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Journal Article
Price Pressures for U.S. Exporters and a Strong Dollar Have Increased Inflation in Foreign Countries
As the higher demand for imported goods during the pandemic has moderated, U.S. export prices have become an important factor in determining inflationary pressures from the United States. As of 2022:Q2, export prices increased by 11.8 percent annualized, far exceeding the historical average of 3.75 percent. Further, 58 percent of the increase in export prices can be attributed to the recent appreciation of the U.S. dollar, while the remaining 42 percent can be attributed to price pressures for U.S. exporters.
Journal Article
Testing Hybrid Forecasts for Imports and Exports
The quality of economic forecasts tends to deteriorate during times of stress such as the COVID-19 pandemic, raising questions about how to improve forecasts during exceptional times. One method of forecasting that has received less attention is refining model-based forecasts with judgmental adjustment, or hybrid forecasting. Judgmental adjustment is the process of incorporating information from outside a model into a forecast or adjusting a forecast subjectively. Hybrid forecasts could be particularly useful during extraordinary times such as the COVID-19 pandemic, as models that do not ...
Working Paper
Macroprudential Policy Interlinkages
Emerging markets are concerned about sudden stops in international capital flows, which may lead to severe recessions associated with vicious spirals of currency depreciations and tightening borrowing constraints. A common prescription is to impose macroprudential policies, including prudential capital controls, to limit international borrowing especially in foreign currency. This paper analyzes the supportive role of macroprudential policies geared toward the domestic financial market, suggesting that emerging markets should resort to a wide mix of policies, even when the domestic financial ...
Journal Article
China's Post-COVID Recovery: Implications and Risks
China removed most of its COVID-19 restrictions in November 2022 following a year of weak growth. Despite initial uncertainty about sustained COVID-19 outbreaks, the Chinese economy has begun to rebound, driven by domestic consumption. The rebound is likely to boost global growth.
Journal Article
To Reach the Fed’s Inflation Target, Interest Rates May Have to Remain Restrictive for Some Time
The Federal Reserve has raised the federal funds rate by 500 basis points since March 2022. But how tight is the current policy stance? We account for the federal funds rate, inflation expectations, and the natural rate of interest and find that monetary policy has only been restrictive since 2023:Q1. We find that to bring inflation down to 2 percent, the Federal Reserve may have to keep the federal funds rate in restrictive territory for some time.
Journal Article
Labor Markets Are Tight, but Conditions Vary across States
A record 4.4 million employees quit their jobs in September 2021, and many businesses are struggling to fill open positions. Although at a national level the labor market appears historically tight, we show that labor market tightness differs widely across states. Most states have tighter labor markets than before the pandemic, but others have struggled to recover.
Working Paper
The Missing Tail Risk in Option Prices
This paper contributes to the literature on deviations from rational expectations in financial markets and to the literature on evaluating density forecasts. We first develop a novel statistic to evaluate the overall accuracy of distributional forecasts, and find two methods that yield accurate distributional forecasts. We then propose another statistic to examine the relative accuracy over the entire distribution range. Our results indicate more oil price realizations in the left tail than predicted. We argue that this finding points to a persistent behavioral forecasting bias and a ...
Working Paper
National Interests, Spillovers and Macroprudential Coordination
This paper presents a simple two-region banking model of liquidity mismatch to study the strategic interactions between national regulators. I show that banks hold insufficient liquidity, which has repercussions for other banks in an international financial market. The model justifies coordinated prudential liquidity regulation due to an international fire-sale externality. However, I theoretically and empirically argue that domestically oriented regulators from jurisdictions with a smaller banking sector do not internalize the global benefits of regulation and therefore do not adhere to ...
Journal Article
Current Monetary Policy May Be Less Restrictive Than It Seems
Compared with most historical inflationary episodes since the 1960s, the current U.S. inflation cycle features both higher core inflation and a more resilient real economy. This co-movement of prices and real activity suggests monetary policy has not sufficiently reduced demand. We examine the current policy stance and argue that interest rates may indeed be less restrictive than commonly thought. To lower inflation to 2 percent, the Federal Reserve may have to maintain a restrictive policy stance for some time.
Journal Article
Capital Flows and Monetary Policy in Emerging Markets around Fed Tightening Cycles
The Federal Reserve’s interest rate hikes in 2022–23 raised concerns about spillover effects on smaller emerging market and developing economies. Historically, a higher U.S. federal funds rate has been associated with international investors withdrawing capital from emerging markets, which can lead to lower economic activity and depreciating exchange rates in these markets—and, in turn, greater financial vulnerability. To reduce capital outflows, central banks in emerging markets can tighten their own monetary policy rates to increase yields on debt securities. But raising interest ...