Can Endogenous Monetary Policy Explain the Deviations from UIP

The co-movements of nominal exchange rates and short-term interest rates as the economy is hit by shocks is a potential source of ex post deviations from uncovered interest rate parity. This paper investigates whether an established model of endogenous monetary policy in an open economy is capable of explaning the exchange rate risk premium puzzle. Time series on interest differentials and exchange rate changes are generated from the Svensson (2000) model. Uncovered interest rate parity is tested on the simulated data and the b-coefficients are investigated. For most realistic choices of parameter values, the b-coefficients are positive but much smaller than the unity value expected from UIP. It is however also possible to obtain large, negative b-coefficients if the central bank is engaged in interest rate smoothing.Monetary policy; Uncovered interest parity; Exchange rate risk premium

Far Out on the Yield Curve

Data on short investments in Swedish long-term bonds as the bonds mature contains unusually rich information about the relationship between duration and the first and second moments of bond returns. We identify three different channels through which duration affects bond returns. The liquidity preference hypothesis yields a direct link between duration and returns, which however disappears once indirect effects through the variance of returns and the price of risk are taken into account. The risk premia obtained from a multivariate GARCH-M model extended to allow the variance to depend on duration are of the same size as observed excess returns. Finally, duration appears to affect the relationship between bond returns and the risk free interest rate. One additional year of duration implies that the beta-coeffcient increases by 0.66.Bond returns; duration; multivariate GARCH

How to Beat the Random Walk

Out-of-sample forecasting accuracy is a frequently used criterion for evaluating models of exchange rate determination. This paper shows that both UIP and PPP produce better exchange rate forecasts at the ten-year horizon than a random walk without drift. There are two novelties relative to previous studies. First, the effects of extending the horizons beyond four years have not been investigated. This is relevant because the influence of fundamental variables has been shown to increase with the forecasting horizon, and it may take considerably more than four years to reach the long run equilibrium in the case of exchange rates. Second, the exchange rate forecasts implied by uncovered interest parity have been neglected in this literature. UIP is typically rejected in empirical tests using data on short-term interest rates. However, long-term interest rates appear to be a quantitatively important determinant of nominal exchange rate changes.Exchange rates; Prediction

Monetary Policy and Swedish Unemployment Fluctuations

A widely spread belief among economists is that monetary policy has relatively short-lived effects on real variables such as unemployment. Previous studies indicate that monetary policy affects the output gap only at business cycle frequencies, but the effects on unemployment may well be more persistent in countries with highly regulated labor markets. We study the Swedish experience of unemployment and monetary policy. Using a structural VAR we find that around 30 percent of the fluctuations in unemployment are caused by shocks to monetary policy. The effects are also quite persistent. In the preferred model, almost 30 percent of the maximum effect of a shock still remains after ten years.unemployment, monetary policy, structural VARs

Measures of Technology and the Business Cycle: Evidence from Sweden and the U.S.

Empirical evidence on the cyclical behavior of technology shocks, or the relative importance of technology shocks versus other structural shocks as sources of fluctuations, hinges crucially on the identification of technological changes. In this paper, we study different measures of technology in order to find out (i) to what extent they capture the same underlying phenomenon and (ii) whether the implications for macroeconomic theory vary between approaches. Several variations of the production function approach and structural VAR models are investigated: the classic Solow residual, the refined Solow residuals of Burnside et al (1995) and Basu and Kimball (1997), large cointegrated VAR models as in King et al (1991) and a small VAR in first differences à la Galí (1999). It turns out that the different measures of technological change are reasonably coherent when applied to US data. However, they are often insignificantly related in the case of Sweden. Furthermore, our results do not support the hypothesis that business cycle fluctuations are primarily drive by changes in technology.Technology shocks; Production function approach; Structural VAR models

Monetary policy and Swedish unemployment fluctuations

A widely spread belief among economists is that monetary policy has relatively short-lived effects on real variables such as unemployment. Previous studies indicate that monetary policy affects the output gap only at business cycle frequencies, but the effects on unemployment may well be more persistent in countries with highly regulated labor markets. We study the Swedish experience of unemployment and monetary policy. Using a structural VAR we find that around 30 percent of the fluctuations in unemployment are caused by shocks to monetary policy. The effects are also quite persistent. In the preferred model, almost 30 percent of the maximum effect of a shock still remains after ten years.Unemployment; monetary policy; structural VARs

Monetary policy when credibility matters

Continuos credibility effects are incorporated into a simple model of optimal monetary policy. The resulting model provides explanations for a number of folk theorems about credibility in monetary policy. A central bank with low initial credibility pursues a more restrictive policy than a central bank with high initial credibility. It accommodates shocks less and expected inflation more. The higher initial credibility is, the larger is the scope for stabilisation of shocks. Calibrations show that the time consistent inflation rate is drastically reduced when the central bank takes credibility into account

Pembuatan Komposit Bata Merahdari Limbah Padat Pabrik Minyak Nabati

Pengembangan teknologi proses bata merah limbah padat pabrik minyak nabati, yaitu spent bleaching earth telah dilakukan. Tujuan penelitian adalah untuk mengkaji pemanfaatan limbah pabrik minyak nabati sebagai bahan baku pembuatan bata merah yang sekiranya dapat berperan untuk mengatasi masalah lingkungan dari limbah padat yang menumpuk di lokasi pabrik minyak nabati. Penelitian dilaksanakan dalam dua tahap yakni, penelitian pendahuluan untuk mendapatkan komposisi bahan yang baik dan penelitian lanjutan yaitu pembuatan bata merah skala teknis produksi. Hasil penelitian pendahuluan menunjukkan bahwa bata percobaan untuk perlakuan bahan A1-F1 memiliki karakteristik sedikit plastis s/d agak plastis, tidak retak dan tidak bengkok saat dikeringkan, dengan susut kering antara 7,5-7,79%, selanjutnya tidak retak dan tidak bengkok setelah dibakar pada suhu ±700 oC dengan susut bakar antara 1,92-2,94%. Berdasarkan hasil penelitian pendahuluan tersebut selanjutnya dilakukan pencetakan bata merah skala teknis produksi dengan perlakuan (komposisi campuran bahan) (B): 60 bagian SBE+25 bagian Tanah Liat (TL)+15 bagian Domato; (C): 50 bagian SBE+25 bagian TL+25 bagian Domato; dan (D): 70 bagian SBE+20 bagian TL+10 bagian Domato. Hasil uji fisik kuat tekan bata merah dari limbah padat pabrik minyak nabati menunjukkan bahwa semua perlakuan memenuhi persyaratan. Produk dengan kuat tekan kelas terendah terdapat pada perlakuan (B), yakni 63,30 kg/cm² dan yang tertinggi pada perlakuan (C), yakni 103,30 kg/cm². Bila ditinjau dari semua parameter uji maka produk bata merah perlakuan D memenuhi syarat SNI 152094-2000 dengan kuat tekan pada kelas 100 kg/cm²

Sources of Real Exchange Rate Fluctuations in the Nordic Countries

In an attempt to move beyond the purchasing power parity hypothesis, this paper studies two issues. First, the causes of movements of real exchange rates are investigated. In contrast to the typical result, supply shocks are found to dominate the long-run variance decompositions for all countries. This suggests that productivity developments are the most important determinant of long-run movements in real exchange rate. A second topic is the relative importance of stationary and non-stationary components of real exchange rates. Also in contrast to previous findings, transitory shocks are more important than permanent shocks for three of the four countries