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Evaluation of policy rules using empirical macroeconomic models is usually done on the assumption that the rules are perfectly credible. However, there are usually circumstances that cause the authorities to abandon any given rule. The public's expectations reflect this possibility. In the paper, credibility is assumed to depend on the probability that the authorities will abandon a rule because the resulting utility exceeds that from maintaining the rule. Simulations of a disinflation policy leading to price stability are presented. Its credibility varies over time, depending on the paths for output and inflation.

Inflation --- Production and Operations Management --- Price Level --- Deflation --- Macroeconomics: Production --- Expectations --- Speculations --- Monetary Policy --- Macroeconomics --- Capacity utilization --- Prices --- Production --- Industrial capacity --- United States

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Consensus forecasts are inefficient, over-weighting older information already in the public domain at the expense of new private information, when individual forecasters have different information sets. Using a cross-country panel of growth forecasts and new methodological insights, this paper finds that: consensus forecasts are inefficient as predicted; this is not due to individual forecaster irrationality; forecasters appear unaware of this inefficiency; and a simple adjustment reduces forecast errors by 5 percent. Similar results are found using US nominal GDP forecasts. The paper also discusses the result’s implications for users of forecaster surveys and for the literature on information aggregation.

At head of title: Research Department. --- Economic forecasting --- Information theory in economics --- Econometrics. --- Econometric models. --- Economics, Mathematical --- Statistics --- Economic cybernetics --- Econometrics --- Forecasting --- Forecasting and Other Model Applications --- Expectations --- Speculations --- General Aggregative Models: Forecasting and Simulation --- Economic Forecasting --- United States

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The development and use of forward-looking macro models in policymaking institutions has proceeded at a pace much slower than predicted in the early 1980s. An important reason is that researchers have not had access to robust and efficient solution techniques for solving nonlinear forward-looking models. This paper discusses the properties of a new algorithm that is used for solving MULTIMOD, the IMF’s multicountry model of the world economy. This algorithm is considerably faster and much less prone to simulation failures than to traditional algorithms and can also be used to solve individual country models of the same size.

Banks and Banking --- Computational Techniques --- Computer Programs: Other Computer Software --- Currency --- Data Collection and Data Estimation Methodology --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Exchange rates --- Expectations --- Finance --- Financial services --- Foreign Exchange --- Foreign exchange --- General Aggregative Models: Forecasting and Simulation --- Interest rates --- Interest Rates: Determination, Term Structure, and Effects --- Long term interest rates --- Rational expectations --- Short term interest rates --- Speculations --- United States

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This paper studies how uncertainty about fundamentals contributed to currency crises from both a theoretical and an empirical perspective. We find evidenceCbased on a monthly dataset of Consensus forecasts for six Asian countries in the period January 1995-May 2001Cconfirming the theoretical predictions (from both unique- and multiple-equilibria models) that: (i) speculative attacks depend not only on actual and expected fundamentals but also on the variance of speculators' expectations about them; and (ii) the sign of the effect of the variance depends on whether expected fundamentals are "good" or "bad." These results are robust to the definition of exchange rate pressure indices, the estimation sample (precrisis vs. full sample), the method chosen to avoid spurious correlations, and possible time-varying coefficients for the mean, the variance, and the threshold separating good from bad expected fundamentals.

Foreign Exchange --- Macroeconomics --- Money and Monetary Policy --- Expectations --- Speculations --- Asymmetric and Private Information --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Foreign exchange --- Monetary economics --- Economic & financial crises & disasters --- Exchange rates --- Currencies --- Currency crises --- Exchange rate indexes --- Exchange rate arrangements --- Money --- Financial crises --- Hong Kong Special Administrative Region, People's Republic of China

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The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully informed about the incentives of policymakers, the analysis focuses on the implications for relating realignment expectations to the state variables that enter the policy objective function, for modeling the bias in using forward exchange rates to predict future spot rates, and for characterizing the effectiveness of sterilized intervention.

Banking --- Banks and Banking --- Capacity --- Capital --- Currency --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Exchange rates --- Expectations --- Foreign exchange reserves --- Foreign Exchange --- Foreign exchange --- Intangible Capital --- International reserves --- Investment --- Investments: General --- Macroeconomics --- Monetary Policy --- Rational expectations --- Return on investment --- Saving and investment --- Speculations