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Journal Article
Future recession risks
An unstable economic environment has rekindled talk of a double-dip recession. The Conference Board's Leading Economic Index provides data for predicting the probability of a recession but is limited by the weight assigned to its indicators and the varying efficacy of those indicators over different time horizons. Statistical experiments with LEI data can mitigate these limitations and suggest that a recessionary relapse is a significant possibility sometime in the next two years.
Working Paper
When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases
We synthesize the recent, at times conflicting, empirical literature regarding whether fiscal policy is more effective during certain points in the business cycle. Evidence of state dependence in the multiplier depends critically on how the business cycle is defined. Estimates of the fiscal multiplier do not change when the unemployment rate is above or below its trend. However, we find that the multiplier is higher when the unemployment rate is increasing relative to when it is decreasing. This result holds using both a long time-series at the U.S. national level and for a panel of U.S. ...
Journal Article
Has globalization increased the synchronicity of international business cycles?
The inexorable rise in levels of interaction and interdependence among the nations of the world has, over the past several decades, caused their economies' business cycles to grow ever more synchronized. ; That is one finding that emerges from an examination of the chronologies of business cycle turning points, in 32 major economies, over a 40-year period. Author Travis Berge demonstrates these cycles have grown more synchronized as trade flows have expanded. ; However, although the trend does seem to be driven by trade linkages, it appears that financial linkages play little or no role. ...
Working Paper
Time-varying Uncertainty of the Federal Reserve’s Output Gap Estimate
What is the output gap and when do we know it? A factor stochastic volatility model estimates the common component to forecasts of the output gap produced by the staff of the Federal Reserve, its time-varying volatility, and time-varying, horizon-specific forecast uncertainty. The common factor to these forecasts is highly procyclical, and unexpected increases to the common factor are associated with persistent responses in other macroeconomic variables. However, output gap estimates are very uncertain, even well after the fact. Output gap uncertainty increases around business cycle turning ...
Working Paper
Duration Dependence, Monetary Policy Asymmetries, and the Business Cycle
We produce business cycle chronologies for U.S. states and evaluate the factors that change the probability of moving from one phase to another. We find strong evidence for positive duration dependence in all business cycle phases but find that the effect is modest relative to other state- and national-level factors. Monetary policy shocks also have a strong influence on the transition probabilities in a highly asymmetric way. The effect of policy shocks depends on the current state of the cycle as well as the sign and size of the shock.
Working Paper
Predicting recessions with leading indicators: model averaging and selection over the business cycle
This paper evaluates the ability of several commonly followed economic indicators to predict business cycle turning points. As a baseline, forecasts from univariate models are combined by taking averages or by weighting forecasts with model-implied posterior probabilities. These combined forecasts are compared to those from a sophisticated model selection algorithm that allows for nonlinear model speci_cations. The preferred forecasting model is one that allows for nonlinear behavior across the business cycle and combines information from the yield curve with other indicators, especially at ...
Discussion Paper
Which Market Indicators Best Forecast Recessions?
In this note, we use econometric methods to infer which economic and financial indicators reliably identify and predict recessions.
Working Paper
Evaluating the Conditionality of Judgmental Forecasts
We propose a framework to evaluate the conditionality of forecasts. The crux of our framework is the observation that a forecast is conditional if revisions to the conditioning factor are faithfully incorporated into the remainder of the forecast. We consider whether the Greenbook, Blue Chip, and the Survey of Professional Forecasters exhibit systematic biases in the manner in which they incorporate interest rate projections into the forecasts of other macroeconomic variables. We do not find strong evidence of systematic biases in the three economic forecasts that we consider, as the interest ...
Journal Article
The global impact of U.S. monetary policy
Travis Berge and Guangye Cao assess the effects of U.S. monetary policy on asset prices in 50 countries. They find a similar reaction of asset prices to conventional and unconventional monetary policies.
Working Paper
Forecasting disconnected exchange rates
Catalyzed by the work of Meese and Rogoff (1983), a large literature has documented the inability of empirical models to accurately forecast exchange rates out-of-sample. This paper extends the literature by introducing an empirical strategy that endogenously builds forecast models from a broad set of conventional exchange rate signals. The method is extremely flexible, allowing for potentially nonlinear models for each currency and forecast horizon that evolve over time. Analysis of the models selected by the procedure sheds light on the erratic behavior of exchange rates and their apparent ...