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Working Paper
Surveying Business Uncertainty
We elicit subjective probability distributions from business executives about their own-firm outcomes at a one-year look-ahead horizon. In terms of question design, our key innovation is to let survey respondents freely select support points and probabilities in five-point distributions over future sales growth, employment, and investment. In terms of data collection, we develop and field a new monthly panel Survey of Business Uncertainty (SBU). The SBU began in 2014 and now covers about 1,750 firms drawn from all 50 states, every major nonfarm industry, and a range of firm sizes. We find ...
Working Paper
Lessons for forecasting unemployment in the United States: use flow rates, mind the trend
This paper evaluates the ability of autoregressive models, professional forecasters, and models that incorporate unemployment flows to forecast the unemployment rate. We pay particular attention to flows-based approaches?the more reduced-form approach of Barnichon and Nekarda (2012) and the more structural method in Tasci (2012)?to generalize whether data on unemployment flows are useful in forecasting the unemployment rate. We find that any approach that considers unemployment inflow and outflow rates performs well in the near term. Over longer forecast horizons, Tasci (2012) appears to be a ...
Journal Article
An unstable Okun’s Law, not the best rule of thumb
Okun?s law is a statistical relationship between unemployment and GDP that is widely used as a rule of thumb for assessing the unemployment rate?why it might be at a certain level or where it might be headed, for example. Unfortunately, the Okun?s law relationship is not stable over time, which makes it potentially misleading as a rule of thumb.
Journal Article
Simple ways to forecast inflation: what works best?
There are many ways to forecast the future rate of inflation, ranging from sophisticated statistical models involving hundreds of variables to hunches based on past experience. We generate a number of forecasts using a simple statistical model and an even simpler estimating rule, adding in various measures thought to be helpful in predicting the course of inflation. Then we compare their forecast accuracy. We find that no single specification outperforms all others over all time periods. For example, the median and 16 percent trimmed-mean measures outperform all other specifications during ...
Journal Article
Are some prices in the CPI more forward looking than others? We think so
Some of the items that make up the Consumer Price Index change prices frequently, while others are slow to change. We explore whether these two sets of prices - sticky and flexible - provide insight on different aspects of the inflation process. We find that sticky prices appear to incorporate expectations about future inflation to a greater degree than prices that change on a frequent basis, while flexible prices respond more powerfully to economic conditions?economic slack. Importantly, our sticky-price measure seems to contain a component of inflation expectations, and that component may ...
Working Paper
Trimmed-Mean Inflation Statistics: Just Hit the One in the Middle
This paper reinvestigates the performance of trimmed-mean inflation measures some 20 years since their inception, asking whether there is a particular trimmed-mean measure that dominates the median consumer price index (CPI). Unlike previous research, we evaluate the performance of symmetric and asymmetric trimmed means using a well known equality of prediction test. We find that there is a large swath of trimmed means that have statistically indistinguishable performance. Also, although the swath of statistically similar trims changes slightly over different sample periods, it always ...
Working Paper
The Usefulness of the Median CPI in Bayesian VARs Used for Macroeconomic Forecasting and Policy
In this paper we investigate the forecasting performance of the median Consumer Price Index (CPI) in a variety of Bayesian vector autoregressions (BVARs) that are often used for monetary policy. Until now, the use of trimmed-mean price statistics in forecasting inflation has often been relegated to simple univariate or Phillips curve approaches, thus limiting their usefulness in applications that require consistent forecasts of multiple macro variables. We find that inclusion of an extreme trimmed-mean measure?the median CPI?improves the forecasts of both core and headline inflation (CPI and ...
Working Paper
The inflation expectations of firms: what do they look like, are they accurate, and do they matter?
The purpose of this paper is to answer the three questions in the title. Using a large monthly survey of businesses, we investigate the inflation expectations and uncertainties of firms. We document that, in the aggregate, firm inflation expectations are very similar to the predictions of professional forecasters for national inflation statistics, despite a somewhat greater heterogeneity of expectations that we attribute to the idiosyncratic cost structure firms face. We also show that firm inflation expectations bear little in common with the ?prices in general? expectations reported by ...
Blog
American Firms Foresee a Huge Negative Impact of the Coronavirus
The rapid unfolding of the COVID-19 pandemic has created grave concerns for the health and welfare of the U.S. population and the economy. The economic worries are very apparent in financial markets. From the closing bell on February 21 through March 20, U.S. equities fell more than 30 percent, and stock market volatility skyrocketed.
Blog
Businesses Are in Uncharted Waters
Inflation expectations in our April Business Inflation Expectations (BIE) survey fell to an all-time low (going back to October 2011) of 1.4 percent, plunging far below its next lowest level of 1.7 percent (most recently observed in February 2020). Perhaps unsurprisingly, firms have bigger worries on their minds. And our boss, President Raphael Bostic, agreed, noting on Wednesday that "inflation at this point is not something I'm particularly worried about."