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Working Paper
Uncertainty Shocks, Monetary Policy and Long-Term Interest Rates
We study the relationship between monetary policy and long-term rates in a structural, general equilibrium model estimated on both macro and yields data from the United States. Regime shifts in the conditional variance of productivity shocks, or "uncertainty shocks", are an important model ingredient. First, they account for countercyclical movements in risk premia. Second, they induce changes in the demand for precautionary saving, which affects expected future real rates. Through changes in both risk-premia and expected future real rates, uncertainty shocks account for about 1/2 of the ...
Discussion Paper
Underlying Inflation: An Ensemble Averaging Approach
Following the pandemic, inflation has been high and variable. Future inflation likely depends on expected or underlying inflation—the inflation rate that would prevail in the absence of resource slack, supply shocks, and other temporary disturbances to inflation. We introduce a new estimate of underlying inflation, which we produce by averaging many individual estimates from statistical filters and macroeconometric models. We estimate that between 2019 and 2022 underlyling inflation moved up from 1.8 to 2.1 percent and the risks around it increased and became skewed to the upside. ...