This paper examines whether futures market data can be used to understand the behavior of real interest rates. Several ways of examining the data indicate that futures market data are not particularly informative about real interest rates. Not only does this evidence cast some doubt on results in previous research that make use of futures market data to draw inferences about real interest rates, but it also indicates that future research on real interest rates may need to turn to a different line of attack.

The proposition that real rates are equal across countries is worth studying because it is central to our understanding of open economy macroeconomics and because it is also an Important issue to policy makers.If it is true, then domestic monetary authorities have no control over their real rate relative to the world rate, limiting the impact of their stabilization policies.In addition, as Feldstein has pointed Out, unless real rates can differ across countries, policies directed at increasing domestic savings cannot increase the rate of capital formation and hence productivity.The equality of real rates is also worth investigating, because it is intimately linked to and provides information on the basic parity conditions featured so prominently in open economy macro models.This paper conducts empirical tests of the equality of real rates and other parity conditions across countries using euro rate data over the 1967-Il to 1979-li sample period.The empirical evidence strongly rejects the hypothesis of the equality of real euro rates across countries.The joint hypotheses of uncovered interest parity and ex ante relative PPP, or the unbiasedness of forward rate forecasts and ex ante relative PPP, are also strongly rejected.Yet independent tests of uncovered interest parity, the unbiasedness of forward rate forecasts and ex ante relative PPP yield few rejections and high marginal significance levels.The evidence suggests that it is worth studying open economy models which allow: 1) domestic real rates to differ from world rates, 2) time varying risk premiums in the forward market or 3) deviations from ex ante relative purchasing power parity.The evidence also leaves open the possibility for policy makers to exert some control over their domestic real rate relative to those in the rest of the world.However, the evidence does not rule out that there is a tendency for real rates across countries to equalize over time, and this is an important topic for further research.

This paper discusses a simulation procedure where innovations from time-series processes are used in conducting simulation experiments with macroeconometric models. A particular theoretical example using the term structure of interest rates is studied here, along with actual simulation experiments using a large macroeconometric model. This analysis illustrates the advantages of simulating with innovations and the extent to which more standard simulation procedures lead to misleading results. The innovation-simulation technique can be used to provide information on the response of the economy to shocks, even when the macroeconometric model is not invariant to policy changes. Policymakers might find such information to be quite valuable.

This paper examines the out-of-sample performance of various financial variables as predictors of U.S. recessions. Series such as interest rates and spreads, stock prices, and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators. The analysis focuses on out-of-sample performance from one to eight quarters ahead. Results show that stock prices are useful with one- to three-quarter horizons, as are some well-known macroeconomic indicators. Beyond one quarter, however, the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables.

This review essay examines whether too-big-to-fail is as serious a problem as Gary Stern and Ron Feldman contend. This essay argues that Stern and Feldman overstate the importance of the too-big-to-fail problem and do not give enough credit to the FDICIA legislation of 1991 for improving bank regulation and supervision. However, this criticism of the Stern and Feldman book does not detract from many of its messages. The policy recommendations in their book have merit even if the too-big-to-fail problem is currently not that serious because these policies make it less likely that a banking crisis will occur even if driven by other factors.