Search Results
Working Paper
The Dynamic Striated Metropolis-Hastings Sampler for High-Dimensional Models
Having efficient and accurate samplers for simulating the posterior distribution is crucial for Bayesian analysis. We develop a generic posterior simulator called the "dynamic striated Metropolis-Hastings (DSMH)" sampler. Grounded in the Metropolis-Hastings algorithm, it draws its strengths from both the equi-energy sampler and the sequential Monte Carlo sampler by avoiding the weaknesses of the straight Metropolis-Hastings algorithm as well as those of importance sampling. In particular, the DSMH sampler possesses the capacity to cope with incredibly irregular distributions that are full ...
Working Paper
Inference in Bayesian Proxy-SVARs
Motivated by the increasing use of external instruments to identify structural vector autoregressions SVARs), we develop algorithms for exact finite sample inference in this class of time series models, commonly known as proxy SVARs. Our algorithms make independent draws from the normal-generalized-normal family of conjugate posterior distributions over the structural parameterization of a proxy-SVAR. Importantly, our techniques can handle the case of set identification and hence they can be used to relax the additional exclusion restrictions unrelated to the external instruments often ...
Working Paper
Sources of the Great Moderation: shocks, frictions, or monetary policy?
We study the sources of the Great Moderation by estimating a variety of medium-scale dynamic stochastic general equilibrium (DSGE) models that incorporate regime switches in shock variances and the inflation target. The best-fit model?the one with two regimes in shock variances?gives quantitatively different dynamics compared with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the ...
Working Paper
Structural vector autoregressions: theory of identification and algorithms for inference
Structural vector autoregressions (SVARs) are widely used for policy analysis and to provide stylized facts for dynamic general equilibrium models. Yet there have been no workable rank conditions to ascertain whether an SVAR is globally identified. When identifying restrictions such as long-run restrictions are imposed on impulse responses, there have been no efficient algorithms for small-sample estimation and inference. To fill these important gaps in the literature, this paper makes four contributions. First, we establish general rank conditions for global identification of both ...
Working Paper
Evaluating Wall Street Journal survey forecasters: a multivariate approach
This paper proposes a methodology for assessing the joint performance of multivariate forecasts of economic variables. The methodology is illustrated by comparing the rankings of forecasters by the Wall Street Journal with the authors? alternative rankings. The results show that the methodology can provide useful insights as to the certainty of forecasts as well as the extent to which various forecasts are similar or different.
Working Paper
The Transmission of Financial Shocks and Leverage of Financial Institutions: An Endogenous Regime-Switching Framework
We conduct a novel empirical analysis of the role of leverage of financial institutions for the transmission of financial shocks to the macroeconomy. For that purpose, we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities that depend on the state of the economy. We propose new identification techniques for regime switching models.Recently developed theoretical models emphasize the role of bank balance sheets for the build-up of financial instabilities and the amplification of financial shocks. We build a market-based ...
Working Paper
A Gibbs simulator for restricted VAR models
Many economic applications call for simultaneous equations VAR modeling. We show that the existing importance sampler can be prohibitively inefficient for this type of models. We develop a Gibbs simulator that works for both simultaneous and recursive VAR models with a much broader range of linear restrictions than those in the existing literature. We show that the required computation is of an SUR type, and thus our method can be implemented cheaply even for large systems of multiple equations.
Working Paper
Normalization in econometrics
The issue of normalization arises whenever two different values for a vector of unknown parameters imply the identical economic model. A normalization does not just imply a rule for selecting which point, among equivalent ones, to call the maximum likelihood estimator (MLE). It also governs the topography of the set of points that go into a small-sample confidence interval associated with that MLE. A poor normalization can lead to multimodal distributions, disjoint confidence intervals, and very misleading characterizations of the true statistical uncertainty. This paper introduces the ...
Working Paper
Understanding the New Keynesian model when monetary policy switches regimes
This paper studies a New Keynesian model in which monetary policy may switch between regimes. We derive sufficient conditions for indeterminacy that are easy to implement and we show that the necessary and sufficient condition for determinacy, provided by Davig and Leeper, is necessary but not sufficient. More importantly, we use a two-regime model to show that indeterminacy in a passive regime may spill over to an active regime no matter how active the latter regime is. As a result, a passive monetary policy is more damaging than has been previously thought. Our results imply that the ...
Working Paper
Spline methods for extracting interest rate curves from coupon bond prices
Cubic splines have long been used to extract the discount, yield, and forward rate curves from coupon bond data. McCulloch used regression splines to estimate the discount function, and, more recently, Fisher, Nychka, and Zervos used smoothed splines, with the roughness penalty selected by generalized cross-validation, to estimate the forward rate curve. I propose using a smoothed spline but with a roughness penalty that can vary across maturities, to estimate the forward rate curve. This method is tested against the methods of McCulloch and Fisher, Nychka, and Zervos using monthly bond data ...