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Working Paper
Monetary Policy, Real Activity, and Credit Spreads : Evidence from Bayesian Proxy SVARs
This paper studies the interaction between monetary policy, financial markets, and the real economy. We develop a Bayesian framework to estimate proxy structural vector autoregressions (SVARs) in which monetary policy shocks are identified by exploiting the information contained in high frequency data. For the Great Moderation period, we find that monetary policy shocks are key drivers of fluctuations in industrial output and corporate credit spreads, explaining about 20 percent of the volatility of these variables. Central to this result is a systematic component of monetary policy ...
Working Paper
The International Spillovers of Synchronous Monetary Tightening
We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given ...
Working Paper
Measuring Geopolitical Risk
We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of ...
Working Paper
The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure
Following Leeper, Sims, and Zha (1996), we identify monetary policy shocks in SVARs by restricting the systematic component of monetary policy. In particular, we impose sign and zero restrictions only on the monetary policy equation. Since we do not restrict the response of output to a monetary policy shock, we are agnostic in Uhlig's (2005) sense. But, in contrast to Uhlig (2005), our results support the conventional view that a monetary policy shock leads to a decline in output. Hence, our results show that the contractionary effects of monetary policy shocks do not hinge on questionable ...
Discussion Paper
The Global Recovery: Lessons from the Past
The downturn in global economic activity caused by the COVID-19 pandemic was unique both for its causes and for its severity. Even though, on a global scale, the recent contraction is unprecedented in modern times, it is useful to look at the consequences of large recessions which affected individual countries in the past.
Discussion Paper
International Spillovers of Tighter Monetary Policy
Central banks around the world are tightening monetary policy in response to a global surge in inflation not seen since the 1970s. This synchronization of global interest rate hikes and further increases expected by markets, illustrated in figure 1, have raised concerns about adverse international spillovers of tighter monetary policy.
Working Paper
The International Spillovers of Synchronous Monetary Tightening
We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given ...
Discussion Paper
Does Trade Policy Uncertainty Affect Global Economic Activity?
In this note, we first document the recent rise in trade policy uncertainty, henceforth TPU, by using two complementary measures based on text-search analysis: one focusing on newspapers articles, and another constructed from transcripts of firms' earning calls. We then use econometric evidence on the joint movements in aggregate TPU, industrial production, and other macroeconomic variables in order to provide an estimate of the effects of the recent spikes in TPU on U.S. GDP, as well as GDP in advanced foreign economies (AFEs) and emerging market economies (EMEs).
Working Paper
The International Spillovers of Synchronous Monetary Tightening
We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given ...
Working Paper
The Macroeconomic Impact of Financial and Uncertainty Shocks
The extraordinary events surrounding the Great Recession have cast a considerable doubt on the traditional sources of macroeconomic instability. In their place, economists have singled out financial and uncertainty shocks as potentially important drivers of economic fluctuations. Empirically distinguishing between these two types of shocks, however, is difficult because increases in economic uncertainty are strongly associated with a widening of credit spreads, an indication of a tightening in financial conditions. This paper uses the penalty function approach within the SVAR framework to ...