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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 ...
Journal Article
Tracking U.S. Real GDP Growth During the Pandemic
During this fast-moving pandemic, it's vital that policymakers can rely on real-time estimates of real GDP growth. Jonas Arias and Minchul Shin show us how it's done.
Working Paper
Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications
Are optimism shocks an important source of business cycle fluctuations? Are deficit-financed tax cuts better than deficit-financed spending to increase output? These questions have been previously studied using SVARs identified with sign and zero restrictions and the answers have been positive and definite in both cases. While the identification of SVARs with sign and zero restrictions is theoretically attractive because it allows the researcher to remain agnostic with respect to the responses of the key variables of interest, we show that current implementation of these techniques does not ...
Working Paper
Monetary Policy, Trend Inflation and the Great Moderation: An Alternative Interpretation - Comment
Working with a small-scale calibrated New-Keynesian model, Coibion and Gorodnichenko (2011) find that the reduction in trend inflation during Volcker's mandate was a key factor behind the Great Moderation. We revisit this finding with an estimated New-Keynesian model with trend inflation and no indexation based on Christiano, Eichenbaum and Evans (2005). First, our simulations confirm Coibion and Gorodnichenko's (2011) main finding. Second, we show that a trend inflation-immune Taylor rule based on economic theory can avoid indeterminacy even at high levels of trend inflation such as those ...
Working Paper
Alternative Strategies: How Do They Work? How Might They Help?
Several structural developments in the U.S. economy—including lower neutral interest rates and a flatter Phillips curve—have challenged the ability of the current monetary policy framework to deliver on the Federal Open Market Committee’s (FOMC) dual-mandate goals. This paper explores whether makeup strategies, in which policymakers seek to stabilize average inflation around the inflation target over some horizon, could strengthen the FOMC’s ability to fulfill its dual mandate. The quantitative analysis discussed here suggests that credible makeup strategies may provide some moderate ...
Working Paper
The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure
This paper studies the effects of monetary policy shocks using structural VARs. We achieve identification by imposing sign and zero restrictions on the systematic component of monetary policy. Importantly, our identification scheme does not restrict the contemporaneous response of output to a monetary policy shock. Using data for the period 1965?2007, we consistently find that an increase in the federal funds rate induces a contraction in output. We also find that monetary policy shocks are contractionary during the Great Moderation. Finally, we show that the identification strategy in Uhlig ...
Journal Article
Tracking Business Conditions in Delaware
To meet the need for a gauge of current regional conditions at high frequency, we have built a real-time daily index to monitor business conditions in Delaware. What are the current conditions in the First State? How have these conditions evolved since the 1990s?
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
Uniform Priors for Impulse Responses
There has been a call for caution when using the conventional method for Bayesian inference in set-identified structural vector autoregressions on the grounds that the uniform prior over the set of orthogonal matrices could be nonuniform for key objects of interest. This paper challenges this call. Although the prior distributions of individual impulse responses induced by the conventional method may be nonuniform, they typically do not drive the posteriors if one does not condition on the reduced-form parameters. Importantly, when the focus is on joint inference, the uniform prior over the ...
Working Paper
The Macroeconomic Risks of Undesirably Low Inflation
This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.