Author Index

A

Akaike, H., 27

Andrews, D., 40

Arrow, K.J., 107

B

Backus, D., 144, 149, 183

Barro, R.J., 336

Bekaert, G., 183

Bertola, G., 321

Betts, C., 264, 286

Beveridge, S., 47

Bhargava, A., 43, 44

Black, F., 194

Blanchard, O., 251

Blough, S.R., 50

Bowman, D., 62

Burnside, C., 126

C

Caballero, R.J., 321

Campbell, J.Y., 54, 92

Canzoneri, M.B., 224

Cassel, G., 80

Cavaglia, S., 184, 185

Cecchetti, S.G., 126, 204

Chinn, M.D., 184, 185

Choi, C.Y., 57

Christiano L.J., 218

Clarida, R., 252

Cochrane, J.H., 48,50

Cole, H.L., 112, 135

Cooley, T., 31, 125, 144

Cumby, R.E., 224

D

Davidson, R., 45

De Long, J.B., 194

Debreu, G., 105

Degroot, M.H., 319

DeJong, F., 315

Devereux, M.B., 264, 286

Diba, B., 224

Dornbusch, R., 229, 237

Du e, D., 39

E

Eichenbaum, M., 218, 249

Engel, C.M., 172, 203, 211, 226

Evans, C., 249, 193

F

357

358

Fama, E.F., 161, 167,168

Faust, J., 50

Federal Reserve Bank of New York,

2

Feenstra, R.C., 285

Fisher, R.A., 61

Fleming, J.M., 229

Flood, R.P., 317, 325, 326

Frankel, J.A., 184, 185, 223

Frenkel, J.A., 6, 80, 83

Friedman, M., 83

Froot, K., 184, 185

G

Gali, J., 252

Garber, P.M., 317, 326

Gordon, D.B., 336

Gregory, A., 183, 126

Grilli, V., 221

H

Hall, A., 54

Hamilton, J.D., 23, 45

Hansen, L.P., 35, 163, 177, 179

Hatanaka, M., 23

Hinkle, L.E., 229

Hodrick, R.J., 75, 138, 163, 172

Huizinga, J., 221

I

Im, K.S., 51, 61

Ingram, B. F., 39

Isard, P., 209

AUTHOR INDEX

J

Jaganathan, R., 179

Johansen, S., 23, 62

Johnson, H.G., 83

K

Kaminsky, G., 204, 221

Kehoe, P.J., 144, 149

Kendall, M.G., 57

King, R.G., 78, 139, 144

Knetter, M.M., 285

Krasker, W., 187

Krugman, P.R., 311, 326

Kydland, F.E., 144, 149

L

Lee, B.S., 39

LeRoy, S, 31, 92

Levich, R.M., 6

Levin, A., 51, 55

Lewis, K.K., 188

Lin, C.F., 51, 55

Lothian, J.R., 220

Lucas, R.E., 105

MacDonal, R., 92, 223, 229

MacKinnon, J.G., 45

Maddala, G.S., 51, 61

Marion, N., 325

Mark, N.C., 97, 98, 172, 177,

193

McCallum, B.T., 203

Meese, R., 97

Mehra, R., 179

Modjtahedi, B., 177

AUTHOR INDEX

Montiel, P.J., 229

Mundell, R.A., 229

N

Nelson, C.R., 47

Newey, W., 37, 38, 39, 54

Nickell, S.J., 57

O

Obstfeld, M., 112, 135, 229, 241,

264, 333

P

Papell, D., 58, 218, 223, 249

Pederson, T.M., 7

Perron, P, 46 54

Peruga, R., 204

Pesaran, M.H., 51, 61

Phillips, P.C.B., 46

Plosser, C.I., 139, 144

Porter R.D., 92

Prescott, E., 75, 125, 138, 144,

179

Q

Quah, D., 251

R

Rebelo, S., 78, 139, 144

Rogers, J.H., 211

Rogo , K., 97, 264

Rose, A.K., 223

359

S

Samuelson, P.A., 82

Sarno, L., 62

Schwarz, G., 25, 26

Schwert, G.W., 63

Shiller, R.J., 92

Shin, Y., 51, 61

Siegel, J., 203

Sims, C.A., 249

Singleton, K.J., 39, 177

Smith, G.W., 126

Stein, J., 229

Sul, D., 97, 98

T

Taylor, M.P., 8, 63, 92, 220

Telmer, C.I., 183

Theil, H., 100

Theodoridis, H., 218

W

West, K.D., 37, 38, 39, 54

Williamson J., 229

Wu, S., 51, 61

Wu, Y., 58, 172, 193, 223

Subject Index

A

Absorption, 16, 230 AIC, 25 Approximate solution

Pricing-to-market model, 292— 294

Redux model, 274—275 Real business cycle model,

144—148, 154—158 Arrow-Debreu model, 105, 137 Ask price, 6

Asymptotic distribution, 24 Augmented Dickey-Fuller regres-

sion, 46 Autocovariance generating func-

tion, 73—74 Autoregressive process, 24

B

Balance of payments Accounts 18—20 Subaccounts, 19

Capital account, 19 Current account, 19 O cial settlements account,

19 Transactions

Credit transactions, 18

Debit transaction, 18 Balanced growth path, 141 Balassa-Samuelson model (begin),

214—217 Bartlett window, 37 Bayes’ Rule, 191

Beggar-thy-neighbor policy, 234, 384, 300, 301

Bias of estimator of ρ

Kendall adjustment univariate case, 57

Nickell adjustment for panel data, 57

BIC, 26 Bid price, 6

Bootstrap, 29, 58—59 Nonparametric, 29

Panel unit-root test, 59 Panel study of monetary

model, 98 Parametric,

Impulse response standard errors, 29

Panel unit-root test, 58 Residual bootstrap, 58

Brownian motion (Wiener process), 306

360

SUBJECT INDEX

C

Calibration method, 125 Lucas model, 126—132

One-country real business cycle model, 144—149 Two-country real business cycle model, 149—158

Cash-in-advance

Transactions technology, 113 Constraint, 115

Causal priority, 26 Central limit theorem, 36 Certainty equivalence, 147

Chebyshev’s inequality, 307 Choleski upper triangular decom-

position, 28 Cobb-Douglas

Consumption index, 112 Price level, 213

Production function,140, 151, 214

Cointegration, 63—67 Monetary model, 92

Common trend processes, 64 Common-time e ect in panel unit

root tests, 53 Companion form, 43,93 Complete markets, 119 Complex conjugate, 72 Constant elasticity of substitu-

tion index, 265 Constant relative risk aversion

utility, 112, 117, 122 Convergence, in distribution, 24 Convergence, in probability, 23 Covariance decomposition, 174

361

Covariance stationarity, 24 Asymptotic distribution of OLS

estimator of ρ, 42 Process, 24

Time-series behavior, 41 Covered interest parity, 5, 162,

197

Neutral-band tests, 6-9 Crowding out, 236 Current account, 17

D

Data generating process for the bootstrap, 58

Deep parameters, 125 Devaluation, 232, 336, 337, 339 Di erential equation

First-order, 309

Linear homogeneous, 257 Second order, 312

Di erentiated goods, 264 Di usion process, 306 Disequilibrium dynamics

Stochastic Mundell-Fleming model, 246—248

Domestic credit, 231, 234, 251, 325, 327, 331, 333

Extended by central bank, 20

Dornbusch model, 237—241

E

Econometric exogeneity, 26, 33 Economic signiÞcance, 217 E ective labor units, 139

362

E cient capital market, 161 Equity premium puzzle, 179 Error-components representation,

52

Escape clause, 338 Euler equations

Lucas model, 108—109, 111— 112, 116, 120, 122 Pricing-to-market model, 288

Redux model, 271 Eurocurrency, 4

Excess exchange rate volatility, 88

Exchange Rate Mechanism of European Monetary System, 305

Exchange rate quotation American terms, 2, 79 European terms, 2

Expected speculative proÞt Estimation of, 170—172

Expenditure switching e ect, 230, 235, 245, 284, 299, 301

External balance, 261

F

Filtering time-series, 67—78 Linear Þlters (begin range 1),

74—78

Hodrick-Prescott Þlter, 75— 78

Removing non-cyclical components, 138

First-generation models, 326—332 Fisher equation, 268

Fisher test—See Maddala—Wu test

SUBJECT INDEX

Foreign exchange reserves of central bank, 20

Forward exchange rate Lucas model, 123 Transactions (outright), 3 Contract maturities, 4 premium and discount, 4

Forward premium bias—see Uncovered Interest Parity, Deviations from

Fundamentals traders, 197 Fundamentals, economic, 85 Futures contracts, 12—15

Margin account, 12

Yen contract for June 1999 delivery, 14

Long position, 12 Settlement, 12 Short position, 12

G

Gambler’s ruin problem, 319 Generalized method of moments,

35—38, 164

Asymptotic distribution, 38 Long-run covariance matrix,

37

Testing Euler equations, 177— 179

Tests of overidentifying restrictions, 38

H

Half-life to convergence, 43 Real exchange rate, 218

SUBJECT INDEX

Hall’s general-to-speciÞc method, 54

Hansen-Hodrick problem, 163 Hodrick-Prescott Þlter, 75—79

In real business-cycle research, 138—141, 148—149, 151, 158

Honeymoon e ect, 314

I

Imperfect competition, 263 Imperfectly credible target zones,

320—322 Inßation premium, 117 Inßationary bias, 336

Instrumental variables, 37 International transmission of shocks

Mundell-Fleming model Fixed exchange rates, 233 Flexible exchange rates, 236

Pricing-to-market model, 299 Redux model, 284

Intertemporal marginal rate of substitution, 173

Of money, 176 Intervention

Foreign exchange market, 20 Sterilized, 21 Unsterilized, 21, 311

Ito’s lemma, 307—308

J

Jensen’s inequality, 195

363

K

Kronecker product, 178

L

Law of iterated expectations, 86, 93

Law-of-one price,

Deviations from, 209—212 Learning period in peso-problem

model, 192

Liquidity e ect, 240, 281, 284, 299

Log utility, 139, 141, 142 Lognormal distribution, 178, 204 London Interbank O er Rate (LI-

BOR), 4

Long position (exposure), 7 Long-horizon panel data regres-

sion, 97 Lucas model, 105—132

Risk premium, 172—177

M

Markov chain (begin range), 126, 133—134

Transition matrix, 127, 129, 133

Markup, price over costs, 290 Mean reversion, 49, 314 Mean-variance optimizers, 11 Measurement in calibration

Lucas model, 126

Real business cycles, 141, 150, 151

364

Method of undetermined coe - cients, 312, 329

Dornbusch model, 239 Krugman target-zone model,

311

Lewis peso-problem model, 188

Stochastic Mundell-Fleming, 243

Noise-trader model, 201 Moment generating function, 10 Monetary base, 20

Monetary model, 79—103 Excess exchange rate volatil-

ity, 90—92

Exchange-rate determination, 84—100

Long-horizon panel regression, 100

Of the balance of payments, 83—84

Peso-problem analysis, 188 Target-zone analysis

Deterministic continuous time, 308—309

Stochastic continuous time, 309—311

Testing present-value form, 95

Monetary neutrality Dornbusch model, 239 Pricing to market, 398 Redux model, 289

Money in the utility function, 265, 287

Money-demand function, 85 Monopolistically competitive Þrm,

SUBJECT INDEX

285, 290 Monopoly distortion, 284 Moving-average process, 24

Moving-average representation of unit-root time series, 43

Multiple equilibria, 341 Mundell-Fleming model

Stochastic, 241—248 Static, 229—236

N

National income accounting, 15— 18

Closed economy, 16 Current account, 17 Open economy, 16

Near observational equivalence in unit-root tests, 50

Net foreign asset position, 17 Newey-West long-run covariance

matrix, 37 Noise-Trader Model, 193—202 Nominal bond price

Lucas model, 118, 123 Nontraded goods, 135

Normal distribution with mean µ and variance σ2, 23

O

Ordinary least squares (OLS) Asymptotic distribution, 36

Out-of-sample prediction and Þt, 97

Overlapping generations model, 194

SUBJECT INDEX

Overlapping observations, advantages of, 165

Overshooting exchange rate Pricing to market, 298 Redux model, 279 Delayed, 250 Dornbusch model, 240 Structural VAR, 254

Stochastic Mundell-Fleming model, 248

Overshooting terms of trade, Redux model, 280

P

Pareto optimum—see Social optimum

Pass through, 266, 285 Perfect foresight, 147, 238

Permanent—transitory components representation of unit-root process, 46—48, 102

Peso problem, 186—193, 205, 332 Phase diagram, 260

Political risk, 5

Posterior probabilities, 192 Power of a statistical test, 50 Present-value formula, 86, 310 Pricing nominal contracts, pit-

falls, 176

Pricing to market, 285—301 Prior probability, 192 Process switching, 311

Purchasing-power parity, 80—83, 207-208

Monetary model, 85 Absolute, 209

365

Cassel’s view (begin), 80—81 Commodity arbitrage view,

82

Pricing-to-market model, 292 Redux model, 268

Relative, 209

Q

Quadratic formula, 147 Quadratic optimization problem,

145

Quantity equation, 117, 121

R

Rational bubble, 87 Reaction function, 335

Real business cycle model, 137— 158

One-sector closed economy, 139—149

Two-country model, 149—159 Reduced form, 31

Regime shift, 189 Representative agent, 106 Revaluation, 234, 336 Risk aversion, 10, 202

Constant absolute, 10 Insurance demand, 175 Required in Lucas model to

match data, 182

Risk premium compensation, 175

Risk neutral

Forward exchange, Lucas model, 175

366

Risk neutrality, 9, 176, 203

Risk pooling equilbrium, 112, 117 Risk premium

As explanation of deviation from uncovered interest parity, 10

Lucas model, 174

Lucas state contingent, 127, 130

Risk sharing, e cient conditions, 111

S

Saddle path solution, 259 S-curve, 315, 321 Second-generation model, 333—

341

Segmented goods markets internationally, 285

Self-fulÞlling crises, 342 Shadow prices, 113

Short position (exposure), 6 Siegel’s paradox, 203 SigniÞcance, Statistical versus eco-

nomic, 217

Simulated method of moments, 38—40

Simulated method of moments Asymptotic distribution, 40 Estimating the Krugman model,

315

Simulating one-country real business cycle model, 148

Simulating two-country real business cycle model, 158

Small country assumption, 229

SUBJECT INDEX

Social Optimum, 105, 109—111 Social planner’s problem, 110, 141,

142

Spectral density function, 73, 75 Spectral representation

Cycles and periodicity, 68 Of time series, 68—74 Phase shift, 68

Spot transactions, 3 Static expectations, 230 Steady state

One-country real business cycle model, 143—144 Pricing-to-market model, 292

Redux model, 272—274 Two-country real business cy-

cle model, 153—154 Sticky price adjustment rule

Dornbusch model, 238 Stochastic Mundell-Fleming

model, 242

Sticky price models, 229—302 Stochastic calculus, 306—308 Stochastic process

Continuous time, 306 Di usion, 306

Stochastic trend process, 64 Stochastic-di erence equation

First-order in the monetary model, 85

Nonlinear in real business cycle model, 143

Second-order in real business cycle model, 144, 156

Strict exogeneity, 33 Studentized coe cient, 44 Survey expectations, 184—186

SUBJECT INDEX

Swap transactions, 3

T

Target zone, eventual collapse, 318

Technical change, deterministic, 139

Technological growth Biased, 216 Unbiased, 216 Technology shock, 140

Terms of trade, 277, 280, 300 Tranquil peg, 7 Transversality condition, 86

Trend-cycle components decomposition, 138

Triangular arbitrage, 3 Triangular structure of exogenous

shocks, 246 Trigonometric relations, 6971 Turbulent peg, 7

U

Uncovered interest parity, 9—11 Deviations from , 162—172 Fama decomposition, 167—170 Hansen-Hodrick tests, 164—

165

Monetary model, 85 Uniform distribution from a to

b, 23 Unit root

Analyses of time series, 40— 67

Univariate test procedures,

367

44—50 Dickey—Fuller test, 45

Augmented Dickey-Fuller test, 46

Finite sample power, DickeyFuller test, 52

Bhargava framework, 44— 45

Testing for PPP, 217—222 Panel data, 51—63

Cross-sectional dependence, 53, 58

Im-Pesaran-Shin test, 60, 225

Levin—Lin test, 52—57, 223 Maddala—Wu test, 61—62,

224

Potential pitfalls, 62 Testing for PPP, 222 Size distortion, Levin-Lin

test, 56

Size distortion, tests of PPP, 226

V

Variance ratio statistic, 50, 221 Vector autoregression

Unrestricted, 24—34 Asymptotic distribution of

coe cient vector, 25 Cooley—Leroy critique, 31—

34

Decomposition of forecasterror variance, 29

Eichenbaum-Evans 5 variable VAR, 249—250

368	SUBJECT INDEX

Impulse response analysis, 27

Impulse-response standard errors by parametric bootstrap, 29

Orthogonalizing the innovations, 28

Structural

Clarida-Gali SVAR (begin), 251—256

Vector error correction model, 65— 67

Monetary model, 93 Vehicle currency, 2 Volatility bounds, 179—183

Volatility of exchange rates, stock prices, 89

W

Welfare analysis, Redux model, 282—284

Wiener process (Brownian motion), 306

Wold vector moving-average representation, 26, 28