Unemployment after the recession: a new natural rate?
The past recession has hit the labor market especially hard, and economists are wondering whether some fundamentals of the market have changed because of that blow. Many are suggesting that the natural rate of long-term unemployment?the level of unemployment an economy can?t go below?has shifted permanently higher. We use a new measure that is based on the rates at which workers are finding and losing jobs and which provides a more accurate assessment of the natural rate. We find that the natural rate of unemployment has indeed shifted higher?but much less so than has been suggested. ...
Food and energy price shocks: what other prices are affected?
Sharp rises in energy and other commodity prices have recently ignited concerns about inflation. Will these price increases spill over to other prices more generally? We study the typical responses of different price shocks and assess whether the recent behavior of producer and consumer prices is consistent with historical norms. Our analysis shows that the behavior of various producer and consumer prices since late 2009 has generally matched up with historical patterns. Overall, our findings suggest that effects of the recent energy and commodity price shocks on core consumer prices will be ...
On the Relationships between Wages, Prices, and Economic Activity
We take a closer look at the connections between wages, prices, and economic activity. We find that causal relationships between wages and prices are difficult to identify, and the ability of wages to help predict future inflation is limited. Wages appear to be useful in assessing the current state of labor markets, but they are not necessarily sufficient for thinking about where the economy and inflation are going.
Measuring Inflation Forecast Uncertainty
Have Inflation Dynamics Changed?
Using a flexible statistical model to project inflation outcomes into the future, this Commentary finds that the most likely path for inflation based on recent inflation dynamics is generally similar to what would have been expected given inflation dynamics in the late 1990s, but there is more uncertainty around the forecast now than in the late 1990s.
Are we engineering ourselves out of manufacturing jobs?
Since the 1970s, productivity growth in the manufacturing sector has outpaced the overall economy, yet the sector?s share of the workforce has declined dramatically. This leads us to ask if we are in fact engineering ourselves out of jobs. This Economic Commentary explores the relationship between productivity and employment and points out why this apparently straightforward relationship may be more complicated than it appears.
Buy a home or rent? A better way to choose
Knowing whether buying a home is a better financial move for a family than renting requires a consideration of costs and options that people often neglect to factor in. One aspect of the calculation that is almost always overlooked is uncertainty?the fact that no matter how good one?s estimates of the future are, the future can turn out differently than projected. Incorporating uncertainty into the rent-or-buy calculation gives potential homebuyers information that can improve their decisions. While incorporating uncertainty is complicated, it?s made easier with the Cleveland Fed?s online ...
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 ...
It’s not just for inflation: The usefulness of the median CPI in BVAR forecasting
In this paper we investigate the forecasting performance of the median CPI in a variety of Bayesian VARs (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 ?Philips-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?significantly improves the forecasts of both headline and core CPI. across our wide-ranging set of BVARs. ...
A medium scale forecasting model for monetary policy
This paper presents a 16-variable Bayesian VAR forecasting model of the U.S. economy for use in a monetary policy setting. The variables that comprise the model are selected not only for their effectiveness in forecasting the primary variables of interest, but also for their relevance to the monetary policy process. In particular, the variables largely coincide with those of an augmented New-Keynesian DSGE model. We provide out-of sample forecast evaluations and illustrate the computation and use of predictive densities and fan charts. Although the reduced form model is the focus of the ...