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Discussion Paper
A New Dataset of Macroprudential Policy Governance Structures
Governance structures are a critical part of a framework for implementing macroprudential policy, alongside methodologies for measuring and monitoring systemic risk, and analyses to understand the impact of policies that may be used to mitigate risk. As part of various research projects to study macroprudential policy frameworks, we have compiled a new dataset of governance structures in 58 countries. This note documents the construction of our dataset, including the decisions that we made concerning the countries and governance-structure facts to record in our dataset, and it discusses the ...
Working Paper
A utility-based welfare criterion in a model with endogenous capital accumulation
This paper extends the utility-based welfare criterion developed by Rotemberg and Woodford (1997) and Woodford (2003) to a model with endogenous capital accumulation. The welfare criterion obtained for this model shares several features with the corresponding expressions that have been derived in simpler models without capital accumulation. In particular, a criterion can be specified such that welfare losses depend solely on quadratic functions of the model's variables, thus confirming that policy should be oriented toward stabilization of macroeconomic aggregates, rather than toward ...
Working Paper
A comparison of forecast performance between Federal Reserve staff forecasts, simple reduced-form models, and a DSGE model
This paper considers the "real-time" forecast performance of the Federal Reserve staff, time-series models, and an estimated dynamic stochastic general equilibrium (DSGE) model--the Federal Reserve Board's new Estimated, Dynamic, Optimization-based (Edo) model. We evaluate forecast performance using out-of-sample predictions from 1996 through 2005, thereby examining over 70 forecasts presented to the Federal Open Market Committee (FOMC). Our analysis builds on previous real-time forecasting exercises along two dimensions. First, we consider time-series models, a structural DSGE model that ...
Working Paper
The equivalence of wage and price staggering in monetary business cycle models
Chari, Kehoe, and McGratten's (1998) finding that a standard monetary business cycle model with staggered price setting is unable to generate sufficiently persistent real effects of monetary shocks has engendered a growing literature aimed at developing alternative mechanisms for producing greater persistence. The most popular approach at present in this literature appears to be one in which staggered wage contracts are used as either an alternative or a complement to a staggered price mechanism. This is informed by recent research by Andersen (1998) and Huang and Liu (1998) which finds that ...
Working Paper
The Responses of Wages and Prices to Technology Shocks
This paper reexamines wage and price dynamics in response to permanent shocks to productivity. We estimate a micro-founded dynamic general equilibrium (DGE) model of the U.S. economy with sticky wages and sticky prices using impulse responses to technology and monetary policy shocks. We utilize a flexible specification for wage- and price-setting that allows for the sluggish adjustment of both the levels of these variables as in standard contracting models as well as intrinsic inertia in wage and price inflation. On the price front, we find that in our VAR inflation jumps in response to an ...
Working Paper
The effects of bank capital on lending: what do we know, and what does it mean?
The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel-regression techniques--following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994)--to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. We then consider the effect of capital ratios on lending using a variant of Lown and Morgan's (2006) VAR model, and again find modest effects of bank capital ratio changes on lending. These ...
Working Paper
Learning and shifts in long-run productivity growth
Shifts in the long-run rate of productivity growth--such as those experienced by the U.S. economy in the 1970s and 1990s--are difficult, in real time, to distinguish from transitory fluctuations. In this paper, we analyze the evolution of forecasts of long-run productivity growth during the 1970s and 1990s and examine in the context of a dynamic general equilibrium model the consequences of gradual real-time learning on the responses to shifts in the long-run productivity growth rate. We find that a simple updating rule based on an estimated Kalman filter model using real-time data describes ...
Working Paper
Learning and Shifts in Long-Run Productivity Growth
Shifts in the long-run rate of productivity growth–such as those experienced by the U.S. economy in the 1970s and 1990s–are difficult, in real time, to distinguish from transitory fluctuations. In this paper, we analyze the evolution of forecasts of long-run productivity growth during the 1970s and 1990s and examine in the context of a dynamic general equilibrium model the consequences of gradual real-time learning on the responses to shifts in the long-run productivity growth rate. We find that a simple updating rule based on an estimated Kalman filter model using real-time data ...