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Author:Martinez-Garcia, Enrique 

Working Paper
Get the Lowdown: The International Side of the Fall in the U.S. Natural Rate of Interest

I investigate the downward drift of U.S. interest rates from 1984:Q1 to 2019:Q4. For this, I bring the workhorse two-country New Keynesian model to data on the U.S. and an aggregate of its major trading partners using Bayesian techniques. I show that the U.S. natural (or equilibrium) interest rate recovered from the model has fallen more gradually than the long-run U.S. real rate, cushioned by productivity shocks. Since inflation expectations became well-anchored in the ‘90s, this implies that the continued interest rate decline is largely explained by the real rate tracking the natural ...
Globalization Institute Working Papers , Paper 403

Working Paper
Get the Lowdown: The International Side of the Fall in the U.S. Natural Rate of Interest

Much consideration has been given among scholars and policymakers to the decline in the U.S. natural rate of interest since the 2007 – 09 global financial crisis. In this paper, I investigate its determinants and drivers through the lens of the workhorse two-country New Keynesian model that captures the trade and technological interconnectedness of the U.S. with the rest of the world economy. Using Bayesian techniques, I bring the set of binding log-linearized equilibrium conditions from this model to the data, but augmented with survey-based forecasts in order to align the solution with ...
Globalization Institute Working Papers , Paper 403

Working Paper
A cross-country quarterly database of real house prices: a methodological note

We build from (mainly) publicly available national sources a database of (nominal and real) house prices?complemented with data on private disposable income (PDI)?for 19 advanced countries at a quarterly frequency, starting in the first quarter of 1975. We select a house price index for each country that is consistent with the U.S. FHFA quarterly nationwide house price index for existing single-family houses (formerly called OFHEO house price index), and extend the country series back to 1975 with available historical data whenever necessary. Each house price index is seasonallyadjusted over ...
Globalization Institute Working Papers , Paper 99

Working Paper
Assessing Bayesian model comparison in small samples

We investigate the Bayesian approach to model comparison within a two-country framework with nominal rigidities using the workhorse New Keynesian open-economy model of Martnez-Garca and Wynne (2010). We discuss the trade-offs that monetary policy characterized by a Taylor-type rule faces in an interconnected world, with perfectly flexible exchange rates. We then use posterior model probabilities to evaluate the weight of evidence in support of such a model when estimated against more parsimonious specifications that either abstract from monetary frictions or assume autarky by means of ...
Globalization Institute Working Papers , Paper 189

Working Paper
U.S. business cycles, monetary policy and the external finance premium

I investigate a model of the U.S. economy with nominal rigidities and a financial accelerator mechanism la Bernanke et al. (1999). I calculate total factor productivity and monetary policy deviations for the U.S. and quantitatively explore the ability of the model to account for the cyclical patterns of GDP (excluding government), investment, consumption, the share of hours worked, inflation and the quarterly interest rate spread between the Baa corporate bond yield and the 20-year Treasury bill rate during the Great Moderation. I show that the magnitude and cyclicality of the external ...
Globalization Institute Working Papers , Paper 160

Working Paper
exuber: Recursive Right-Tailed Unit Root Testing with R

This paper introduces the R package exuber for testing and date-stamping periods of mildly explosive dynamics (exuberance) in time series. The package computes test statistics for the supremum ADF test (SADF) of Phillips, Wu and Yu (2011), the generalized SADF (GSADF) of Phillips, Shi and Yu (2015a,b), and the panel GSADF proposed by Pavlidis, Yusupova, Paya, Peel, Martínez-García, Mack and Grossman (2016); generates finite-sample critical values based on Monte Carlo and bootstrap methods; and implements the corresponding date-stamping procedures. The recursive least-squares algorithm that ...
Globalization Institute Working Papers , Paper 383

Journal Article
Monetary Policy and Economic Performance Since the Financial Crisis

We review the macroeconomic performance during the Global Financial Crisis and subsequent economic expansion, as well as the challenges in the pursuit of the Federal Reserve's dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-­crisis experience of other major central banks with these policy tools.
Review , Volume 103 , Issue 4 , Pages 425-460

Real-Time Market Monitoring Finds Signs of Brewing U.S. Housing Bubble

There is growing cause for concern that U.S. house prices are again becoming unhinged from fundamentals.
Dallas Fed Economics

Se Habla Español: U.S. Yet to Realize Many Benefits of a Growing Bilingual Population

The Spanish-only-speaking population in the U.S. faces many challenges that include overcoming often lesser income prospects compared with monolingual English speakers.
Dallas Fed Economics

Working Paper
Forecasting local inflation in Open Economies: What Can a NOEM Model Do?

This paper provides both theoretical insight as well as empirical evidence in support of the view that inflation is largely a global phenomenon. First, we show that inflation across countries incorporates a significant common factor captured by global inflation. Second, we show that in theory a role for global inflation in local inflation dynamics emerges over the business cycle even without common shocks, and under flexible exchange rates and complete international asset markets. Third, we identify a strong "error correction mechanism" that brings local inflation rates back in line with ...
Globalization Institute Working Papers , Paper 235


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