Search Results
Journal Article
Is the Great Moderation over? an empirical analysis
The economy of the United States was markedly less volatile in the past two to three decades than in prior periods. The nation enjoyed long economic expansions in each of the last three decades, interrupted by recessions in 1990-91 and 2001 that were mild by historical standards. While it has proven difficult to conclusively pinpoint the causes of the reduced volatility, candidates include structural changes in the economy, better monetary policy, and smaller shocks (good luck). Many economists and policymakers came to view lower volatility--the Great Moderation--as likely to be permanent. ; ...
Working Paper
Decomposing the declining volatility of long-term inflation expectations
The level and volatility of survey-based measures of long-term inflation expectations have come down dramatically over the past several decades. To capture these changes in inflation dynamics, we embed both short- and long-term expectations into a medium-scale VAR with stochastic volatility. The model documents a marked decline in the volatility of expectations, but also reveals a shift in the factors driving their movement. Throughout the 1980s and early 1990s, the majority of the variance in long-term expectations were driven by 'own' shocks. Beginning in the mid-1990s, however, the factors ...
Working Paper
Do producer prices help predict consumer prices?
This paper reexamines whether producer prices help predict consumer prices, focusing on model stability and the forecasting performance of time-varying parameter models. In bivariate models, producer price inflation consistently Granger-causes consumer price inflation in-sample but fails to improve out-of-sample forecasts of consumer price inflation. The tests of Nyblom (1989), Andrews (1993), and Andrews and Ploberger (1994) indicate instability pervades the bivariate models. Allowing for a simple form of instability, however, fails to improve the predictive power of producer prices. Even in ...
Working Paper
Constructing Fan Charts from the Ragged Edge of SPF Forecasts
We develop models that take point forecasts from the Survey of Professional Forecasters (SPF) as inputs and produce estimates of survey-consistent term structures of expectations and uncertainty at arbitrary forecast horizons. Our models combine fixed-horizon and fixed-event forecasts, accommodating time-varying horizons and availability of survey data, as well as potential inefficiencies in survey forecasts. The estimated term structures of SPF-consistent expectations are comparable in quality to the published, widely used short-horizon forecasts. Our estimates of time-varying forecast ...
Working Paper
Endogenous Uncertainty
We show that macroeconomic uncertainty can be considered as exogenous when assessing its effects on the U.S. economy. Instead, financial uncertainty can at least in part arise as an endogenous response to some macroeconomic developments, and overlooking this channel leads to distortions in the estimated effects of financial uncertainty shocks on the economy. We obtain these empirical findings with an econometric model that simultaneously allows for contemporaneous effects of both uncertainty shocks on economic variables and of economic shocks on uncertainty. While the traditional econometric ...
Journal Article
Credit Market Frictions, Business Cycles, and Monetary Policy: The Research Contributions of Charles Carlstrom and Timothy Fuerst
Charles Carlstrom and Timothy Fuerst were prolific and prominent research economists who, until their untimely deaths a few years ago, were long-associated with the Federal Reserve Bank of Cleveland. Their myriad contributions include the incorporation of financial market imperfections into macroeconomic models and the study of optimal monetary policy. We provide an overview of their work and summarize a few key themes from a research conference held in their honor.
Working Paper
Finite-sample properties of tests for forecast equivalence
This paper uses Monte Carlo experiments to examine the small-sample properties of some commonly used tests of equal forecast accuracy. The study pays particular attention to test power, evaluated using both asymptotic and empirical critical values. In addition to evaluating different tests, this paper evaluates the performance of different methods of determining the bandwidth used in computing autocorrelation-consistent test statistics. The simulation results show that tests of equal forecast accuracy have somewhat inflated size and modest or even low power. Moreover, the performances of the ...
Working Paper
Tests of equal forecast accuracy for overlapping models
This paper examines the asymptotic and finite-sample properties of tests of equal forecast accuracy when the models being compared are overlapping in the sense of Vuong (1989). Two models are overlapping when the true model contains just a subset of variables common to the larger sets of variables included in the competing forecasting models. We consider an out-of-sample version of the two-step testing procedure recommended by Vuong but also show that an exact one-step procedure is sometimes applicable. When the models are overlapping, we provide a simple-to-use fixed regressor wild bootstrap ...
Working Paper
Evaluating long-horizon forecasts
This paper examines the asymptotic and finite-sample properties of tests of equal forecast accuracy and encompassing applied to predictions from nested long-horizon regression models. We first derive the asymptotic distributions of a set of tests of equal forecast accuracy and encompassing, showing that the tests have non-standard distributions that depend on the parameters of the data-generating process. Using a simple parametric bootstrap for inference, we then conduct Monte Carlo simulations of a range of data-generating processes to examine the finite-sample size and power of the tests. ...
Working Paper
Nowcasting Tail Risks to Economic Activity with Many Indicators
This paper focuses on nowcasts of tail risk to GDP growth, with a potentially wide array of monthly and weekly information. We consider different models (Bayesian mixed frequency regressions with stochastic volatility, classical and Bayesian quantile regressions, quantile MIDAS regressions) and also different methods for data reduction (either forecasts from models that incorporate data reduction or the combination of forecasts from smaller models). Our results show that, within some limits, more information helps the accuracy of nowcasts of tail risk to GDP growth. Accuracy typically ...