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Research Notes–December 2006


Featuring research published in November 2006

Macroeconomics

Indeterminacy in a Forward-Looking Regime-Switching Model
Working Paper 2006-19
Using a monetary policy model that switches between regimes with known transition probabilities, the authors find that ruling out nonfundamental equilibria in Markov-switching rational expectations models may be difficult.

Methods for Inference in Large Multiple-Equation Markov-Switching Models
Working Paper 2006-22
Whereas most forecasting models assume economic stability, the authors account for the volatility of economic time series by using a Markov-switching model to view structural breaks and changes in the economy.

Dollar Appreciates in October
The average monthly value for the trade-weighted dollar index of 15 major currencies tracked by the Federal Reserve Bank of Atlanta rose 0.5 percent in October from the previous month.

Finance

Business Cycles: A Role for Imperfect Competition in the Banking System
Working Paper 2006-21
The author finds that bank markups are countercyclical as a result of monopoly power and limit pricing strategies. This mechanism works as an internal amplification mechanism in business cycles models.

Liquidity Creation without a Lender of Last Resort: Clearinghouse Loan Certificates in the Banking Panic of 1907
Working Paper 2006-23
Using unexploited, bank-specific data about clearinghouse loan certificates in New York City, the authors demonstrate that the six largest national banks provided most of the liquidity during the 1907 panic.

The Predictive Power of the Senior Loan Officer Survey: Do Lending Officers Know Anything Special?
Working Paper 2006-24
Using the responses to the Federal Reserve’s survey of commercial banks’ loan officers, the author finds that the officers’ success in predicting certain economic behavior does not extend to predicting changes in commercial lending.

Credit and the No-Surcharge Rule
Working Paper 2006-25
This paper presents a model of an optimal card payment system when cash is available as an alternative. Prohibition of surcharges for card use is shown to be optimal under certain conditions.

Why Do Banks Promise to Pay Par on Demand?
Working Paper 2006-26
Banks promise to give depositors their money on demand even if banks as a rule hold fractional reserves of deposits. Exploring literature and historical episodes, the authors examine why banks make promises they cannot always honor.

International Economics

The Conquest of South American Inflation
Working Paper 2006-20
An examination of repeated hyperinflations and stabilizations in Latin American countries allows the authors to infer the deficit adjustments that seem to have permanently stabilized inflation processes.