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Showing results 1 to 10 of approximately 46.
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Working Paper
Learning about Regime Change
Total factor productivity (TFP) and investment specific technology (IST) growth both exhibit regime-switching behavior, but the regime at any given time is difficult to infer. We build a rational expectations real business cycle model where the underlying TFP and IST regimes are unobserved. We then develop a general perturbation solution algorithm for a wide class of models with unobserved regime-switching. Using our method, we show that learning about regime-switching alters the responses to regime shifts and intra-regime shocks, increases asymmetries in the responses, generates forecast ...
Working Paper
Choosing Prior Hyperparameters
Bayesian inference is common in models with many parameters, such as large VAR models, models with time-varying parameters, or large DSGE models. A common practice is to focus on prior distributions that themselves depend on relatively few hyperparameters. The choice of these hyperparameters is crucial because their influence is often sizeable for standard sample sizes. In this paper we treat the hyperparameters as part of a hierarchical model and propose a fast, tractable, easy-to-implement, and fully Bayesian approach to estimate those hyperparameters jointly with all other parameters in ...
Briefing
How Likely Is a Return to the Zero Lower Bound?
The likelihood of returning to near-zero interest rates is relevant to policymakers in considering the path of future interest rates. At the zero lower bound, the Fed can no longer lower rates and thus can respond to a contraction only through alternative policy measures, such as quantitative easing. Recent research at the Richmond Fed has used repeated simulations of the U.S. economy to estimate the probability of such an occurrence over the next ten years. The estimated probability of returning to the zero lower bound one or more times during this period is approximately one chance in four.
Working Paper
What Do Sectoral Dynamics Tell Us About the Origins of Business Cycles?
We use economic theory to rank the impact of structural shocks across sectors. This ranking helps us to identify the origins of U.S. business cycles. To do this, we introduce a Hierarchical Vector Auto-Regressive model, encompassing aggregate and sectoral variables. We find that shocks whose impact originate in the "demand" side (monetary, household, and government consumption) account for 43 percent more of the variance of U.S. GDP growth at business cycle frequencies than identified shocks originating in the "supply" side (technology and energy). Furthermore, corporate financial shocks, ...
Working Paper
Assessing U.S. Aggregate Fluctuations Across Time and Frequencies
We study the behavior of key macroeconomic variables in the time and frequency domain. For this purpose, we decompose U.S. time series into various frequency components. This allows us to identify a set of stylized facts: GDP growth is largely a high-frequency phenomenon whereby inflation and nominal interest rates are characterized largely by low-frequency components. In contrast, unemployment is a medium-term phenomenon. We use these decompositions jointly in a structural VAR where we identify monetary policy shocks using a sign restriction approach. We find that monetary policy shocks ...
Report
Monetary Policy across Inflation Regimes
Does the effect of monetary policy depend on the prevailing level of inflation? In order to answer this question, we construct a parsimonious nonlinear time series model that allows for inflation regimes. We find that the effects of monetary policy are markedly different when year-over-year inflation exceeds 5.5 percent. Below this threshold, changes in monetary policy have a short-lived effect on prices, but no effect on the unemployment rate, giving a potential explanation for the recent “soft landing” in the United States. Above this threshold, the effects of monetary policy surprises ...
Journal Article
Beveridge Curve Shifts and Time-Varying Parameter VARs
We specify a simple search and matching model of the aggregate labor market allowing for productivity-driven changes in match efficiency. This mechanism leads to shifts in the Beveridge curve that are broadly consistent with the pattern observed in the United States. We simulate data from the fully nonlinear solution of the model and estimate a time-varying parameter vector-autoregressions (TVP-VAR) on the unemployment and vacancies series to assess whether the shifts in the underlying theoretical model are being picked up by the nonlinear time series model. The results suggest that the ...
Journal Article
The Highs and Lows of Productivity Growth
Productivity growth shows evidence of switching between long periods of high and low average growth. Estimates suggest that the United States has been in the low-growth regime since 2004. Assuming this low growth continues, productivity growth in the year 2025 would be 0.6%. By dropping this assumption and allowing for a switch to consistent higher growth, an alternative estimate forecasts that the distribution of possible productivity growth across quarters could average about 1.1% in 2025.
Journal Article
Time-Varying Parameter Vector Autoregressions: Specification, Estimation, and an Application
Time-varying parameter vector autoregressions (TVP-VARs) have become a popular tool to study the dynamics of macroeconomic time series. In this article, we discuss the specification and estimation of this class of models with a focus on implementability. We provide a step-by-step guide for researchers interested in utilizing this methodology in their own research. Specifically, we discuss how to use Bayesian Gibbs-sampling techniques to easily conduct inference.
Working Paper
Monetary Policy Shocks: Data or Methods?
Different series of high-frequency monetary shocks can have a correlation coefficient as low as 0.5 and the same sign in only two-thirds of observations. Both data and methods drive these differences, which are starkest when the federal funds rate is at its effective lower bound. Methods that exploit the differential responsiveness of short- and long-term asset prices can incorporate additional information. After documenting differences in monetary shocks, we explore their consequence for inference. We find that empirical estimates of monetary policy transmission from local projections and ...