Search Results
Working Paper
Living Up to Expectations: The Effectiveness of Forward Guidance and Inflation Dynamics Post-Global Financial Crisis
This paper studies the effectiveness of forward guidance when central banks face private agents with heterogeneous expectations allowing for a degree of bounded rationality. Exploiting unique survey-based measures of expected inflation, output growth and interest rates, we estimate a small-scale New Keynesian model with forward guidance shocks for the United States and the other G7 countries plus Spain. We find that the share of fully-informed rational expectations (FIRE) agents in aggregate expectations is similar for the U.S., the U.K., Germany and other major advanced economies (albeit far ...
U.S. tariff outcomes dependent on trading partner responses
U.S. tariff policy has historically shifted among competing goals: providing revenue, protecting domestic markets and opening foreign markets to domestic producers. These goals are unlikely to be achieved simultaneously. Modern models applied to the U.S. reveal that tariffs can enhance consumer welfare via terms-of-trade gains, a costly externality on foreign partners, but only if those partners don’t retaliate. Thus, potential consumption gains for U.S. households and businesses depend on policy choices and strategic responses from trading partners.
Working Paper
What Imports to Import Prices?
This study offers new insights into exchange rate pass-through (ERPT) using U.S. import price indexes by country-of-origin, covering two decades of monthly data. Focusing on the largest U.S. trading partners, our analysis shows that ERPT is more muted than previously estimated, with freight costs having no measurable impact on import prices and foreign production costs exerting only limited influence. We also observe significant heterogeneity in countries’ short-run responses, shaped by differences in trade composition and pricing strategies. Consistent estimates across common dynamic panel ...
Working Paper
Bubbling Up? What Consumer Expectations Reveal About U.S. Housing Market Exuberance
We investigate the presence of speculative bubbles in the U.S. housing market after the global financial crisis. Unlike standard approaches that rely on observed economic fundamentals, our method leverages subjective price expectations from the University of Michigan Survey of Consumers to test for exuberance without imposing a specific model of intrinsic housing values. By applying recursive least-squares and quantile-based unit root tests to cumulative expectational errors, we uncover novel evidence of speculative dynamics at the aggregate level and across broad demographic and ...
Working Paper
Tempting FAIT: Flexible Average Inflation Targeting and the Post-COVID U.S. Inflation Surge
In August 2020, the Federal Reserve replaced Flexible Inflation Targeting (FIT) with Flexible Average Inflation Targeting (FAIT), introducing make-up strategies that allow inflation to temporarily exceed the 2% target. Using a synthetic control approach, we estimate that FAIT raised CPI inflation by about 1 percentage point and core CPI inflation by 0.5 percentage points, suggesting a moderate impact net of food and energy and a largely temporary effect. Short- to medium-term inflation expectations increased by approximately 0.8 percentage points, while long-term expectations remained ...
Mexico nearshoring yet to yield big investment despite global trade tensions
The resulting reality surrounding nearshoring’s impact on Mexico’s economy is nuanced. While Mexico has made gains, many of them stem from trade diversion rather than large-scale foreign capital relocation.
How the U.S. might outgrow pandemic-era housing (un)affordability problems
A review of market-based and private forecasters’ expectations suggests that U.S. housing may be at an inflection point. U.S. income growth and, more broadly, the robust U.S. labor market will likely help wring out pandemic-era excesses that led to rapidly deteriorating affordability.
Working Paper
Just Do IT? An Assessment of Inflation Targeting in a Global Comparative Case Study
This paper introduces novel measures to assess the effectiveness of inflation targeting (IT) and examines its performance across a broad sample of advanced economies (AEs) and emerging market and developing economies (EMDEs). Utilizing synthetic control methods, the study reveals heterogeneous effects of IT on inflation. The results indicate modest reductions in inflation levels, with greater gains observed in EMDEs compared to AEs. Statistically significant reductions are found in approximately one-third of the countries. However, nearly half of the economies experienced substantial ...
Bubble thought: What beliefs can reveal about housing market risks
Survey-based forecast data on home price growth are a surer indicator of housing market exuberance than traditional valuation ratios, such as price-to-income or price-to-rent.
Are trade deficits good or bad, and can tariffs reduce them?
Typically, trade deficits are viewed through a lens of exports and imports, with the latter exceeding the former. While that is a useful exercise, it’s also helpful to examine deficits through a macroeconomic lens.