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Working Paper
R&D Capital and the Idea Production Function
We supplement the “Idea Production Function” (IPF), whereby research and development (R&D) activity leads to growth, with measures of R&D capital. We construct the R&D capital stock in the United States and estimate the IPF with patent applications as R&D output, allowing for a flexible treatment of R&D productivity (over 1968–2019). The estimated substitution elasticity between R&D inputs is 0.7−0.8, which suggests that R&D capital is an essential factor in producing ideas and complementary to R&D labor. We identify a positive trend in R&D labor productivity (roughly 1 percent) and a ...
Working Paper
Threshold Endogeneity in Threshold VARs: An Application to Monetary State Dependence
A new method refines the threshold vector autoregressive model used to study the effects of monetary policy. We contribute a new method for dealing with the problem of endogeneity of the threshold variable in threshold vector auto-regression (TVAR) models. Drawing on copula theory enables us to capture the dependence structure between the threshold variable and the vector of TVAR innovations, independently of the marginal distribution of the threshold variable. A Monte Carlo demonstrates that our method works well, and that ignoring threshold endogeneity leads to biased estimates of the ...
Working Paper
Janus's Money Demand and Time Inconsistency: A New Impossibility Theorem?
We derive a general “Janus” money demand function that reflects backward- and forward-looking habit formation. The scope of our model allows us to explain the breakdown of money-demand functions and reduced policy relevance of monetary aggregates. Integrating our Janus money demand into a Barro-Gordon framework reveals new insights for time inconsistency in monetary policy and a new impossibility theorem.
Working Paper
Evaluating Local Language Models: An Application to Bank Earnings Calls
This study evaluates the performance of local large language models (LLMs) in interpreting financial texts, compared with closed-source, cloud-based models. We first introduce new benchmarking tasks for assessing LLM performance in analyzing financial and economic texts and explore the refinements needed to improve its performance. Our benchmarking results suggest local LLMs are a viable tool for general natural language processing analysis of these texts. We then leverage local LLMs to analyze the tone and substance of bank earnings calls in the post-pandemic era, including calls conducted ...
Journal Article
Comparing Measures of Rental Prices Can Inform Monetary Policy
Shelter makes up one-third of the Consumer Price Index (CPI) and is important to understanding inflation developments. Comparing two measures of shelter prices—the official U.S. Bureau of Labor Statistics (BLS) dataset and the Zillow rental price index—shows that the Zillow series leads the BLS series by about six to 10 months. Changes in the Zillow series should eventually be reflected in the BLS data, so any positive gap between the two suggests that tighter monetary conditions may be needed to lower CPI inflation.