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Discussion Paper
Out-of-Sample Performance of Recession Probability Models
This note discusses the out-of-sample (OOS) performance of several probit models used to assess the likelihood that the U.S. economy will be in a recession within the following year.
Discussion Paper
The Stock Market–Real Economy "Disconnect": A Closer Look
Between March and September 2020, broad equity price indexes around the world experienced a historic rally. Although this rally followed a significant decline in stock prices, it appears difficult to explain due to continuing concerns about the global pandemic and national economies running far below their potentials.
Working Paper
More than Words: Twitter Chatter and Financial Market Sentiment
We build a new measure of credit and financial market sentiment using Natural Language Processing on Twitter data. We find that the Twitter Financial Sentiment Index (TFSI) correlates highly with corporate bond spreads and other price- and survey-based measures of financial conditions. We document that overnight Twitter financial sentiment helps predict next day stock market returns. Most notably, we show that the index contains information that helps forecast changes in the U.S. monetary policy stance: a deterioration in Twitter financial sentiment the day ahead of an FOMC statement release ...
Briefing
Sentiment About Business Debt as a Leading Economic Indicator
Understanding the sources and transmission of financial distress in the economy is essential for macroeconomic stabilization policy. For example, policymakers and academics have both pointed to excesses in credit markets — including abnormally low risk premiums, misaligned incentives for risk taking, lax credit standards and excessive borrowing — as the main culprits behind the 2008-09 financial crisis.1 Since then, many questions have emerged regarding the role of credit factors in business-cycle fluctuations. Postwar data for multiple economies suggest that rapid growth in business or ...
Working Paper
Measuring the Natural Rate of Interest : A Note on Transitory Shocks
We present evidence that the natural rate of interest is buffeted by both permanent and transitory shocks. We establish this result by estimating a benchmark model with Bayesian methods and loose priors on the unobserved drivers of the natural rate. When subject to transitory shocks, the median estimate for the U.S. economy is more procyclical, displays a less marked secular decline, and is therefore higher following the Great Recession than most estimates in the literature.
Working Paper
Nominal Rigidities and the Term Structures of Equity and Bond Returns
A downward-sloping term structure of equity and upward-sloping term structures of interest rates arise endogenously in a general-equilibrium model with nominal rigidities and nonlinear habits in consumption. Countercyclical marginal costs exacerbate the procyclicality of dividends after a technology shock, and hence their riskiness, and generate countercyclical inflation. Marginal costs gradually fall after a negative technology shock as the price level increases sluggishly, so the payoffs of short-duration dividend claims (bonds) are more (less) procyclical than the payoffs of long-duration ...
Discussion Paper
Are Stocks Pricing in Recession Risks? Evidence from Dividend Futures
Since the beginning of this year, broad equity price indexes around the world have declined significantly. In interpreting the declines, market commentaries have highlighted the risks to the economic outlook in the United States and other advanced economies.