Search Results
Working Paper
Supply-Side Effects of Pandemic Mortality: Insights from an Overlapping-Generations Model
We use an overlapping generation model to explore the implications of mortality during pandemics for the economy's productive capacity. Under current epidemiological projections for the progression of COVID-19, our model suggests that mortality will have, in itself, at most small effects on output and factor prices. The reason is that projected mortality is small in proportion to the population and skewed toward individuals who are retired from the labor force. That said, we show that if the spread of COVID-19 is not contained, or if the ongoing pandemic were to follow a mortality pattern ...
Discussion Paper
The Expected Real Interest Rate in the Long Run : Time Series Evidence with the Effective Lower Bound
In response to the global financial crisis, the Federal Open Market Committee lowered the target for the federal funds rate to a range of 0 to 25 basis points in December 2008, and maintained that target range until the end of 2015. Over that same period, longer-term interest rates in the United States were at historically low levels.
Working Paper
A Time Series Model of Interest Rates With the Effective Lower Bound
Modeling interest rates over samples that include the Great Recession requires taking stock of the effective lower bound (ELB) on nominal interest rates. We propose a flexible time? series approach which includes a ?shadow rate??a notional rate that is less than the ELB during the period in which the bound is binding?without imposing no?arbitrage assumptions.{{p}}The approach allows us to estimate the behavior of trend real rates as well as expected future interest rates in recent years.
Working Paper
Monetary Policy, Incomplete Information, and the Zero Lower Bound
In the context of a stylized New Keynesian model, we explore the interaction between imperfect knowledge about the state of the economy and the zero lower bound. We show that optimal policy under discretion near the zero lower bound responds to signals about an increase in the equilibrium real interest rate by less than it would when far from the zero lower bound. In addition, we show that Taylor-type rules that either include a time-varying intercept that moves with perceived changes in the equilibrium real rate or that respond aggressively to deviations of inflation and output from their ...
Working Paper
The Origins, Structure, and Results of the Federal Reserve’s 2019–20 Review of Its Monetary Policy Framework
In this paper, we describe the Federal Reserve’s 2019–20 review of its monetary policy framework. First, we discuss the historical background of and motivation for the review. We then summarize the structure of the 2019–20 review, which included Fed Listens events, a flagship research conference, a series of staff analyses, and related Federal Open Market Committee (FOMC) deliberations. Finally, we present the main outcomes of the review, with particular attention paid to changes to the FOMC’s Statement on Longer Run Goals and Monetary Policy Strategy.
Discussion Paper
Oil, Equities, and a "Nonbinding" Zero Lower Bound: The Monetary Policy Response to COVID-19
We analyze the recent behavior of oil and equity prices in the context of our earlier work, Datta, et al. (2021), which focuses on the previous zero lower bound (ZLB) episode, in the aftermath of the Global Financial Crisis. We find that the correlation between oil and equity returns and the responsiveness of these returns to macroeconomic surprises are perhaps elevated relative to normal times but somewhat moderated relative to the previous ZLB episode.
Working Paper
Inflation Experience and Inflation Expectations: Dispersion and Disagreement Within Demographic Groups
Using consumption data from the Consumer Expenditure Survey, I document persistent differences across demographic groups in the dispersion of household-specific rates of inflation. Using survey data on inflation expectations, I show that demographic groups with greater dispersion in experienced inflation also disagree more about future inflation. I argue that these results can be rationalized from the perspective of an imperfect information model in which idiosyncratic inflation experience serves as a signal about aggregate inflation. These empirical regularities pose a challenge to several ...
Working Paper
Bias in Local Projections
Local projections (LPs) are a popular tool in macroeconomic research. We show that LPs are often used with very small samples in the time dimension. Consequently, LP point estimates can be severely biased. We derive simple expressions for this bias and propose a way to bias-correct LPs. Small sample bias can also lead autocorrelation-robust standard errors to dramatically understate sampling uncertainty. We argue they should be avoided in LPs like the ones we study. Using identified monetary policy shocks, we demonstrate that the bias in point estimates can be economically meaningful and the ...
Working Paper
Substitution Bias and Fixed-Weight Price Indices in Time-Dependent Pricing Models
This paper compares inflation in true price indices to inflation in fixed-weight price indices. We construct model-based inflation measures in time-dependent pricing models that are analogous to measures of inflation in the data, e.g., the Consumer Price Index. In the standard new Keynesian model, when inflation rises rapidly, the differences between inflation in those indices and true price indices are increasing in the degree of price stickiness and the elasticity of substitution across goods. For commonly used parameter values, those differences are large and persistent for increases in ...