Bank consolidation and merger activity following the crisis.
Michal Kowalik, Troy Davig, Charles S. Morris, and Kristen Regehr analyze the financial characteristics of acquired community banks from 2011 to 2014.
Accounting for changes in the U.S. budget deficit
Troy Davig and Michael Redmond gauge the contributions of three factors to the declining U.S. federal budget deficit.
Is optimal monetary policy always optimal?
No. And not only for the reason you think. In a world with multiple inefficiencies the single policy tool the central bank has control over will not undo all inefficiencies; this is well understood. We argue that the world is better characterized by multiple ine?ciencies and multiple policy makers with various objectives. Asking the policy question only in terms of optimal monetary policy effectively turns the central bank into the residual claimant of all policy and gives the other policymakers a free hand in pursuing their own goals. This further worsens the tradeoffs faced by the central ...
Accounting for changes in the U.S. budget deficit
After rising substantially during the Great Recession, the U.S. federal budget deficit has narrowed the past few years. While policy reforms and cyclical economic recovery have certainly contributed to this improvement, an array of temporary factors such as Federal Reserve remittances, dividends from Fannie Mae and Freddie Mac, and the unwinding of one-time stimulus packages may have had a notable effect. To understand the driving factors behind the improvement in the deficit, Davig and Redmond introduce a framework to gauge the contributions of temporary factors, automatic stabilizers, and ...
Detecting recessions in the Great Moderation: a real-time analysis
The nature of the business cycle, particularly in the United States, has changed dramatically over the past several decades. In the 1970s and early 1980s, the U.S. economy often whipsawed up and down. Since then, real economic activity stabilized considerably, entering a period economists call the ?Great Moderation.? With the ups and downs of the economy becoming less dramatic, it has become harder to determine in real-time when the economy dips into recession. ; Economists have a variety of methods to determine when the economy is entering a recession. These methods range from directly ...
Recession forecasting using Bayesian classification
The authors demonstrated the use of a Nave Bayes model as a recession forecasting tool. The approach has a close connection to Markov-switching models and logistic regression but also important differences. In contrast to Markov-switching models, Nave Bayes treats National Bureau of Economic Research business cycle turning points as data rather than hidden states to be inferred by the model. Although Nave Bayes and logistic regression are asymptotically equivalent under certain distributional assumptions, the assumptions do not hold for business cycle data.
The shadow labor supply and its implications for the unemployment rate
In the wake of the Great Recession there has been a sharp rise in the number of people who indicate they want a job, but are not actively seeking one. This group, on the periphery of the labor market, may be viewed as a "shadow labor supply." Since they are not actively seeking work, they are not counted by the government as unemployed and not considered part of the labor force. But if many start seeking jobs as the economy recovers, the unemployment rate could rise or at least slow its descent. Davig and Mustre-del-Ro analyze possible flow rates from this group and other non-employed ...
Uncertainty and fiscal cliffs
Motivated by the US Fiscal Cliff in 2012, this paper considers the short- and longer- term impact of uncertainty generated by fiscal policy. Empirical evidence shows increases in economic policy uncertainty lower investment and employment. Investment that is longer-lived and subject to a longer planning horizon responds to policy uncertainty with a lag, while capital that depreciates more quickly and can be installed with few costs falls immediately. A DSGE model incorporating uncertainty over future tax regimes produces responses to fiscal uncertainty that match key features of the data. The ...
The wage cycle and shadow labor supply
An empirical assessment of the relationships among inflation and short- and long-term expectations
This paper uses a detailed literature review and an empirical analysis of three models to assess the links among inflation and survey measures of long- and short-term expectations. In the first approach, we jointly estimate a model of inflation, survey expectations and monetary policy, where each is a function of a common time-varying inflation trend. In the estimates, long-term expectations track closely the unobserved trend that is an important factor in inflation dynamics, implying that changes in long-run expectations can lead to persistent movements in inflation. In the second approach, ...