International Journal of Central Banking

Volume 8, Number 2 June 2012

Estimated Impact of the Federal Reserve’s Mortgage-Backed 1 Securities Purchase Program Johannes Stroebel and John B. Taylor

Discretionary Fiscal Policies over the Cycle: New Evidence 43 Based on the ESCB Disaggregated Approach Luca Agnello and Jacopo Cimadomo

Traditional versus New Keynesian Phillips Curves: Evidence 87 from Output Effects Werner Roeger and Bernhard Herz

Estimating Inflation Expectations with a Limited Number of 111 Inflation-Indexed Bonds Richard Finlay and Sebastian Wende

The Geographical Composition of National External 143 Balance Sheets: 1980–2005 Chris Kubelec and Filipa S´a

Diagnosing the Financial System: Financial Conditions and 191 Financial Stress Scott Brave and R. Andrew Butters

A Review of Allan Meltzer’s A History of the Federal 241 Reserve, Volume 2 Edward Nelson

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ISSN: 1815-4654 International Journal of Central Banking

Board of Directors Chairman John Murray, Bank of Canada

Board Members Q. Farooq Akram, Norges Bank Choy Keen Meng, Monetary Authority of Singapore Abdulrahman Al-Hamidy, Saudi Arabian Loretta J. Mester, Federal Reserve Bank Monetary Agency of Philadelphia David E. Altig, Federal Reserve Bank of Atlanta John McDermott, Reserve Bank of New Zealand Carlos Hamilton Vasconcelos Araujo, Central Bank Maurice McGuire, Central Bank of Ireland of Brazil Deepak Mohanty, Reserve Bank of India Jan Marc Berk, The Nederlandsche Bank Vyacheslav Morgunov, Central Bank of Claudio Borio, Bank for International Settlements Russian Federation Mohamed Tahar Bouhouche, Bank of Algeria Edward Offenbacher, Bank of Israel Laurent Clerc, Bank of France Fabio Panetta, Bank of Italy Francisco G. Dakila Jr., Central Bank of Th´orarinnG. P´etursson, Central Bank of Iceland the Philippines Cristian Popa, National Bank of Romania Spencer Dale, Bank of England Ivan Ribnikar, Bank of Slovenia Jean-Pierre Danthine, Swiss National Bank Harvey Rosenblum, Federal Reserve Bank of Dallas William English, Federal Reserve Board Mark Schweitzer, Federal Reserve Bank Jiang Feng, People’s Bank of China of Cleveland Manuel Ramos Francia, Bank of Mexico Frank Smets, European Central Bank Jeffrey C. Fuhrer, Federal Reserve Bank of Boston Jan Smets, National Bank of Belgium Hiroshi Fujiki, Bank of Japan Kateˇrina Smˇ ´ıdkov´a, Czech National Bank Niels Lyngg˚ardHansen, Danmarks Nationalbank Daniel Sullivan, Federal Reserve Bank of Chicago Dong He, Hong Kong Monetary Authority Altin Tanku, Bank of Albania Luis Oscar´ Herrera, Central Bank of Chile Juha Tarkka, Bank of Finland Heinz Herrmann, Deutsche Bundesbank George Tavlas, Bank of Greece Tor Jacobson, Sveriges Riksbank Joseph Tracy, Federal Reserve Bank of New York Juan F. Jimeno, Bank of Spain Dobieslaw Tymoczko, National Bank of Poland George A. Kahn, Federal Reserve Bank of Kansas City Christopher Waller, Federal Reserve Bank Ali Hakan Kara, Central Bank of Turkey of St. Louis Jun Il Kim, Bank of Korea John Weinberg, Federal Reserve Bank Ana Christina Leal, Bank of Portugal of Richmond Philip Lowe, Reserve Bank of Australia Kei-Mu Yi, Federal Reserve Bank of Minneapolis

Editorial Board Managing Editor John C. Williams Federal Reserve Bank of San Francisco

Co-editors Pierpaolo Benigno Douglas Gale Rafael Repullo LUISS Guido Carli New York University CEMFI Giancarlo Corsetti Harrison Hong Carl E. Walsh European University Institute Princeton University University of California

Associate Editors Patrick Bolton Jordi Gal´ı Eli M. Remolona University of Columbia Centre de Recerca en Economia Bank for International Michael D. Bordo Internacional (CREI) Settlements Rutgers University Marvin Goodfriend H´el`eneRey Mark Carey Carnegie Mellon University London Business School Federal Reserve Board Michael B. Gordy Jean-Charles Rochet Pierre Collin-Dufresne Federal Reserve Board University of Toulouse University of Columbia Luigi Guiso Andrew K. Rose Guy Debelle European University Institute University of California, Reserve Bank of Australia Andrew G. Haldane Berkeley Michael B. Devereux Bank of England Klaus Schmidt-Hebbel University of British Columbia Takatoshi Ito Organisation for Economic University of Tokyo Co-operation and Development Douglas W. Diamond (OECD) University of Chicago Graduate David Lando School of Business Copenhagen Business School Lars E.O. Svensson Sveriges Riksbank Francis Diebold Philip Lane University of Pennsylvania Trinity College Dublin J¨urgen von Hagen University of Bonn Michael Dotsey Francesco Lippi Federal Reserve Bank of University of Sassari Ernst-Ludwig von Thadden University of Mannheim Philadelphia Carmen M. Reinhart Darrell Duffie University of Maryland Tsutomu Watanabe Stanford University University of Tokyo

Advisory Board Franklin Allen Hyun Shin Michael Woodford The Wharton School of the Princeton University Columbia University University of Pennsylvania Kazuo Ueda John Taylor Charles Goodhart University of Tokyo Stanford University London School of Economics