SIMPLE APPROACH FOR DECIDING: Introduction 4

The option to expand has been analyzed, implicitly, in the literature on delayable investment decisions in the context of capital budgeting. This literature has its roots in papers by McDonald and Siegel (1986) and Brennan and Schwartz (1985). Recently, Abel, Dixit, Eberly and Pindyck (1996) have explicitly analyzed the expandability option. Much like the interest […]

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OPEN-ECONOMY MARKET: Conclusions 4

Appendix A It is our impression that when most analysts speak of monetary policy targeting they do so in the way that we have in this paper, e.g., “^-targeting” is a regime in which the central bank sets its instrument according to a rule involving responses to deviations of X from its desired path. In […]

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OPEN-ECONOMY MARKET: Conclusions 3

Relative to our previous work (McCallum and Nelson [1998]), the present model features two major improvements. First, the agents’ intertemporal utility function is not time-separable but instead reflects “habit formation,” in a manner suggested by the recent estimates of Fuhrer (1998). This modification lends some inertia to agents’ consumption choices and results in econometric estimates […]

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OPEN-ECONOMY MARKET: Conclusions 2

Finally, Table 5 includes columns in which the feedback response is to the exchange rate variables st and Ast. The former, in column 6, implies a fixed exchange rate target, whereas column 7 is for a targeted constant rate of depreciation (here, zero). Clearly, inflation variability is very large when the exchange rate is targeted, […]

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