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Jel Classification:E10 

Working Paper
Bubbly Recessions

We develop a tractable rational bubbles model with financial frictions, downward nominal wage rigidity, and the zero lower bound. The interaction of financial frictions and nominal rigidities leads to a "bubbly pecuniary externality," where competitive speculation in risky bubbly assets can result in excessive investment booms that precede inefficient busts. The collapse of a large bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent and inefficient recession. We evaluate a ...
Working Paper , Paper 18-5

Working Paper
Does Unemployment Risk Affect Business Cycle Dynamics?

In this paper, I show that the decline in household consumption during unemployment spells depends on both liquid and illiquid asset positions. I also provide evidence that unemployment spells predict the withdrawal of illiquid assets, particularly when households have few liquid assets. Motivated by these findings, I embed endogenous unemployment risk in a two-asset heterogeneous-agent New Keynesian model. The model is consistent with the above evidence and provides a new propagation mechanism for aggregate shocks due to a flight-to-liquidity that occurs when unemployment risk rises. This ...
International Finance Discussion Papers , Paper 1298

Working Paper
Search with wage posting under sticky prices

Research Working Paper , Paper RWP 14-17

Report
Behavior and the Transmission of COVID-19

We show that a simple model of COVID-19 that incorporates feedback from disease prevalence to disease transmission through an endogenous response of human behavior does a remarkable job fitting the main features of the data on the growth rates of daily deaths observed across a large number countries and states of the United States from March to November of 2020. This finding, however, suggests a new empirical puzzle. Using an accounting procedure akin to that used for Business Cycle Accounting as in Chari et al. (2007), we show that when the parameters of the behavioral response of ...
Staff Report , Paper 618

Working Paper
Usual Shocks in our Usual Models

We propose an event-study research design to identify the nature and propagation of large unusual shocks in DSGE models and apply it to study the macroeconomic effects of the Covid shock. The initial outbreak is represented as the onset of a new shock process where the shock loads on wedges associated with the model's usual shocks. Realizations of the Covid shock come with news about its propagation, allowing us to disentangle the role of beliefs about the future of the pandemic. The model attributes a crucial role to the novel Covid shock in explaining the large contraction in output in the ...
Working Paper Series , Paper WP 2022-39

Working Paper
What is Measured in National Accounts?

Most statistical agencies construct sectoral real GDP using double deflation and base period prices. When the base period price used for intermediate inputs is not equal to their marginal revenue product, such as when firms apply a markup, real GDP fluctuations become mechanically linked to variations in intermediate inputs. This is because these inputs generate profits that are incorporated into real value added. Taking this channel into account, we demonstrate that real GDP reported in national accounts substantially diverges from a theory-consistent "physical" value added. This, in turn, ...
International Finance Discussion Papers , Paper 1375

Working Paper
Tempered Particle Filtering

The accuracy of particle filters for nonlinear state-space models crucially depends on the proposal distribution that mutates time t-1 particle values into time t values. In the widely-used bootstrap particle filter this distribution is generated by the state-transition equation. While straightforward to implement, the practical performance is often poor. We develop a self-tuning particle filter in which the proposal distribution is constructed adaptively through a sequence of Monte Carlo steps. Intuitively, we start from a measurement error distribution with an inflated variance, and then ...
Finance and Economics Discussion Series , Paper 2016-072

Working Paper
Communicating Monetary Policy Rules

Despite the ubiquity of inflation targeting, central banks communicate their frameworks in a variety of ways. No central bank explicitly expresses their conduct via a policy rule, which contrasts with models of policy. Central banks often connect theory with their practice by publishing inflation forecasts that can, in principle, implicitly convey their reaction function. We return to this central idea to show how a central bank can achieve the gains of a rule-based policy without publicly stating a specific rule. The approach requires central banks to specify an inflation target, inflation ...
Working Paper Series , Paper 2021-12

Working Paper
Forecasting China's Economic Growth and Inflation

Although macroeconomic forecasting forms an integral part of the policymaking process, there has been a serious lack of rigorous and systematic research in the evaluation of out-of-sample model-based forecasts of China's real gross domestic product (GDP) growth and consumer price index inflation. This paper fills this research gap by providing a replicable forecasting model that beats a host of other competing models when measured by root mean square errors, especially over long-run forecast horizons. The model is shown to be capable of predicting turning points and usable for policy analysis ...
FRB Atlanta Working Paper , Paper 2016-7

Working Paper
Pandemic Recessions and Contact Tracing

We study contact tracing in a new macro-epidemiological model in which infected agents may not show any symptoms of the disease and the availability of tests to detect these asymptomatic spreaders of the virus is limited. Contact tracing is a testing strategy aiming at reconstructing the infection chain of newly symptomatic agents. A coordination failure arises as agents fail to internalize that their individual consumption and labor decisions raise the number of traceable contacts to be tested, threatening the viability of the tracing system. The collapse of the tracing system considerably ...
Working Paper Series , Paper WP-2020-31

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