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Author:Del Negro, Marco 

Discussion Paper
Forecasting with Julia

A little more than a year ago, in this post, we announced DSGE.jl?a package for working with dynamic stochastic general equilibrium (DSGE) models using Julia, the open-source computing language. At that time, DSGE.jl contained only the code required to specify, solve, and estimate such models using Bayesian methods. Now, we have extended the package to provide the additional code needed to produce economic forecasts, counterfactual simulations, and inference on unobservable variables, such as the natural rate of interest or the output gap. The old, pre-Julia version of the code, which was ...
Liberty Street Economics , Paper 20170508

Discussion Paper
Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization

In the wake of the global financial crisis, the Federal Reserve dramatically increased the size of its balance sheet?from about $900 billion at the end of 2007 to about $4.5 trillion today. At its September 2017 meeting, the Federal Open Market Committee (FOMC) announced that?effective October 2017?it would initiate the balance sheet normalization program described in the June 2017 addendum to the FOMC?s Policy Normalization Principles and Plans.
Liberty Street Economics , Paper 20180109

Discussion Paper
A New Perspective on Low Interest Rates

Interest rates in the United States have remained at historically low levels for many years. This series of posts explores the forces behind the persistence of low rates. We briefly discuss some of the explanations advanced in the academic literature, and propose an alternative hypothesis that centers on the premium associated with safe and liquid assets. Our argument, outlined in a paper we presented at the Brookings Conference on Economic Activity last March, suggests that the increase in this premium since the late 1990s has been a key driver of the decline in the real return on U.S. ...
Liberty Street Economics , Paper 20180205

Discussion Paper
A Time-Series Perspective on Safety, Liquidity, and Low Interest Rates

The previous post in this series discussed several possible explanations for the trend decline in U.S. real interest rates since the late 1990s. We noted that while interest rates have generally come down over the past two decades, this decline has been more pronounced for Treasury securities. The conclusion that we draw from this evidence is that the convenience associated with the safety and liquidity embedded in Treasuries is an important driver of the secular (long-term) decline in Treasury yields. In this post and the next, we provide an overview of the two complementary empirical ...
Liberty Street Economics , Paper 20180206

Discussion Paper
A DSGE Perspective on Safety, Liquidity, and Low Interest Rates

The preceding two posts in this series documented that interest rates on safe and liquid assets, such as U.S. Treasury securities, have declined significantly in the past twenty years. Of course, short-term interest rates in the United States are under the control of the Federal Reserve, at least in nominal terms. So it is legitimate to ask, To what extent is this decline driven by the Federal Reserve?s interest rate policy? This post addresses this question by coupling the results presented in the previous post with those obtained from an estimated dynamic stochastic general equilibrium ...
Liberty Street Economics , Paper 20180207

Discussion Paper
Forecasts of the Lost Recovery

The years following the Great Recession were challenging for forecasters for a variety of reasons, including an unprecedented policy environment. This post, based on our recently released working paper, documents the real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model in the wake of the Great Recession. We show that the model?s predictive accuracy was on par with that of private forecasters and proved to be quite a bit better, at least in terms of GDP growth, than that of the median forecasts from the Federal Open Market Committee?s (FOMC) ...
Liberty Street Economics , Paper 20180509

Discussion Paper
Global Trends in Interest Rates

Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.
Liberty Street Economics , Paper 20190227

Discussion Paper
Online Estimation of DSGE Models

The estimation of dynamic stochastic general equilibrium (DSGE) models is a computationally demanding task. As these models change to address new challenges (such as household and firm heterogeneity, the lower bound on nominal interest rates, and occasionally binding financial constraints), they become even more complex and difficult to estimate?so much so that current estimation procedures are no longer up to the task. This post discusses a new technique for estimating these models which belongs to the class of sequential Monte Carlo (SMC) algorithms, an approach we employ to estimate the ...
Liberty Street Economics , Paper 20190821

Report
Online Estimation of DSGE Models

This paper illustrates the usefulness of sequential Monte Carlo (SMC) methods in approximating DSGE model posterior distributions. We show how the tempering schedule can be chosen adaptively, explore the benefits of an SMC variant we call generalized tempering for ?online? estimation, and provide examples of multimodal posteriors that are well captured by SMC methods. We then use the online estimation of the DSGE model to compute pseudo-out-of-sample density forecasts of DSGE models with and without financial frictions and document the benefits of conditioning DSGE model forecasts on nowcasts ...
Staff Reports , Paper 893

Report
DSGE forecasts of the lost recovery

The years following the Great Recession were challenging for forecasters. Unlike other deep downturns, this recession was not followed by a swift recovery, but generated a sizable and persistent output gap that was not accompanied by deflation as a traditional Phillips curve relationship would have predicted. Moreover, the zero lower bound and unconventional monetary policy generated an unprecedented policy environment. We document the real real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model during this period and explain the results using ...
Staff Reports , Paper 844

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