Application of Internal Revenue Code Section 103(C) to Variable Rate Demand Bonds: Purging the Profiteering Potential

This Note analyzes transactions involving VRDBs, to determine whether they comply with the strictures of IRC section 103(c) and, hence, qualify for the tax exemption. Initially, this Note provides an overview of the tax-exempt bond market by examining the factors that led to the development of VRDBs. It then demonstrates how a reasonable interpretation of the language of IRC section 103(c), gleaned from its legislative history and Treasury promulgations, requires that almost all VRDBs lose their tax-exempt status. More specifically, this Note concludes that the inability to calculate the yield for VRDBs creates an impermissible potential to earn arbitrage profits. Based on this conclusion, this Note suggests that it is incumbent upon the Treasury Department to issue regulations that will limit the tax exemption for transactions involving VRDBs. Finally, this Note proposes measures that delineate the proper scope of the tax exemption for VRDBs and incorporates them in a model Treasury Regulation

Optimal quantum adversary lower bounds for ordered search

The goal of the ordered search problem is to find a particular item in an ordered list of n items. Using the adversary method, Hoyer, Neerbek, and Shi proved a quantum lower bound for this problem of (1/pi) ln n + Theta(1). Here, we find the exact value of the best possible quantum adversary lower bound for a symmetrized version of ordered search (whose query complexity differs from that of the original problem by at most 1). Thus we show that the best lower bound for ordered search that can be proved by the adversary method is (1/pi) ln n + O(1). Furthermore, we show that this remains true for the generalized adversary method allowing negative weights.Comment: 13 pages, 2 figure

Application of Internal Revenue Code Section 103(C) to Variable Rate Demand Bonds: Purging the Profiteering Potential

This Note analyzes transactions involving VRDBs, to determine whether they comply with the strictures of IRC section 103(c) and, hence, qualify for the tax exemption. Initially, this Note provides an overview of the tax-exempt bond market by examining the factors that led to the development of VRDBs. It then demonstrates how a reasonable interpretation of the language of IRC section 103(c), gleaned from its legislative history and Treasury promulgations, requires that almost all VRDBs lose their tax-exempt status. More specifically, this Note concludes that the inability to calculate the yield for VRDBs creates an impermissible potential to earn arbitrage profits. Based on this conclusion, this Note suggests that it is incumbent upon the Treasury Department to issue regulations that will limit the tax exemption for transactions involving VRDBs. Finally, this Note proposes measures that delineate the proper scope of the tax exemption for VRDBs and incorporates them in a model Treasury Regulation

Analytical expressions for optimum alignment modes of highly segmented mirrors

The major sources causing deterioration of optical quality in extremely large optical telescopes are misadjustments of the mirrors, deformations of monolithic mirrors, and misalignments of segments in segmented mirrors. For active optics corrections, all three errors, which can partially compensate each other, are measured simultaneously. It is therefore of interest to understand the similarities and differences between the three corresponding types of modes which describe these errors. The first two types are best represented by Zernike polynomials and elastic modes respectively, both of them being continuous and smooth functions. The segment misaligment modes, which are derived by singular value decomposition, are by their nature not smooth and in general discontinuous. However, for mirrors with a large number of segments, the lowest modes become effectively both smooth and continuous. This paper derives analytical expressions for these modes, using differential operators and their adjoints, for the limit case of infinitesimally small segments. For segmented mirrors with approximately 1000 segments, it is shown that these modes agree well with the corresponding lowest singular value decomposition modes. Furthermore, the analytical expressions reveal the nature of the segment misalignment modes and allow for a detailed comparison with the elastic modes of monolithic mirrors. Some mathematical features emerge as identical in the two cases.Comment: 24 pages, 13 figures, accepted for publication in Journal of Modern Optic

Generalizing the Taylor Principle

The paper generalizes the Taylor principle—the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation—to an environment in which reaction coefficients in the monetary policy rule evolve according to a Markov process. We derive a long-run Taylor principle that delivers unique bounded equilibria in two standard models. Policy can satisfy the Taylor principle in the long run,even while deviating from it substantially for brief periods or modestly for prolonged periods. Macroeconomic volatility can be higher in periods when the Taylorprinciple is not satisfied, not because of indeterminacy, but because monetary policy amplifies the impacts of fundamental shocks. Regime change alters the qualitative and quantitative predictions of a conventional new Keynesian model, yielding fresh interpretations of existing empirical work.regime change, indeterminacy, monetary policy

Fluctuating Macro Policies and the Fiscal Theory

This paper estimates regime-switching rules for monetary policy and tax policy over the post-war period in the United States and imposes the estimated policy process on a calibrated dynamic stochastic general equilibrium model with nominal rigidities. Decision rules are locally unique and produce a stationary long-run rational expectations equilibrium in which (lump-sum) tax shocks always affect output and inflation. Tax non-neutralities in the model arise solely through the mechanism articulated by the fiscal theory of the price level. The paper quantifies that mechanism and finds it to be important in U.S. data, reconciling a popular class of monetary models with the evidence that tax shocks have substantial impacts. Because long-run policy behavior determines existence and uniqueness of equilibrium, in a regime-switching environment more accurate qualitative inferences can be gleaned from full-sample information than by conditioning on policy regime.

Generalizing the Taylor principle

Recurring change in a monetary policy function that maps endogenous variables into policy choices alters both the nature and the efficacy of the Taylor principle---the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation. A monetary policy process is a set of policy rules and a probability distribution over the rules. We derive restrictions on that process that satisfy a long-run Taylor principle and deliver unique equilibria in two standard models. A process can satisfy the Taylor principle in the long run, but deviate from it in the short run. The paper examines three empirically plausible processes to show that predictions of conventional models are sensitive to even small deviations from the assumption of constant-parameter policy rules.Taylor's rule ; Monetary policy ; Keynesian economics

Monetary-fiscal policy interactions and fiscal stimulus

Increases in government spending trigger substitution effects both inter- and intra-temporal and a wealth effect. The ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior. Studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption: higher future taxes create a strong negative wealth effect, while the active monetary response increases the real interest rate. This paper estimates Markov-switching policy rules for the United States and finds that monetary and fiscal policies fluctuate between active and passive behavior. When the estimated joint policy process is imposed on a conventional new Keynesian model, government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized. The paper reports the model's predictions of the macroeconomic impacts of the American Recovery and Reinvestment Act's implied path for government spending under alternative monetary-fiscal policy combinations.