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Journal Article
Introducing the St. Louis Fed Price Pressures Measure
Assessing inflation?s likely path matters to policymakers and those in financial markets.
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. Similar to tax shocks found in the existing empirical literature, the level shock is contractionary. The tax progressivity shock is expansionary: Increasing tax progressivity raises (lowers) disposable income at the bottom (top) end of the income distribution by shifting the tax burden from the bottom to the top. If agents' marginal propensity to consume falls with income, the rise in consumption at the bottom more than compensates for the decline in ...
Could More Progressive Taxes Increase Income Inequality?
One paper posits that making taxes more progressive could boost lower-income households initially, but more money would eventually float to those with higher incomes.
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
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
A Time-Varying Threshold STAR Model with Applications
Smooth-transition autoregressive (STAR) models, competitors of Markov-switching models, are limited by an assumed time-invariant threshold level. We augment the STAR model with a time-varying threshold that can be interpreted as a "tipping level" where the mean and dynamics of the VAR shift. Thus, the time-varying latent threshold level serves as a demarcation between regimes. We show how to estimate the model in a Bayesian framework using a Metropolis step and an unscented Kalman filter proposal. To show how allowing time variation in the threshold can affect the results, we present two ...
Working Paper
Debt and Stabilization Policy: Evidence from a Euro Area FAVAR
The Euro-area poses a unique problem in evaluating policy: a currency union with a shared monetary policy and country-specific fiscal policy. Analysis can be further complicated if high levels of public debt affect the performance of stabilization policy. We construct a framework capable of handling these issues with an application to Euro-Area data. In order to incorporate multiple macroeconomic series from each country but, simultaneously, treat country-specific fiscal policy, we develop a hierarchical factor-augmented VAR with zero restrictions on the loadings that yield country-level ...
Working Paper
Measuring The Effect of Shocks on Inequality: It's All About the Data
To identify shocks in VARs using short-run sign or exclusion restrictions, the highest frequency data possible is usually preferred. For income inequality, there is tension between high frequency and high quality. Annual datasets that survey large numbers of people provide high-quality estimates of income. Higher frequency surveys generally provide a sparser sampling of individual income. Some previous studies have used the higher frequency data, presumably to match the frequency necessary to identify the shock. Using data obtained from the higher frequency, lower respondent surveys might ...
Working Paper
FRED-SD: A Real-Time Database for State-Level Data with Forecasting Applications
We construct a real-time dataset (FRED-SD) with vintage data for the U.S. states that can be used to forecast both state-level and national-level variables. Our dataset includes approximately 28 variables per state, including labor market, production, and housing variables. We conduct two sets of real-time forecasting exercises. The first forecasts state-level labor-market variables using five different models and different levels of industrially-disaggregated data. The second forecasts a national-level variable exploiting the cross-section of state data. The state-forecasting experiments ...