Search Results
Working Paper
Aggregation in large dynamic panels
This paper investigates the problem of aggregation in the case of large linear dynamic panels, where each micro unit is potentially related to all other micro units, and where micro innovations are allowed to be cross sectionally dependent. Following Pesaran (2003), an optimal aggregate function is derived and used (i) to establish conditions under which Granger's (1980) conjecture regarding the long memory properties of aggregate variables from "a very large scale dynamic, econometric model" holds, and (ii) to show which distributional features of micro parameters can be identified from ...
Working Paper
Common and Idiosyncratic Inflation
We use a dynamic factor model to disentangle changes in prices due to economy-wide (common) shocks, from changes in prices due to idiosyncratic shocks. Using 146 disaggregated individual price series from the U.S. PCE price index, we find that most of the fluctuations in core PCE prices observed since 2010 have been idiosyncratic in nature. Moreover, we find that common core inflation responds to economic slack, while the idiosyncratic component does not. That said, even after filtering out idiosyncratic factors, the estimated Phillips curve is extremely flat post-1995. Therefore, our ...
Working Paper
Relative prices and pure inflation since the mid-1990s
This paper decomposes consumer price inflation into pure inflation, relative price inflation, and idiosyncratic inflation by estimating a dynamic factor model á la Reis and Watson (2010) on a data set of 146 monthly disaggregated prices from 1995 to 2019. We find that pure inflation is the trend around which PCE price inflation fluctuates, while relative price inflation and idiosyncratic inflation drive the fluctuation of PCE price inflation around the trend. Unlike Reis and Watson, we find that labor market slack is the main driver of pure inflation and that energy prices account for ...
Working Paper
Sourcing substitution and related price index biases
We define a class of bias problems that arise when purchasers shift their expenditures among sellers charging different prices for units of precisely defined and interchangeable product items that are nevertheless regarded as different for the purposes of price measurement. For business-to-business transactions, these shifts can cause sourcing substitution bias in the Producer Price Index (PPI) and the Import Price Index (MPI), as well as potentially in the proposed new true Input Price Index (IPI). Similarly, when consumers shift their expenditures for the same products temporally to take ...
Working Paper
The Optimal Monetary Instrument and the (Mis)Use of Causality Tests
This paper uses a New-Keynesian model with multiple monetary assets to show that if the choice of instrument is based solely on its propensity to predict macroeconomic targets, a central bank may choose an inferior policy instrument. We compare a standard interest rate rule to a k-percent rule for three alternative monetary aggregates determined within our model: the monetary base, the simple sum measure of money, and the Divisia measure. Welfare results are striking. While the interest rate dominates the other two monetary aggregate k-percent rules, the Divisia k-percent rule outperforms the ...
Working Paper
Tracking U.S. Consumers in Real Time with a New Weekly Index of Retail Trade
We create a new weekly index of retail trade that accurately predicts the U.S. Census Bureau's Monthly Retail Trade Survey (MRTS). The index's weekly frequency provides an early snapshot of the MRTS and allows for a more granular analysis of the aggregate consumer response to fast-moving events such as the Covid-19 pandemic. To construct the index, we extract the co-movement in weekly data series capturing credit and debit card transactions, mobility, gasoline sales, and consumer sentiment. To ensure that the index is representative of aggregate retail spending, we implement a novel ...
Journal Article
Industrial production and capacity utilization: the 2004 annual revision
In late 2004, the Board of Governors of the Federal Reserve issued revisions to its index of industrial production (IP) and the related measures of capacity and capacity utilization for the period from January 1972 to November 2004. Overall, the changes to total industrial production were small. ; Measured from the fourth quarter of 2002 to the third quarter of 2004, industrial output is reported to have increased a little less than shown previously. Production expanded more slowly in 2000 than earlier estimates indicated, whereas the contraction in 2001 was a little less steep. The rise in ...
Report
The FRBNY staff underlying inflation gauge: UIG
Monetary policymakers and long-term investors would benefit greatly from a measure of underlying inflation that uses all relevant information, is available in real time, and forecasts inflation better than traditional underlying inflation measures such as core inflation measures. This paper presents the ?FRBNY Staff Underlying Inflation Gauge (UIG)? for CPI and PCE. Using a dynamic factor model approach, the UIG is derived from a broad data set that extends beyond price series to include a wide range of nominal, real, and financial variables. It also considers the specific and time-varying ...
Working Paper
Product Turnover and the Cost of Living Index: Quality vs. Fashion Effects
This paper evaluates the effects of product turnover on a welfare-based cost-of-living index. We first present some facts about price and quantity changes over the product cycle employing scanner data for Japan for the years 1988-2013, which cover the deflationary period that started in the mid-1990s. We then develop a new methodology to decompose price changes at the time of product turnover into those due to the quality effect and those due to the fashion effect (i.e., the higher demand for products that are new). Our main findings are as follows: (1) the price and quantity of a new product ...
Working Paper
Tracking U.S. Consumers in Real Time with a New Weekly Index of Retail Trade
We create a new weekly index of retail trade that accurately predicts the U.S. Census Bureau’s Monthly Retail Trade Survey (MRTS). The index’s weekly frequency provides an early snapshot of the MRTS and allows for a more granular analysis of the aggregate implications of policies implemented during the Covid-19 pandemic. To construct the index, we extract the co-movement in several weekly data series capturing credit & debit card transactions and revenues, mobility, and consumer sentiment as well as monthly retail and food services sales excluding automotive spending (ex. autos) from the ...