Search Results
Working Paper
The low-frequency impact of daily monetary policy shocks
With rare exception, studies of monetary policy tend to neglect the timing of the innovations to the monetary policy instrument. Models which do take timing seriously are often difficult to compare to standard VAR models of monetary policy because of the differences in the frequency that they use. We propose an alternative model using MIDAS regressions which nests both ideas: Accurate (daily) timing of innovations to the monetary policy instrument are embedded in a monthly frequency VAR to determine the macroeconomic effects of high frequency changes to policy. We find that taking into ...
Working Paper
What explains the varying monetary response to technology shocks in G-7 countries?
In a recent paper, Gal, Lpez-Salido, and Valls (2003) examined the Federal Reserve?s response to VAR-identified technology shocks. They found that during the Martin-Burns- Miller era, the Fed responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Fed adopted an inflation-targeting rule. We extend their analysis to countries of the G-7; moreover, we consider the factors that may contribute to differing monetary responses across countries. Specifically, we find a relationship between the volatility of capital investment, type of monetary policy rule, ...
Working Paper
A flexible finite-horizon alternative to long-run restrictions with an application to technology shock
Recent studies using long-run restrictions question the validity of the technology-driven real business cycle hypothesis. We propose an alternative identi cation that maximizes the contribution of technology shocks to the forecast-error variance of labor productivity at a long, but finite, horizon. In small-sample Monte Carlo experiments, our identification outperforms standard long-run restrictions by significantly reducing the bias in the short-run impulse responses and raising their estimation precision. Unlike its long-run restriction counterpart, when our Max Share identification ...
Journal Article
Understanding the Distribution of Inflation Expectations
Inflation expectations are central to monetary policy but are often summarized by a single statistic such as the mean or median forecast. This article argues for a distributional view in which the full cross-sectional distribution of beliefs is the relevant object. We first organize the literature around the main distributional features of inflation expectations: the level of expected inflation, disagreement across agents, subjective uncertainty within agents, skewness, and tail behavior. The literature consistently documents large and time-varying disagreement, systematic demographic ...
Working Paper
A Flexible Finite-Horizon Identification of Technology Shocks
Recent empirical studies using in finite horizon long-run restrictions question the validity of the technology-driven real business cycle hypothesis. These results have met with their own controversy, stemming from their sensitivity to changes in model specification and the general poor performance of long-run restrictions in Monte Carlo experiments. We propose an alternative identification that maximizes the contribution of technology shocks to the forecast-error variance of labor productivity at a long, but finite horizon. In small samples, our identification outperforms its in finite ...
Journal Article
The use of long-run restrictions for the identification of technology shocks
The authors survey the recent empirical literature using long-run restrictions to identify technology shocks and provide an illustrative walk-through of the long-run restricted vector autoregression (VAR) methodology in a bivariate framework. Additionally, they offer an alternative identification of technology shocks that can be imposed by restrictions on the long-run impulse responses to evaluate the robustness of the conclusions drawn by the structural VAR literature. Their results from this methodology compare favorably with the empirical literature that uses structural VARs to identify ...
Working Paper
An endogenously clustered factor approach to international business cycles
Factor models have become useful tools for studying international business cycles. Block factor models [e.g., Kose, Otrok, and Whiteman (2003)] can be especially useful as the zero restrictions on the loadings of some factors may provide some economic interpretation of the factors. These models, however, require the econometrician to predefine the blocks, leading to potential misspecification. In Monte Carlo experiments, we show that even small misspecifica- tion can lead to substantial declines in t. We propose an alternative model in which the blocks are chosen endogenously. The model is ...
Working Paper
Monetary policy in a Markov-switching VECM: implications for the cost of disinflation and the price puzzle
Monetary policy VARs typically presume stability of the long-run outcomes. We introduce the possibility of switches in the long-run equilibrium in a cointegrated VAR by allowing both the covariance matrix and weighting matrix in the error-correction term to switch. We find that monetary policy alternates between sustaining long-run growth and disinflationary regimes. Allowing state changes can also help explain the price puzzle and justify the use of commodity prices as a corrective measure. Finally, we show that regime-switching has implications for disinflationary monetary policy and can ...
Working Paper
Business Cycles Across Space and Time
We study the comovement of international business cycles in a time series clustering model with regime-switching. We extend the framework of Hamilton and Owyang (2012) to include time-varying transition probabilities to determine what drives similarities in business cycle turning points. We find four groups, or "clusters", of countries which experience idiosyncratic recessions relative to the global cycle. Additionally, we find the primary indicators of international recessions to be fluctuations in equity markets and geopolitical uncertainty. In out-of-sample forecasting exercises, we find ...
Working Paper
The use of long-run restrictions for the identification of technology shocks
We survey the recent empirical literature using long run restrictions to identify technology shocks. We provide an illustrative walkthrough of the long-run restricted vector autoregression (VAR) methodology in a bivariate framework. Additionally, we offer an alternative identification of technology shocks that can be imposed by restrictions on the long-run impulse responses. Our results from this methodology compare favorably to the empirical literature that uses structural VARs to identify technology.