowth in the late 1980’s leads the disaggregatedapproach to show much slower potentiaigrowth than the aggregate method. As shown in charts 16 through 21, such swingsin populationgrowth have also occurred in most other countries, suggestingthat an aggregateapproach may well miss some important changes in potential growth. One noteworthyexample is the projected drop in Japanese working-agepopulationfor 1996and 1997, whichmay Iimit Japanese potentiai growth over that period. IV. ForecastingPotentiaiGrowth As noted earlier, estimationof the current and near-term rate of potential growth is probably at least as importantfor policy as estimationof the current gap. Estimatedpotential growth is an explicit componentof the Bundesbank’smoney supply growth target, and is taken into account, at least ixnpiicitly,in many other countries. In addition, if speed e exist, which they appear to do for several countries, changesin the gap (the difference

-14-

betweenactualand potentialgrowth)may be as importantas the level in the detemination of inflation. The followingtableshowsforecastsfor potentialoutputusing both the aggregateand disaggregatedmethods,basedon the inflation-adjusted series. The same seriesare shownfor the previousfive-yearperiodfor comparison. The forecastsfor aggregateGDP and for productivityare derivedhorn simpletime-seriesmodelsthat relate current to past growth. The employment-population ratiosare assumedto remainconstantover the forecastperiod. This was done becausetheseratios, whichare composedof the participationrate and the NMRU, are not well-suitedto simpletime-seriesmodelling. For instance,the NAIRUis assumedhere, as is generallythe case, to be a structuralparameterthat changesonly due to unforeseenshocks. The participationrate may be somewhatmore predictable,to the extent that it is relatedto shifi in the age distributionof the population,for example. However, less predictableshiftsin preferencesmay also play a role. It is somewhatdangerousto simplyextenda past trend in a variableof this type, sincethere are obviouslimitsto the extent that either an upwardor downwardtrend can continue. Althoughit may be possibleto use other types of informationto refine the forecastsof both the participationrate and the NAIRU(for instance,a modelthat incorporateshysteresiseffects), such effortsare beyond the scope of this paper.

-15-

G ( 1 W A D P E P F A D p E P I
Aggregate

i P a 1

O r

a C o c 1 1

G 1 1 1 . 1 2 1 . .

Canada
A D P E P J 1 1 1 -5 . 1 2 1 . . U 1 1
2 2 2 Aggregate

2 i r
2

g2
2 1

1
-. 3

m o 1 g1 .

1

D P E P S

i r

. . m . o -2

A D P E i r

2

2 1 . m 1

D P E P U A D P E P K

2 . .

2 -1

1

P

1.0 o

2 2 2 -6 .

2 2 2

g i r m o

-16-

For the continentalEuropeancountries (western Germany, France and Italy), the disaggregatedmethodproducesa higher estimate of potentialgrowth than the aggregate. This is primarily due to the fact that pan of the recent Iow rate of potentialoutput growth (which is essentiallyprojectedto continueby the time-seriesmodel) appears to be attributable r to a sharp drop in the employment-populationatio, and this drop is not projected to continue. For the UnitedKingdomand Canada there is little differencebetweenthe two methods. For both Japan and the United States, the disaggregate methodproducesa lower estimate of potentialgrowth than the aggregatemethod. The main reason is the converseof the explamtion for the differencesfor the European countries. Employment-populationatios r have risen in both of these countriesin recent years; unless this trend continuesor productivity growth accelerates, potentialoutput grow is likely to SIOW.Another factor ~ the Japanese forecastis that the rate of working-agepopulationgrowth is projected to turn horn slightIy positiveto sIightlynegative, further depressingpotentialgrowth. V. Conclusion This paper has appliedan augmentedHodrick-Prescottfilter, developedby Laxtonand Tetlow for estimatinginflation-adjusted potentialoutput, to both aggregateGDP and a disaggregationinto labor productivityand employmentcomponents. The techniqueis generally successfidin that reasonableestimatesof sensitivityof inflationto output gapsare calculated, althoughthey are not alwayssignificant,due most likely to multicollineari~and the limited size of the data set. The resultingestimatesof inflation-adjusted output gaps appear to at least move the estfiates of potential output in the right direction for the most part. Forecasts of potentialoutput growth were derived using the inflation-adjusted series.

T

resultingdifferencesbetweenthe aggregateand disaggregate versionssuggest that

takingaccountof the major componentsof growth is importantin estimatingtrends in potentialoutput. Probablythe most importantdifficultywith the applicationof this technique, as with applicationsof the simpleHP falter,is the indete rminacyof the “best”weightsin the optimization problem. The resultspresentedin this paper use the traditionalweight of 1600 for the trend, or smoothness,parameter,and a weightof 400 for the inflationparameter. Either or both of these couldk adjusted. In particular, for the disaggregate method, it couldbe argued that underlyingproductivitygrowth shouldbe treated as being much smootherthan a weight of 1600wouIdimply. Becausethe employment-populationatio is r generallymore cyclical relativeto trend than output, it couldalso be argued that a weight largerthan 1600shouldbe used for that series. Similariy, the more closelyone wantsto tie potentialoutputto inflation,the greater the weighton inflationshouldbe. The latter point is particularlyimportantbecausepotential outputis akr aHa constructedseries that by deftition is supposedto be the amountthat the economycan produce withoutcausinginflationto accelerate. The only reason we give any weightto the other components(the actual level and a smoothtrend) must be that we think that the inflationseries has enoughnoise in it that we shouldnot take it literallyperiod-byperiod. Future research mightprofitablybe directedat determiningmore preciselyhow we shouldbalancethese variousobjectivesin constructingpotentialoutput.

-18-

Chart 1

Output Gaps a
3 2 1 0
I I I . 1’ I ‘ A ) ~\ 1 1, ,\

I WesternG

A
.
. \ \ \ /~ \ f

, nl

.\ ~- ‘,--------------i

,

I
--------/ I

/

)

-------------------J\

---------+--+

U u
I L -,

i \ -+ -----------------

,
I

-------

1 ./

\

,

\

/

\
$ \/

,

-

‘“I

-.

-. -----

-----

\

---- n v

c

mi
i
I
1

-

- -

7

I
I

I

I

I

I

t

J -- --i
,4 .

-.

.--.--

-----

-\- - ‘ -? (
i

- - - - - - -

- - - - - - - : - - ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - ‘- + - - - I \

~

1’ i #
/
I

/’
\)

,

-3
1

---.--

-----

- +;: --------------------

--------------------

--------------,

1

1974
i

1I , 1 , I i “’(’1978 ‘1982‘“ “1986‘ “ ‘““ i’990 ‘ 1
I I
1 1

1

F

-

F

_

I

A

I

-

I t

C

-.

2

Output Gaps and Inflation A
F
I 1

4 3 2
I

I
I

-I

I

I

I–
m- - - - -- — –

-

-

I
, , I I

1

I

I
1

I

I
I

- - - - - - - - - - - - - - -,
I I j

I

I
1

u
I
‘/

-2 -3
4

-

I

. b
1

>- - - - - - - - - - -

-it f
1
4

L-

.

1

*/

-

-

-

-----------------------------------

I

---------

r

,

1

1

1
F

‘‘‘‘ ‘
-

I


F

1

!

T

1

1

‘“

1

!

“‘1 ‘‘

[ ‘

m

Inf.A

I

-

2

L

3

Output Gaps and I
I

A

6
1

I
I

I
.
I

4

-------------

I

I

2
I

Y

I

---------------------------------------------------------

r
----

------------------------------------------\

\

t
I
I

I

I

I

f ---------\
W-

I
-

/ I ,
! t .----

I

--- t: - - - - - - - - - - - - - - - - 1 \
L

I

!
-----.

I ,

1

4

--

--

-- --

----

-------

-’. /

--

--- -- --------

1

1974

I 1 I I ‘ “1978
HP F

I I

1

II’ I ‘1982 ‘““ 1’986’ “’1990 ‘ ‘1’994 “
I I
I

I I I

I I

I

1

-

F

m

I

A

I
# -—

-21-

C
1

4 I
K

I I

O
6 I
I

G

a
U

A
(

,

I
I

I

I I I

4

I
/
I
I

2 0

--> \

-------------. \

,

I
I

I
I
q

I i
I

+..
I

- 

-

1
.---------_--_---

------------------------------------

-

-6

---- 

-----------------------------------

I

-8

1
I
I

‘ 1

I I

r

‘‘‘ ‘
r

I

I

1

I

I I

‘‘ ‘ ‘

I

T

1

1

1

1

1

,

‘‘

‘‘‘

“ ‘‘

-

1

HP Filter ---- MV Filter

s

hf. Ace. I

-22-

(

O
I
I
I I

G

a

I Canada

A .
I

4
I
1

I

i

2
I

I
T

-

-

I

A

-

-

A- -----------------1.\

-

-

/7-’”J

----------------

-

-

I
I

u

I E 0 2

-

,~ \J
/
-

\
\
!

,1
-

$

-~
-

,
4

I
I ----------------------------------

/:
1

\/
\
,1

J : --------------------------------)
\/

I

1,

I

-6

I
I

1

‘1974 ‘ ‘1978 ‘“ 1982 “
l—

[

1I

I

I I

I I 1! I I I ‘
F = I

I I

I

I

1990 ‘“ ‘i’994‘

I

! I

1

l

I I

F

-

A
———

-23-

C O
8
I I 1

6 I
J

G

a

A
I

I ----------------------------------------------------------

I

I

i

I 6 + ---------/
4 2
-

i

I


,
I

--------------------------

------------------------------

-

----

-

&----.-----!

I

I
4
+--.-------I

-6 -8
1

------------

I \
I , ~

I
I 1

1974
I I
L

‘ ‘ 1978
F

I

i , I I I

r ,

!

I l

1
-

1I I

r

1 1

1

1
=

,,

7


h A

I

!

1

1

III

1

i

F

-

C
O
I
I

7
I
S

G

a
U

A

I

4 1
I

2

0

w
I
I I 1

~

-------“
I

/1
L

h\

, -----------

I I

I

I

1’

\

,.

/

--

\

-I \

-------------------. /
I

+

I

\ v
\ ,’
1,

I

~ -

\ v
I
& -

u -

/’
-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-6 ~.

1

I II
‘ ‘ ‘

, I1 ~ II 1982 1I I~~ i978
I
1 1 , !

I

1[ga6i

i ( i [ I I I 1~[

~!,

,,,,,,,

W

,

~

[ ‘

i

F

-

F

s

i

A

-25-

Chart 8 Output G
4
I

a

I

A
.

Western Germany

l
1,

2

~

1A h
A
~t

I 1

\
\ I

1’

1 I

!

‘ -

I

,-

;

1

A
I
I

t’

/

_ , ------------------

---------

--------

-

0

lull
I
I

\
I

----

\

I
1970 ‘ ‘


\

“v
I I t

I

!

I

\

I

\

t

I

,,

,}

I
I

I iI II I 1 1111111 r 1 I illII 1974 ““ ‘1978 1982 ‘ ““’’’b86’ l 1
1

I

I

T

[

I

I ‘‘ ‘
I

lb94 “

I

I r I I

I

I ,

,—

A

-

D

m

I

A

-26-

Chart 9 Output G
4 3
~ -------I

a

I
F

A

‘1:
I
I

I 2 -------1

~I I -.

1

‘~ -

_ ,---_------.--__------t

--- ------------------------------

-

--------------------------------

-1
--- -

- -

1 I

!

-

-

2
I

E .- 1

U

-

I

i i

J
I I + t
1

,

/

1
1
I -

-

-

-t
I

II
/’
/

I I

----------I

<

I

I

----------------

J
b -

-

1 - - -W-T-t
-

\

-

‘ -

-

-‘-‘-

-

u
-

v

- ----

-

-

----------------

I

\t -----------------------------------,4 .

-

-

I

4

1970 ‘ “ 1974 “ “1978
— A

I I

I I [

I I ‘ ‘1982 “i ‘“ 1Q86
1 II II T”’TIIIIIII “

III

III1 II11111i I IIII ’1’ 1994 “ ‘ 1’990
1

----

D

=

h

A

i

-27-

C O
I
I
I ( ,

1

G

a

I
I

A

6
,
I

,,
,

1

4
I i

-----------------------

-

--

--------------

----

_____

-

------

-,

(

2
I
i

A -

Ll-

-

1
-

I
1
r
-

1

I
I 1

—.- - - - - - - - - - - ----------------------------- \

-

~ \
4 --------------

I
!

1- -- /’- 4 --------I
. \ /

------“\

-- -/+ -If

I

I I

!

I

I i
I
I

4 t------

------

.- - -s- - - - - - - - - - - - - - -,W - - - .— \ ------ , /
7

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

I
1

1

-6 !.

I

1970 “ ‘ 1
,— A

1I1 111I 1

I

I

I

‘ ‘1
D

I I I

I

7

I

1

T

I
1

‘“ 1 “ “ ‘ ‘“ ‘
I A

9

I

I

I -

_

-28-

1

I

OutputGapsa
U
I
I

I
K

A

6
I
I

i

~

4 --1

--------------------

[

I i

I
I

I 1

2 0

---

--1

I

I

----------.------

-

1

,

--------------------------------1 ( ,

4

-----------------

. ------------------

_ -------------,

-

-aI (

1970 ‘ ‘“ 1974 “’’’’1978 ‘
— A

I

l“”

I1 I I rII1111 IIIIIIIIIII I 1 I I I ’1111 “’1982 “[[’” 1986 1’‘ ‘ 1$90 ‘‘1’994
I I
T 1

I

1

I
I

-

D

s

I

A

-29-

[ 1 I i
I

C O
4
1
A

G

a

I
Canada

A
.-

I
I i

I i !
I
I

2

+ -----------

I

,’ /’
r

\ \
-bt /

,\
! I

I

-’------_--------

I
I I

----------------------f I

I

.
\

I

I

0
— w
-

I
I ! I

I

1

I

v
----

1

\/ &
I

I

v

-------------

-

-

-

I
I i
I

v /’
!

Ii
I
~!

I I

4

----------------------------------t
I
I
1

I

- \L - ‘ \! t

- . - - - - - --

_ . _ - --

---------

_ ----

- --

- ; I

I

I
1

u
/

~//

I
1

I
I
I

1

I

1

‘ 1


A

1

‘“‘‘ ‘ ‘
D

‘‘‘
= I

1
A

1 ‘

T

I

1

-30-

1

Chart Output G
a I
Japan

A
.

I
I

I
1

8 6

1

,

I

I I — ----------

I

I

------------------------------------------------------------

I 4 —-------1

I

I
I I 1

i

-----------------------------------------------------------

I

2
I

-

I

1
, /

t
!’

-

-

-

-

I
I
I

--------------

!

1
-------------/ / -,- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

I

I

I 1

------------

--------------------------------------------------------

I

I i 1

I

I I

1970
I
(

1974 ‘ “1978’ “ ‘1982 ‘
1 ,—

I

illl

1 I I I

1

1’986 ‘

I

Ii

I i I I

1I

I r

I ii

I I I

I

r 1

1990’

1994

,*II

A

----

D

s

h

A

I I

-31-

i I I
I

C
Output Gaps and Inflation Acceleration
U 4 ,
I 1 ! I

S I
t

I I

I

\

1

I

/
1

2

—.---

Y

._---------I

/

I I
1

I

0

\ h \
L
----------

It

..

)’
I
I
)

\ \ (“
I

;

r

-

-

-

-

-

-

-

-

I , I
1

t’ $#$ .

I

I
I

-

,- + - - - - - - - - - - -

--/’
P

-------------------

1

-

-

-

I

4

- ..

i ------------------

1., --------\f

I
I
I I I

~--------------------

----

-6

1

1

“‘ “
A

I “
-


D


_


I

i~ ‘
A

1 1I I rI I ‘ ‘“ “‘
I r

(

-32-

1 !
I
1

C W
W 2
1

1 I

P
G

G

I

I f

I
I
I

I

I

I
I

1

I I
I

.

m

I
I

I

I

1
1

._---

-----

I
1

I

I

I

0

0

J
---------1 ,

---

.

I

I
I i

I

1

1

1

(

i

1

f

I

I

I

1

)

i

r

1

1

I

.

I

-

3

3

1
1

1 I

Chart 1 W P France G .
----

-

.

I
1

I
I

1 1 1

I

I /

I
A -

I

I

-_

-

-

.
-

-

-

-

_

I
I

-

l

-

I , I I ------------------------1 +
I

I

-

------------

- _---.

_---

_

-

I
I

I
-------------

---------------------------------

I

I
I

I

0 0 0 0 0

--------------------------------.

-----

--

.- -- - - - - - - . - - -- - - - - - - -

~

I
4

. .

---------.

1970

‘1974 ‘ ‘1978 ‘

1982 ‘ ‘1986 ‘ ‘1590 ‘ ‘1994 ‘ ‘

Ml

-34-

C
1 1

1

h

Working-Age P
I 2
I

Growth
I
I

1

I
I
I

1

I

-

-

-

- -

--

-

9-- -

- - - .- - - -

--- - -_

-- - - -

--

I
1
-

I -

--------

0

0
-

~
-----------------------------------

-. 0
---------- *--------------------

1

-

-

-

.
.

-

-1

1970
I
1

1974

,,

1978

1982

‘ 1986 ‘ ‘ 1990 ‘

1994 ‘ ‘

I I

-35-

1 1
I

C

—.

18

.-

1 I
I

Working-AgeP
United Kingdom

G

i i
I

1

0.8
I

—------------------------------------

I

----------------------------------

0
I

— -------------------

-----

1

---------------------------------.

I

i

I ~
I
I

0

-------------------

---------------------------------.

0

0
I

I

-

I

1970

w----------------

.

1974

1978

0

.

1982 ‘

1986

‘ 1990 ‘ ‘ 1994 ‘ ‘

I

I —

-36-

Chart 19 Working-Age Population Growth
C 3

2

—-------

------

--- --- .----------

-------------

. ---------

--- .-----_------

2

,_- --- ----------

-------------

.--_-----

--- ------------

1

---

-------------

. --------

---------

1

0

.

o

1970 ~

t

1974 ‘ ‘ 1978 ‘

,

,982

T

1

1986 ‘ ‘ 1990 ‘

1994 ‘ ‘

-37-

1

C

2

Working-AgeP
Japan

G

2
I

I

I

1

+I

I

-----

-----

------------------

.

---.-..----------

.-_. -

1

-----

-----

--

--

-----

-------_-_-----

---

0

.

------------_--

---

0
I

m
I

m
I

I

I

I

I

4

1970

1974

1978 ‘

1982 ‘

1986

I I

.

1990

I I

1994

I

I 4

-38-

1

C Working-Age P
United States 2 I

!

G
.

I t
I
I

~ I

I
I

1

--- --- --- ------_---

. --- .---_--------------

--- ---

i

1

---

--- -----

-----

--- --

0

.

0

1

1974 ‘ ‘1978 ‘ ‘1982 ‘ 1

I

r

1990 ‘ ‘1994 ‘

I

A

Charts Al throughA7 comparethe outputgaps obtainedusing weightsof 200, 400, and 800 on the inflationterm.
(As noted

earlier, 400 was used for the main set of results.)

The differencesare fairly small for most time periods, but can be substantial,particularlyfor France and Italy in the mid-1980’s. One way to viewthe choiceof a is as depending primarily on how muchmore of the residual in the inflationequationone wishesto explain by altering the outputgap. As shownin the top part of the followingtable, the percentageof the inflationaccelerationterm explainedby the outputgap increasessubstantially,although
u

amongcountries,as a increases. However,as shownin the lower panel, the

standarddeviationof the outputgap also increasesa fair amount,particularlyfor Italye (The variationamongcountriesmay suggestthat the choiceof a shouldaiso vary by country.7) The results shownin the tablesuggestthat the improvement n the “fit”of the inflation i equationis krger relativeto the increasein the standarddeviationof the gap as a increases fkomOto 400 than it is as a increasesfrom 400 to 800. This providessomejustificationfor the choice of a used here, althoughcertainly a more well-grounded criteria wouldbe preferable.

7 T c

s u

i a

t

f

t

c

a

i p

1

c

t b m o

-40f

Percent of Inflation Acceleration Explained and Standard Deviation of Output Gap For Different values of a

a=(l

a=200

a–=lOO

a=800

4

Percent of Inflation Acceleration Explained W. Germany France Italy United Kingdom I I I Canada Japan United States 12 4 7 8 10 19 18 15 9 10 13 13 15 21 18 12 12 16 14 18 22 21 16 15 18 16 22 25

Standard Deviation of the Output Gap (percent) W. Germany France , Italy United Kingdom Canada Japan united States
q

1.6 1.1 1.6 1.7 1.7 1.4 1.8

1.7 1.1 1.8 1.8 1.7 1.5 1.8

1.8 1.2 2.0 1.9 1.7 1.7 1.9

2.0 1.4 2.4 2.1 1.8 1.9 1.9

-

4

I ,
I
I

Chart Al

Output Gaps (MVFiiter)
WesternGermany .

1

I

4 I
I

I
1 ,

2

1

I

0

I t I

I i

I
I I
1

-2

4
,1 /

I
I

1 1

I
-6-

1970

1974

I 4 I11” I r ‘1978‘ ( “’1’982 ‘‘j986 “’1’1’’1’990’’”‘‘“‘‘ “‘ ‘ 1994““‘
1 I

—— Alpha = 200 —

Alpha = 400 ---- Alpha= 800

-42-

I

Chart

AZ

Output Gaps (MV Filter)
France 3 2 1
I
-.-----

--,.-, ---_ f n------------------------------_ ------_ --------------+; /
,s I /

1/

L

,$ ----,.-

.

{7

14
It f\

l\
A

I -------------

----------

-/- ~ -- i ---

A---

I

0
I

1 t1

--

----

-2
I

-.
I

---

-- -- ----

!

I ,
I

-3
1

I

4

1970 ‘ ‘‘1974 ‘ ““’’978 i
I
I

I

I

I

1

II111(i1g821 ~ ~

* ~I h[ ! i ,~1

g61

TT i

i 1 I ( il[gg~l

1 i ‘“

Iil 1994 ‘“
1 1

l– – Alpha= 200 — Alpha= 400 ---- Alpha= 800

-43-

t
I

I i

Italy
I

6

!
, It

1 “ A ,. ‘\
-----------------------------------------------------------

I

4

----------

2

1 -------- ----- -------- {4 ----1
/\
~\ 1

I

\

‘ ----------

‘ ----------

‘ -----------

---------

E

d
I
1 ,

-2

.,

I

‘ j 1’ ‘, \ r t

i

I --------------I

Yv \\/ f
$1 1, ‘1
,!

I 4

,. / ,,

-.

h’
‘-,i “

L

\
,1

-J

I I
I ,

I

1
I

I ,-,

~/

-6

1970

I T I 111’1 1’ I I I 1974 ‘ “1978’ ‘ ‘1’982’‘“‘“‘ ‘ ‘ ‘1986’ ‘“’’’1’990 ‘‘‘‘‘19g~’“‘‘ ‘
I I

i“

I“”

[1’

I
I

,——

I

Alpha = 200 —

Alpha= 400 ---- Alpha= 800

I L

-44-

t
I

United Kingdom 6

4

-------- ---, ------------------?- / -----------h --------- ---------I

I

I

2

G CL

E 8

0
-2

4

-----_.--------

1

I ,
(

I

-6

1970

1[1 ’1111””’ 1’978 ‘ ‘ 1974
1 r I

I f l-l

I1llr”~rl 1 II IIIIII II I 1“ TiI 1982 ‘“‘‘1686 “ ‘1’990 1’994‘‘ ‘‘
I

I

I

I

I

——

Alpha = 200 —

Alpha= 400 ---- Alpha= 800

-45-

I

I
I

Canada 4
I
I

.

I

I

I
I I

2

I

-i

I
I
I

( */

(

i
I i

4 —----I
I ! I

--

-- --

-- -- -- -_--------

-- --\ -{

--

-- -- ----

-----

-----

------

--- - - -

--1

I
I

-----1 I

.-

.---- ------------ -------,- -- ------- ---- ----- - v ---- -- --

\

----

--

-1

!
I

I
I

I
!

1

I

1

I
I !

1970

1974

I

I I

1978

1’

,

Tr I

I

‘ ‘1982’11‘1986

I [

!

I

I

I

r~[

I

1

1 1

!

1 [

I

19’90

I II

I I

1

I

‘1994“

I I

I

I

(

1

I —— Alpha = 200 —

Alpha= 400 ---- Alpha = 800 I

-46-

t
I ,

Chart 6 A
Japan I I I - . . ----6 .

8

I
I I 0

I

4 -------!
I

-1 1 4---------------------------I-: ‘1’ \L -- Ir - ---- -------------------r j 9 . 1

--------------------------------

---

--------------------

---------------

-----

--*------------- ----------- ----# I----------- ----------- ----------/

iy~ I
I I
I

1,
,!

\


f

\ ~’~’\
---------

\
4 --------

v \ ---------------------------------

I
I

-2

---

I

I
-----

4

+-- -----

:yL-,1 II f

N

v

---

----

----

----

----

----

----

----

----

----

----

----

----

-

--

I

-6

I (

1970

‘ 1974‘ “ 1978
l——

1

,

i’[11[[1’”’ 1 1982 1986
IIl”rlll’’rl[llll “

Ilrllr’’’’[lrlillll

‘ 1990

1.1’

‘1994 (

Alpha = 200 —

Alpha= 400 ---- Alpha = 800 I

I

-47-

United States 4
I

I
I I
4

!
,

I

II

2 I

I -------~ I1 I d I

VI -----------/\ I h

- ------

----

I 1 I - - - - - - -_t I

o

“2
i

+)/)/ I ! ,!

\ \, - -----\ \

-II N ! ,1 ‘,I‘ I ‘\ \ 4
I I I 1 1
T T 1 I I I I ( I T T , I 1 1 I I I r

-4

-------------1 I

I Ii II -

I I /t I -----------------

i I

4

I

I

1970

1974 ‘ “1’978
I
!——

f1

i I i I I “1982‘“‘‘1986‘“i “’1’990 1994 ‘ “’’’’’’”
Alpha= 400 ---- Alpha = 800 I

Alpha = 200 —

-48References

Adams, Charles and David T. Coe. “A Systems Approach to Estimating the Natural Rate of Unemploymentand Potential Output for the United States.” LW SfaffPapers 37 (June 1990):232-93. Beveridge, Stephen and Charles R. Nelson. “A New Approach to Decompositionof Economic Time Series into Permanent and Transitory Components with Particular Attention to Measurement of the Business Cycle.’”JournaZ Monefa~ Economics7 (March of 1981):151-74. Blanchard, Olivier and Danny Dynamic Effects of Aggregate Demand and Supply Disturbances.” AmericanEconomicReview 79 (September 1989): 655-73. Hodrick Robert J. and Edward C. Prescott. Post-War U.S. Business Cycles: An Empirical Investigation. DiscussionPaper 451. Evanston,11:Centerfor MathematicalStudies in Economicsand ManagementScience,Northwestern University, 1980. Kuttner, “Estimating Potential Output as a Latent Variable.” Journal of Businessand EconomicStatistics 12:3 (July 1994). Laxton, Douglas and Robert Tetlow. “A Simple Muitivariate Filter for the Measurementof Potential Output.” Bank of Canada TechnicalReport No. 59 (1992). Laxton, Douglas, Kevin Shoom, and Robert Tetlow. “Should the change in the gap appear in the Phillips Cume?: Some Consequences of Mismeasuring Potential Output.” WorkingPaper 92-I. Ottawa: Bank of Canada (January 1992). OECD Economic Outlook, “Estimating Potential Output, Output Gaps, and StructuralBudget Balances,” 56, December 1994:31-37.

-49InternationaI Finance Discussion Papers

IFDP Number

Titles
1996

Author(s]

561 560 559 558 557 556 555 554 553 552 551 550 549 548

Inflation-Adjusted otentialOutput P The Management f FinancialRisks at German o Nonfinancial Firms: The case of Metallgesellschafl
Broad MoneyDemandand FinancialLiberalization

Jane T. Haltmaier Allen B. Frankel David E. Palmer Neii R. Ericsson Sunil Sharma Carol C. Bertaut Vivek Ghosal Prakash Loungani John Ammer Michael S. Gibson Michael P. Leahy Charles P. Thomas Steven B. Kamin John Ammer Martin Uribe Murat F. Iyigun Ann L. Owen Murat F. Iyigun Ann L. Owen Michael S. Gibson Enrique G. Mendoza Martin Uribe

in Greece Stockholding Behaviorof U.S. Households:Evidence bm the 1983-89Sumeyof Consumer Finances Finn Size andthe Impactof Profit-Margin Uncertainty on Investment: DO FinancingConstraints lay a Role? P Regulationand the Costof Capitalin Japan: A Case Study The Sovereignty Option: The Quebec Referendum and
Market Views on the Canadian Dollar and Inflation in Exchange-Rate Real Exchange R Based Stabilizations: An Empirical Examination Macroeconomic State Variables as Determinants of Asset Price Covariances The Tequila Effect: Theoryand Evidence from Argentina The Accumulation of Human Capital: Alternative T Matter Methods and W Alternatives in Human Capital Accumulation: Implications for Economic Groti More Evidence on the Link be~een Bank Health and Investment in Japan

The Syndromeof Exchange-Rate-Based Stabilization and the Uncemin Durationof
Currency Pegs

Please address requests for copiesto International Finance Discussion Papers, Division of International Finance, Stop 24, Bored of Governors of the Federal Reserve System, Washington, D.C. 20551.

-50-

International Finance Discussion Papers IFDP Number

Titles 1996

Author(s)

547

Gemmn Unification: what Have We Learned horn Multi-Country Models?

Joseph E. Gagnon Paul R. Masson Warwick J. McKibbin Susanto Basu John G. Femaid Guillermo A. Calvo Graciela L. Kaminsky Carmen M. Reinhart Graciela L. Kaminsky Leonardo Leiderman Carol C. Bertaut Michael Haliassos William R. Meiick Charies P. Thomas Steven B. Kamin John H. Rogers Martin Uribe Joseph E. Gagnon Allan D. Bmnner Chan Huh

546 545 544 543 542

Returnsto Scaiein U.S. Production: Estimates and Implications
Mexico’s Balance-of-payments Crisis: A Chronicle of Death Foretold of Banking and The Twin Crises: The C Balance-of-PaymentsProblems in the Afierrnath of High Real Interest R Disinflation: Is it a bck of Credibility? Precautionary Potioiio Behavior tim a Life-Cycle Perspective Using Options Prices to Infer PDF’s for Asset Prices: An Application to Oil Prices During the Gulf Crisis Monetary Policy in the End-Game to Exchange-Rate Based !Nabili=tions: The Case of Mexico Comparing the Welfw Costs and the Initial Dynamics of Alternative Tempomy Stabilization Policies Long Memo~ in Inflation Expectations: Evidence horn International Fin~ciai Markets Using Measures of Expectations to Identifi the Effects of a Monetary Policy Shock Regime Switching in t Dynamic Relationship behveen the Fedemi FundsRateand Innovations in Nonborrowed Reserves

541 540 539 538 537 536

535 534

of The Risks and Implications ExternalFinancial Shocks: Lessons from Mexico
Curnmcy Crashes in EmergingMarkets: h Empirical Treatment

Edwin M. Truman Jeffrey A. Frankei Andrew K. Rose