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Discussion Paper
Impacts of COVID-19: Mitigation Efforts versus Herd Immunity
The rapid spread of COVID-19 is having devastating effects on the global economy. With death curves beginning to bend, governments will soon need to determine when and how to relax lockdown measures. The crucial question is: what are the public health consequences of reopening the economy? In this article, we argue that the observed decline in daily deaths could be due to two scenarios: social distancing measures and herd immunity. Both the widely used SIR model and the data collected thus far cannot distinguish these two scenarios. Such an identiļ¬cation problem generates a large degree of ...
Journal Article
What Accounts for the Growing Divergence between Employment Measures?
Our analysis reveals a significant and persistent divergence between employment measures from the Current Employment Statistics (CES) and Current Population Survey (CPS). Adjusting for the net birth-death contribution of businesses only partially explains this gap. The remaining large discrepancy is likely due to an underestimation of population growth in the CPS, potentially linked to recent immigration fluctuations. This finding has substantial implications for understanding the current labor market: adjusted CPS data reveals a more robust labor market with healthy demand and rapid supply ...
Journal Article
Impacts of COVID-19: Mitigation Efforts versus Herd Immunity
The rapid spread of COVID-19 is having devastating effects on the global economy. Governments around the world have been forced to pursue lockdown policies in an attempt to stem the spread of this deadly disease and bend the death curve. With death curves beginning to bend, governments will soon need to determine when and how to relax lockdown measures. The crucial question is: what are the consequences of reopening the economy? In this article, we address this question by studying both the model and the data and discuss the challenges we face moving forward.
Journal Article
Forecast evaluation with cross-sectional data: The Blue Chip Surveys
If economic forecasts are to be used for decision making, then being able to evaluate their accuracy is essential. Assessing accuracy using single variables from a forecast is acceptable as a first pass, but this approach has inherent problems. This article addresses some of these problems by evaluating and comparing the general accuracy of a set of multivariate forecasts over time. ; Using the methodology developed in Eisenbeis, Waggoner, and Zha (2002), the authors compare the economic forecasts in the Blue Chip Economic Indicators Survey. The survey, published monthly since 1977, contains ...
Journal Article
Identifying monetary policy: a primer
The question of the quantitative effect of monetary policy has been of considerable debate for decades. Economists' beliefs about it stem largely from theoretical models that imply the effects of changing monetary policy, and different experiments or theories lead to different conclusions. The actual economy, however, is not the result of any such controlled experiment. In the real world, inferences about the quantitative effect of monetary policy must rely on observations of actual economic activity in which many variables are changing simultaneously. ; This article argues that to assess the ...
Journal Article
Transparency, expectations and forecasts
Many economists believe that a central bank?s transparency about its objectives, economic outlook, and policy changes affect the public?s views about future economic and financial conditions. In keeping with this theory, since 1994 the Federal Open Market Committee has gradually increased the transparency of its statements accompanying changes in the federal funds rate target. ; This article investigates whether private agents? ability to predict the economy?s direction has improved since 1994. The analysis focuses on forecasts of macroeconomic variables such as inflation, gross domestic ...
Journal Article
A dynamic multivariate model for use in formulating policy
A policy action by the Federal Reserve consists of using any one of various instruments, such as the federal funds rate and different measures of money, to pursue its multiple objectives. Because of long and variable lags in the effects of policy actions, the process of anticipating the future is indispensable in formulating sound monetary policy. For the same reason, projecting policy effects accurately is a challenging task. An essential step is to develop good forecasting models. ; This article presents a forecasting model that seems to overcome conceptual and empirical difficulties ...
Journal Article
Assessing simple policy rules: A view from a complete macroeconomic model
Monetary policy analysts looking for a model on which to base decisions may consider two popular approaches-the New Keynesian (NK) and the identified vector autoregression (VAR) approaches. Choosing between the two can be difficult: NK models are stylized and have simple rules while structural VAR models have complex dynamics and loose behavioral interpretations. ; The simpler NK models often produce stark conclusions. For example, NK analyses consistently find that the Federal Reserve's monetary policy has improved markedly in the past two decades compared with the 1960s and 1970s. In ...
Journal Article
Monetary policy and racial unemployment rates
When the Federal Open Market Committee began raising interest rates in June 1999 to forestall inflationary pressures, concern mounted that monetary policy moves might slow the pace of economic growth, undoing the employment gains minorities and other disadvantaged groups made during the 1990s. Implicit in such concern is the idea that these groups will be disproportionately affected by an economic slowdown. ; To explore this issue, this article analyzes the effect of exogenous movements in monetary policy and other macroeconomic variables on the overall and black unemployment rates. These ...
Journal Article
Evaluating the effects of monetary policy with economic models
Because of limited knowledge about how the actual, complex economy operates, policymakers depend on models for understanding its workings. For models to be usable for evaluating monetary policy effects, modelers must recognize that fluctuations or shocks in the actual economy are often driven by developments beyond the central bank's control. There are no simple rules, and neither is there a single model that represents the exact interactions between monetary policy and the rest of the economy. How good a model is depends on particular criteria. ; This article assesses the usability of a ...