New economy, new recession
Estimating the Natural Rate of Interest in an Open Economy
The concept of the natural or equilibrium rate of interest has attracted a lot of attention from monetary policymakers in recent years. Most attempts to estimate the natural rate use a closed economy framework. We argue that in the face of greater integration of global product and capital markets, an open economy framework is more appropriate. We provide some initial estimates of the natural rate for the United States and Japan in a two-country framework. Our identifying assumptions include a close relationship between the time-varying natural rate of interest and the low-frequency ...
Bayesian estimation of NOEM models: identification and inference in small samples
This paper studies the (potential) weak identification of these relationships in the context of a fully specified structural model using Bayesian estimation techniques. We trace the problems to sample size, rather than misspecification bias. We conclude that standard macroeconomic time series with a coverage of less than forty years are subject to potentially serious identification issues, and also to model selection errors. We recommend estimation with simulated data prior to bringing the model to the actual data as a way of detecting parameters that are susceptible to weak identification in ...
The sluggish recovery from the Great Recession: why there is no ‘V’ rebound this time
The Great Recession of 2008?09 was by far the most severe United States economic downturn since the Great Depression of the 1930s. Real gross domestic product (GDP), the most comprehensive measure of U.S. economic activity, topped out in fourth quarter 2007 and has yet to approach that peak. Employment totaled just below 138 million jobs in January 2008 and, as of July 2011, was still nearly 5 percent below its precrisis level.
Global Perspectives: John B. Taylor on the Taylor Rule, Accommodative Policy, Low Interest Rates and Expanded Central Bank Mandates
Taylor and Dallas Fed President Robert S. Kaplan discussed the origins of the Taylor Rule, the dangers of holding monetary policy too accommodative for too long, the distributional effects of low interest rates and expanded central bank mandates.
Global Perspectives: Ruth J. Simmons on Trailblazing and Education
Simmons and Dallas Fed President Rob Kaplan discussed her decision to become an educator, her experience in academia and the importance of educational opportunity.
Fiscal policy in more general equilibrium
Is there an output-inflation trade-off?
Will China ever become as rich as the U.S.?
Twenty years ago, a visitor to Beijing would have been struck by the bicycle?s popularity as a form of mass transportation. Today, auto congestion and pollution on the increasingly clogged roads of China?s capital city are pervasive features. In a little more than three decades, China has transformed itself from a largely closed agrarian society to an urban exporting nation commonly viewed as the workshop of the world. ; At current growth rates, China will be the world?s largest economy sometime in the next decade. But will it ever be the richest? Though providing a definitive answer is ...
The euro cash changeover