Search Results
Working Paper
The Nonlinear Effects of Uncertainty Shocks
We consider the effects of uncertainty shocks in a nonlinear VAR that allows uncertainty to have amplification effects. When uncertainty is relatively low, fluctuations in uncertainty have small, linear effects. In periods of high uncertainty, the effect of a further increase in uncertainty is magnified. We find that uncertainty shocks in this environment have a more pronounced effect on real economic variables. We also conduct counterfactual experiments to determine the channels through which uncertainty acts. Uncertainty propagates through both the household consumption channel and through ...
Working Paper
Tax Progressivity, Economic Booms, and Trickle-Up Economics
We propose a method to decompose changes in the tax structure into orthogonal components measuring the level and progressivity of taxes. The level shock is similar to tax shocks found in the empirical literature--increasing the tax level is contractionary. On the other hand, an increase in tax progressivity is expansionary. When tax progressivity increases, the bottom of the income distribution experiences an increase in disposable income. Agents at the low end of the income distribution who have high marginal propensity to consume offset the decrease in consumption by the savers at the high ...
Working Paper
Nonlinearities, Smoothing and Countercyclical Monetary Policy
Empirical analysis of the Fed?s monetary policy behavior suggests that the Fed smooths interest rates? that is, the Fed moves the federal funds rate target in several small steps instead of one large step with the same magnitude. We evaluate the effect of countercyclical policy by estimating a Vector Autoregression (VAR) with regime switching. Because the size of the policy shock is important in our model, we can evaluate the effect of smoothing the interest rate on the path of macro variables. Our model also allows for variation in transition probabilities across regimes, depending on the ...
Working Paper
Age and Gender Differentials in Unemployment and Hysteresis
We use a time-varying panel unobserved components model to estimate unemployment gaps disaggregated by age and gender. Recessions before COVID affected men's labor market outcomes more than women's; however, the reverse was true for the COVID recession, with effects amplified for younger workers. The aggregate Phillips curve flattens over time and hysteresis is countercyclical for all groups. We find heterogeneity in both the Phillips curve and hysteresis coefficients, with wages responding more to workers with an outside option (high school- and retirement-age) and larger effects of ...
Working Paper
Tax Progressivity, Economic Booms, and Trickle-Up Economics
We propose a method to decompose changes in the tax structure into a component measuring the level of taxes and a component orthogonal to the level that measures progressivity. While our focus is on the progessivity results, we find that the level shock is similar to standard tax shocks found in the empirical literature in that a rise in the level is contractionary. An increase in tax progressivity sets off an economic boom. Those at the bottom of the income distribution (who are constrained hand-to-mouth consumers) set off a consumption boom that expands the overall economy. Those at the top ...
Working Paper
How Has Empirical Monetary Policy Analysis Changed After the Financial Crisis?
In the wake of the Great Recession, the Federal Reserve lowered the federal funds rate (FFR) target essentially to zero and resorted to unconventional monetary policy. With the nominal FFR constrained by the zero lower bound (ZLB) for an extended period, empirical monetary models cannot be estimated as usual. In this paper, we consider whether the standard empirical model of monetary policy can be preserved without breaks. We consider whether alternative policy instruments (e.g., a long-term interest rate) can be considered substitutes for the FFR over the ZLB period. Furthermore, we compare ...
Working Paper
Specification and Estimation of Bayesian Dynamic Factor Models: A Monte Carlo Analysis with an Application to Global House Price Comovement
We compare methods to measure comovement in business cycle data using multi-level dynamic factor models. To do so, we employ a Monte Carlo procedure to evaluate model performance for different specifications of factor models across three different estimation procedures. We consider three general factor model specifications used in applied work. The first is a single- factor model, the second a two-level factor model, and the third a three-level factor model. Our estimation procedures are the Bayesian approach of Otrok and Whiteman (1998), the Bayesian state space approach of Kim and Nelson ...
Working Paper
Countercyclical policy and the speed of recovery after recessions
We consider the effect of some policies intended to shorten recessions and accelerate recoveries. Our innovation is to analyze the duration of the recoveries of various U.S. states, which gives us a cross-section of both state- and national-level policies. Because we study multiple recessions for the same state and multiple states for the same recession, we can control for differences in the economic conditions preceding recessions and the causes of the recessions when evaluating various policies. We find that expansionary monetary policy at the national level helps to stimulate the exit of ...
Working Paper
Does Uncertainty Really Predict Recessions?
We evaluate the ability of economic uncertainty measures to forecast recessions in real time. We find that including uncertainty increases the predictive power of both in sample and out-of-sample forecast models relative to a baseline set of financial variables. A nonlinear maximum transformation of uncertainty, which captures whether a measure exceeds its maximum over the past year, improves forecast performance for some measures. Adding a contemporaneous indicator like GDP growth alongside uncertainty yields additional predictive gains. Lastly, ex post Bayesian model averaging outperforms ...
Journal Article
A Bad Moon Rising? Uncertainty Shocks and Economic Outcomes
Economic uncertainty is highest in recent decades.