Search Results
Discussion Paper
The Euro Area has a growth problem
The decomposition of GDP into potential output—the level of output consistent with current technologies and "normal" use of capital and labor—and the output gap—the percentage deviation of GDP from its potential—is a fundamental task for policymakers. Potential output tells us how fast an economy can grow in the long run; the output gap helps assess the cyclical position of the economy and, thus, potential inflationary pressures (Jarociński and Lenza, 2018).
Working Paper
Dynamic Factor Models, Cointegration, and Error Correction Mechanisms
The paper studies Non-Stationary Dynamic Factor Models such that: (1) the factors Ft are I(1) and singular, i.e. Ft has dimension r and is driven by a q-dimensional white noise, the common shocks, with q < r, and (2) the idiosyncratic components are I(1). We show that Ft is driven by r-c permanent shocks, where c is the cointegration rank of Ft, and q - (r - c) < c transitory shocks, thus the same result as in the non-singular case for the permanent shocks but not for the transitory shocks. Our main result is obtained by combining the classic Granger Representation Theorem with recent ...
Discussion Paper
Comparing Two Measures of Core Inflation: PCE Excluding Food & Energy vs. the Trimmed Mean PCE Index
The goal of this note is to provide an assessment of two of the most commonly used indicators of core inflation: the PCE price index excluding food and energy (an exclusion index), and the Dallas Fed trimmed mean PCE price index (a central-tendency statistical measure).
Discussion Paper
Oil Price Pass-Through into Core Inflation
Quantifying the magnitude and establishing the timing of the pass-through of oil price changes to consumer prices is crucial for forecasting inflation. Characterizing this pass-through is particularly important because oil prices tend to undergo wide fluctuations. In this note we presented estimates of the oil price pass-through into consumer prices both in the US and in the euro area.
Discussion Paper
Common and Idiosyncratic Inflation
In this note, we disentangle changes in prices due to economy-wide (common) shocks from changes in prices due to idiosyncratic shocks.
Working Paper
Scenario Synthesis and Macroeconomic Risk
We introduce methodology to bridge scenario analysis and model-based risk forecasting, leveraging their respective strengths in policy settings. Our Bayesian framework addresses the fundamental challenge of reconciling judgmental narrative approaches with statistical forecasting. Analysis evaluates explicit measures of concordance of scenarios with a reference forecasting model, delivers Bayesian predictive synthesis of the scenarios to best match that reference, and addresses scenario set incompleteness. This underlies systematic evaluation and integration of risks from different scenarios, ...
Working Paper
Common Factors, Trends, and Cycles in Large Datasets
This paper considers a non-stationary dynamic factor model for large datasets to disentangle long-run from short-run co-movements. We first propose a new Quasi Maximum Likelihood estimator of the model based on the Kalman Smoother and the Expectation Maximisation algorithm. The asymptotic properties of the estimator are discussed. Then, we show how to separate trends and cycles in the factors by mean of eigenanalysis of the estimated non-stationary factors. Finally, we employ our methodology on a panel of US quarterly macroeconomic indicators to estimate aggregate real output, or Gross ...
Working Paper
Non-Stationary Dynamic Factor Models for Large Datasets
We study a Large-Dimensional Non-Stationary Dynamic Factor Model where (1) the factors Ft are I (1) and singular, that is Ft has dimension r and is driven by q dynamic shocks with q less than r, (2) the idiosyncratic components are either I (0) or I (1). Under these assumption the factors Ft are cointegrated and modeled by a singular Error Correction Model. We provide conditions for consistent estimation, as both the cross-sectional size n, and the time dimension T, go to infinity, of the factors, the loadings, the shocks, the ECM coefficients and therefore the Impulse Response Functions. ...