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Briefing
Sentiment About Business Debt as a Leading Economic Indicator
Understanding the sources and transmission of financial distress in the economy is essential for macroeconomic stabilization policy. For example, policymakers and academics have both pointed to excesses in credit markets — including abnormally low risk premiums, misaligned incentives for risk taking, lax credit standards and excessive borrowing — as the main culprits behind the 2008-09 financial crisis.1 Since then, many questions have emerged regarding the role of credit factors in business-cycle fluctuations. Postwar data for multiple economies suggest that rapid growth in business or ...
Working Paper
Inflation Factors
This paper develops an econometric framework for identifying latent factors that provide real time estimates of supply and demand conditions shaping goods- and services-related price pressures in the U.S. economy. The factors are estimated using category-specific personal consumption expenditures (PCE) data on prices and quantities, using a sign-restricted dynamic factor model that imposes theoretical predictions of the effects of fluctuations in supply and demand on prices and associated quantities through factor loadings. The resulting estimates are used to decompose total PCE inflation ...
Working Paper
Do Monetary Policy Shocks Affect the Neutral Rate of Interest?
We develop a trend–cycle Bayesian vector autoregression that jointly estimates the real neutral rate of interest, 𝑟𝑡∗, and identifies monetary policy shocks. As a key innovation, the framework allows cyclical shocks, most notably monetary policy shocks, to affect the trend component of macroeconomic variables, providing a new way to assess whether transitory disturbances have persistent effects. Using external instruments, we find that contractionary monetary policy shocks reduce 𝑟𝑡∗ and lower trend GDP growth, while the model’s estimates of 𝑟𝑡∗ remain consistent ...
Report
Parsing Out the Sources of Inflation
The authors have developed a statistical model that breaks down total Personal Consumption Expenditures (PCE) inflation into underlying supply and demand factors, enabling quantification of those sources of price pressures as they arise.