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Working Paper
Monetary policy, financial stability, and the distribution of risk
In an economy in which debt obligations are fixed in nominal terms, but there are otherwise no nominal rigidities, a monetary policy that targets inflation inefficiently concentrates risk, tending to increase the financial distress that accompanies adverse real shocks. Nominal-income targeting spreads risk more evenly across borrowers and lenders, reproducing the equilibrium that one would observe if there were perfect capital markets. Empirically, inflation surprises have no independent influence on measures of financial strain once one controls for shocks to nominal GDP.
Which Core to Believe? Trimmed Mean Versus Ex-Food-and-Energy Inflation
Twice since 2014, core personal consumption expenditures (PCE) inflation—inflation excluding food and energy—decelerated sharply, only to ultimately reverse course.
Working Paper
Yield spreads as predictors of economic activity: a real-time VAR analysis
We undertake a real-time VAR analysis of the usefulness of the term spread, the junk-bond spread, the ISM's New Orders Index, and broker/dealer equity for predicting growth in non-farm employment. To get around the "apples and oranges" problem described by Koenig, Dolmas and Piger (2003), we augment each VAR we consider with a flexible state-space model of employment revisions. This methodology produces jobs forecasts consistently superior to those obtained using conventional VAR analysis. They are also superior to Federal Reserve Greenbook forecasts and to median forecasts from the Survey ...
Working Paper
The roles of inflation expectations, core inflation, and slack in real-time inflation forecasting
Using state-space modeling, we extract information from surveys of long-term inflation expectations and multiple quarterly inflation series to undertake a real-time decomposition of quarterly headline PCE and GDP-deflator inflation rates into a common long-term trend, common cyclical component, and high-frequency noise components. We then explore alternative approaches to real-time forecasting of headline PCE inflation. We find that performance is enhanced if forecasting equations are estimated using inflation data that have been stripped of high-frequency noise. Performance can be further ...
Journal Article
Misleading indicators? Using the composite leading indicators to predict cyclical turning points
The U.S. Department of Commerce composite index of leading indicators (CLI) is a widely cited and influential economic series. In this article, Evan F. Koenig and Kenneth M. Emery examine how well movements in the CLI predict business-cycle turning points. Using data that actually would have been available to a forecaster, Koenig and Emery find that the CLI has provided no reliable advance warning of recessions and expansions. Further, in interpreting movements in the CLI, simple rules of thumb have often performed as well as more sophisticated forecasting methodologies. ; While the evidence ...
Nominal GDP Outlook Suggests It's Time to End Monetary Accommodation
We argue that the policy response to COVID-19 has been broadly on track to date but that continued monetary accommodation (lowering interest rates or purchasing assets) risks fueling excessive inflation.
Journal Article
Recent trade and exchange rate movements: possible explanations
Journal Article
Capacity utilization as a real-time predictor of manufacturing output
In this article, Evan F. Koenig demonstrates that the Federal Reserve Board's initial estimate of manufacturing capacity utilization is helpful in predicting subsequent growth in manufacturing output. Together with lagged real-time output growth and growth in the composite index of leading indicators, capacity utilization explains more than 50 percent of the variation in output growth at a four-quarter horizon. Based on data available at the beginning of the year, the forecasting equation predicts little or no growth in manufacturing output during 1996.