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Journal Article
Policy analysis using DSGE models: an introduction
Walsh, Kieran; Tambalotti, Andrea; Sbordone, Argia M.; Rao, Krishna (2010-10)
Many central banks have come to rely on dynamic stochastic general equilibrium, or DSGE, models to inform their economic outlook and to help formulate their policy strategies. But while their use is familiar to policymakers and academics, these models are typically not well known outside these circles. This article introduces the basic structure, logic, and application of the DSGE framework to a broader public by providing an example of its use in monetary policy analysis. The authors present and estimate a simple New Keynesian DSGE model, highlighting the core features that this basic ...
Economic Policy Review , Volume 16 , Issue Oct , Pages 23-43

Working Paper
Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms
Ajello, Andrea; Boyarchenko, Nina; Gourio, François; Tambalotti, Andrea (2022-02-15)
This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit ...
Finance and Economics Discussion Series , Paper 2022-005

Discussion Paper
Opening the Toolbox: The Nowcasting Code on GitHub
Tambalotti, Andrea; Sbordone, Argia M.; Caratelli, Daniele; Schneier, Camilla; http://fedora:8080/fcrepo/rest/objects/authors/; Giannone, Domenico; Bok, Brandyn; Adams, Patrick (2018-08-10)
In April 2016, we unveiled--and began publishing weekly--the New York Fed Staff Nowcast, an estimate of GDP growth using an automated platform for tracking economic conditions in real time. Today we go a step further by publishing the MATLAB code for the nowcasting model, available here on GitHub, a public repository hosting service. We hope that sharing our code will make it easier for people interested in monitoring the macroeconomy to understand the details underlying the nowcast and to replicate our results.
Liberty Street Economics , Paper 20180810

Report
Evaluating interest rate rules in an estimated DSGE model
Tambalotti, Andrea; Curdia, Vasco; Ng, Ging Cee; Ferrero, Andrea (2011)
The empirical DSGE (dynamic stochastic general equilibrium) literature pays surprisingly little attention to the behavior of the monetary authority. Alternative policy rule specifications abound, but their relative merit is rarely discussed. We contribute to filling this gap by comparing the fit of a large set of interest rate rules (fifty-five in total), which we estimate within a simple New Keynesian model. We find that specifications in which monetary policy responds to inflation and to deviations of output from its efficient level?the one that would prevail in the absence of ...
Staff Reports , Paper 510

Discussion Paper
Global Trends in Interest Rates
Bok, Brandyn; Del Negro, Marco; Qian, Eric; Giannone, Domenico; Giannoni, Marc; Tambalotti, Andrea (2019-02-27)
Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.
Liberty Street Economics , Paper 20190227

Discussion Paper
A Bird's Eye View of the FRBNY DSGE Model
Sbordone, Argia M.; De Paoli, Bianca; Tambalotti, Andrea (2014-09-23)
Dynamic stochastic general equilibrium (DSGE) models provide a stylized representation of reality. As such, they do not attempt to model all the myriad relationships that characterize economies, focusing instead on the key interactions among critical economic actors. In this post, we discuss which of these interactions are captured by the FRBNY model and describe how we quantify them using macroeconomic data. For more curious readers, this New York Fed working paper provides much greater detail on these and other aspects of the model.
Liberty Street Economics , Paper 20140923

Working Paper
The Mortgage Rate Conundrum
Justiniano, Alejandro; Tambalotti, Andrea; Primiceri, Giorgio E. (2017-08-01)
We document the emergence of a disconnect between mortgage and Treasury interest rates in the summer of 2003. Following the end of the Federal Reserve expansionary cycle in June 2003, mortgage rates failed to rise according to their historical relationship with Treasury yields, leading to significantly and persistently easier mortgage credit conditions. We uncover this phenomenon by analyzing a large dataset with millions of loan-level observations, which allows us to control for the impact of varying loan, borrower and geographic characteristics. These detailed data also reveal that ...
Working Paper Series , Paper WP-2017-23

Discussion Paper
A Time-Series Perspective on Safety, Liquidity, and Low Interest Rates
Giannoni, Marc; Tambalotti, Andrea; Giannone, Domenico; Bok, Brandyn; Del Negro, Marco (2018-02-06)
The previous post in this series discussed several possible explanations for the trend decline in U.S. real interest rates since the late 1990s. We noted that while interest rates have generally come down over the past two decades, this decline has been more pronounced for Treasury securities. The conclusion that we draw from this evidence is that the convenience associated with the safety and liquidity embedded in Treasuries is an important driver of the secular (long-term) decline in Treasury yields. In this post and the next, we provide an overview of the two complementary empirical ...
Liberty Street Economics , Paper 20180206

Working Paper
Credit Supply and the Housing Boom
Justiniano, Alejandro; Tambalotti, Andrea; Primiceri, Giorgio E. (2014-07-01)
The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral ...
Working Paper Series , Paper WP-2014-21

Report
Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms
Ajello, Andrea; Boyarchenko, Nina; Gourio, François; Tambalotti, Andrea (2022-02-01)
This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit ...
Staff Reports , Paper 1002

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