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Journal Article
What Accounts for the Growing Divergence between Employment Measures?
Willis, Jonathan L.; Zha, Tao (2024-08-12)
Our analysis reveals a significant and persistent divergence between employment measures from the Current Employment Statistics (CES) and Current Population Survey (CPS). Adjusting for the net birth-death contribution of businesses only partially explains this gap. The remaining large discrepancy is likely due to an underestimation of population growth in the CPS, potentially linked to recent immigration fluctuations. This finding has substantial implications for understanding the current labor market: adjusted CPS data reveals a more robust labor market with healthy demand and rapid supply ...
Policy Hub , Volume 2024 , Issue 6 , Pages 17

Journal Article
Assessing simple policy rules: A view from a complete macroeconomic model
Leeper, Eric M.; Zha, Tao (2001-10)
Monetary policy analysts looking for a model on which to base decisions may consider two popular approaches-the New Keynesian (NK) and the identified vector autoregression (VAR) approaches. Choosing between the two can be difficult: NK models are stylized and have simple rules while structural VAR models have complex dynamics and loose behavioral interpretations. ; The simpler NK models often produce stark conclusions. For example, NK analyses consistently find that the Federal Reserve's monetary policy has improved markedly in the past two decades compared with the 1960s and 1970s. In ...
Economic Review , Volume 86 , Issue Q4 , Pages 35-58

Working Paper
Learning, adaptive expectations, and technology shocks
Zha, Tao; Liu, Zheng; Huang, Kevin X. D. (2008)
This study explores the macroeconomic implications of adaptive expectations in a standard real business cycle model. When rational expectations are replaced by adaptive expectations, we show that the self-confirming equilibrium is the same as the steady-state rational expectations equilibrium for all admissible parameters but that dynamics around the steady state are substantially different between the two equilibria. The differences are driven mainly by the dampened wealth effect and the strengthened intertemporal substitution effect, not by the escapes emphasized by Williams (2003). As a ...
FRB Atlanta Working Paper , Paper 2008-20

Working Paper
Likelihood-preserving normalization in multiple equation models
Zha, Tao; Waggoner, Daniel F. (2000)
Causal analysis in multiple equation models often revolves around the evaluation of the effects of an exogenous shift in a structural equation. When taking into account the uncertainty implied by the shape of the likelihood, we argue that how normalization is implemented matters for inferential conclusions around the maximum likelihood (ML) estimates of such effects. We develop a general method that eliminates the distortion of finite-sample inferences about these ML estimates after normalization. We show that our likelihood-preserving normalization always maintains coherent economic ...
FRB Atlanta Working Paper , Paper 2000-8

Working Paper
Liquidity Premia, Price-Rent Dynamics, and Business Cycles
Miao, Jianjun; Wang, Pengfei; Zha, Tao (2014-08-01)
n the U.S. economy during the past 25 years, house prices exhibit fluctuations considerably larger than house rents, and these large fluctuations tend to move together with business cycles. We build a simple theoretical model to characterize these observations by showing the tight connection between price-rent fluctuation and the liquidity constraint faced by productive firms. After developing economic intuition for this result, we estimate a medium-scale dynamic general equilibrium model to assess the empirical importance of the role the price-rent fluctuation plays in the business cycle. ...
FRB Atlanta Working Paper , Paper 2014-15

Working Paper
Markov-switching structural vector autoregressions: theory and application
Rubio-Ramirez, Juan F.; Waggoner, Daniel F.; Zha, Tao (2005)
This paper develops a new and easily implementable necessary and sufficient condition for the exact identification of a Markov-switching structural vector autoregression (SVAR) model. The theorem applies to models with both linear and some nonlinear restrictions on the structural parameters. We also derive efficient MCMC algorithms to implement sign and long-run restrictions in Markov-switching SVARs. Using our methods, four well-known identification schemes are used to study whether monetary policy has changed in the euro area since the introduction of the European Monetary Union. We find ...
FRB Atlanta Working Paper , Paper 2005-27

Working Paper
Minimal state variable solutions to Markov-switching rational expectations models
Waggoner, Daniel F.; Zha, Tao; Farmer, Roger E. A. (2008)
We develop a new method for computing minimal state variable solutions (MSV) to Markov-switching rational expectations models. We provide an algorithm to compute an MSV solution and show how to test a given solution for uniqueness and boundedness. We construct an example that is calibrated to U.S. data and show that the MSV solution in our example is unique. This solution can potentially explain in three different ways the observed reduction in the variance of inflation and the interest rate after 1980: The policy rule might have changed, the variance of the fundamental shocks might have ...
FRB Atlanta Working Paper , Paper 2008-23

Working Paper
Perturbation methods for Markov-switching DSGE models
Rubio-Ramirez, Juan F.; Waggoner, Daniel F.; Foerster, Andrew; Zha, Tao (2013-03-01)
This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of Markov-switching DSGE models. We introduce an important and practical idea of partitioning the Markov-switching parameter space so that a steady state is well defined. With this definition, we show that the problem of finding an approximation of any order can be reduced to solving a system of quadratic equations. We propose using the theory of Grobner bases in searching all the solutions to the quadratic system. This approach allows us to obtain all the approximations and ...
FRB Atlanta Working Paper , Paper 2013-01

Working Paper
Assessing simple policy rules: a view from a complete macro model
Zha, Tao; Leeper, Eric M. (2000)
We explore two popular approaches to empirical analysis of monetary policy: the New Keynesian and the identified vector autoregression approaches. Stylized models of private behavior coupled with simple rules describing policy behavior characterize New Keynesian work. Vector autoregressions consist of minimally identified dynamic descriptions of private behavior coupled with a detailed rule for policy behavior. The simplicity of New Keynesian models aids in communication but leaves the models? implications vulnerable. By relating the New Keynesian models to identified vector autoregressions, ...
FRB Atlanta Working Paper , Paper 2000-19

Working Paper
Assessing the macroeconomic impact of bank intermediation shocks: a structural approach
Zha, Tao; Chen, Kaiji (2015-08-01)
We take a structural approach to assessing the empirical importance of shocks to the supply of bank-intermediated credit in affecting macroeconomic fluctuations. First, we develop a theoretical model to show how credit supply shocks can be transmitted into disruptions in the production economy. Second, we use the unique micro-banking data to identify and support the model's key mechanism. Third, we find that the output effect of credit supply shocks is not only economically and statistically significant but also consistent with the vector autogression evidence. Our mode estimation indicates ...
FRB Atlanta Working Paper , Paper 2015-8

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