Roger Craine

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This paper investigates the role that imperfect knowledge about the structure of the economy plays in the formation of expectations, macroeconomic dynamics, and the efficient formulation of monetary policy. Economic agents rely on an adaptive learning technology to form expectations and continuously update their beliefs regarding the dynamic structure of(More)
Ongoing questions on the historical mean and standard deviation of the return on equities and bonds and on the equilibrium demand for these securities are addressed in the context of a stationary, overlapping-generations economy in which consumers are subject to a borrowing constraint. The key feature captured by the OLG economy is that the bulk of the(More)
DURING THE 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent-and the government picked up the tab. In Dallas, Texas, real estate prices(More)
For more than a century, diversified long-horizon investments in America's stock market have consistently received much higher returns than investors in bonds: a return gap averaging six percent per year. This is what Rajnish Mehra and Edward Prescott (1985) labeled the " equity premium puzzle " : the premium return on equities does not seem to be matched(More)
I compare the performance of alternative monetary rules for Canada using an open economy model under incomplete markets. Different rules generate different paths for the markup and the terms of trade. A comparison of welfare levels suggests that flexible inflation targeting, the Bank of Canada's current policy, dominates strict targeting rules—among which a(More)
On April 18, 2001 US Federal Reserve Open Market Committee (FOMC) surprised …nancial markets by lowering the Federal Funds Target rate 1 2 % between regularly scheduled FOMC meeting dates. Securities markets in the US and Australia responded. The US 30-Euro$ rate fell by 1 2 %.and US and Australian …ve year bond yields fell by about 13 basis points. Equity(More)
The negative balance sheet effect of currency depreciation is believed to play an important role in the development of economic crises. However, a series of firm-level studies have failed to discover evidence of this negative effect. This paper uses a sample of non-financial firms in Asia, a region where the importance of the balance sheet effect is(More)
This paper makes two contributions: (1) it presents estimates of a continuous-time stochastic-volatility jump-diffusion process (SVJD) using a simulation-based estimator, and (2) it shows that misspecified models that allow for jumps, but not stochastic volatility, can give very bad estimates of the true process. Simulation-based estimation is a very(More)
With the rise of international bond markets in the 1990s, the role of sovereign credit ratings has become increasingly important. In the aftermath of Asian Crises a series of empirical studies on the effects of sovereign ratings appeared. The theoretical literature on the topic, however, remains rather scarce. We propose a model of rating agencies that is(More)