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Author:Zha, Tao 

Journal Article
Evaluating the effects of monetary policy with economic models

Because of limited knowledge about how the actual, complex economy operates, policymakers depend on models for understanding its workings. For models to be usable for evaluating monetary policy effects, modelers must recognize that fluctuations or shocks in the actual economy are often driven by developments beyond the central bank's control. There are no simple rules, and neither is there a single model that represents the exact interactions between monetary policy and the rest of the economy. How good a model is depends on particular criteria. ; This article assesses the usability of a ...
Economic Review , Volume 84 , Issue Q4 , Pages 4-15

Working Paper
Understanding Markov-switching rational expectations models

We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models, and we develop an algorithm to check these conditions in practice. We use three examples, based on the new Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov switching with forward-looking rational expectations models and allows an applied researcher to construct the likelihood function for models in this class over a parameter space that includes a determinate ...
FRB Atlanta Working Paper , Paper 2009-05

Working Paper
Perturbation methods for Markov-switching DSGE models

Markov-switching DSGE (MSDSGE) modeling has become a growing body of literature on economic and policy issues related to structural shifts. This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of MSDSGE models. Our new method, called "the partition perturbation method," partitions the Markov-switching parameter space to keep a maximum number of time-varying parameters from perturbation. For this method to work in practice, we show how to reduce the potentially intractable problem of solving MSDSGE models to the manageable problem ...
FRB Atlanta Working Paper , Paper 2014-16

Conference Paper
Macroeconomic switching

We discuss the results of fitting a 6-variable structural VAR in which we allow for certain types of parameter variation over time. Allowing structural equation variances to change over time is extremely important in improving fit. Allowing the coefficients that define the model?s dynamics to change is less important to improving fit, though models with changing parameters are consistent with the data. We pay special attention to a version of the model that allows the monetary policy rule, but not other parts of the model, to show changing coefficients. Results from this model fit some ...
Proceedings , Issue Mar

Working Paper
Sources of the Great Moderation: shocks, friction, or monetary policy?

We study the sources of the Great Moderation by estimating a variety of medium-scale DSGE models that incorporate regime switches in shock variances and in the inflation target. The best-fit model, the one with two regimes in shock variances, gives quantitatively different dynamics in comparison with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the existing literature, we find that ...
Working Paper Series , Paper 2009-01

Discussion Paper
Impacts of COVID-19: Mitigation Efforts versus Herd Immunity

The rapid spread of COVID-19 is having devastating effects on the global economy. With death curves beginning to bend, governments will soon need to determine when and how to relax lockdown measures. The crucial question is: what are the public health consequences of reopening the economy? In this article, we argue that the observed decline in daily deaths could be due to two scenarios: social distancing measures and herd immunity. Both the widely used SIR model and the data collected thus far cannot distinguish these two scenarios. Such an identification problem generates a large degree of ...
Policy Hub , Paper 2020-3

Working Paper
Impacts of Monetary Stimulus on Credit Allocation and Macroeconomy: Evidence from China

We develop a new empirical framework to identify and estimate the effects of monetary stimulus on the real economy. The framework is applied to the Chinese economy when monetary policy in normal times was switched to an extraordinarily expansionary regime to combat the impact of the 2008 financial crisis. We show that this unprecedented monetary stimulus accounted for as high as a 4 percent increase of real gross domestic product (GDP) growth rate by the end of 2009. Monetary transmission to the real economy was through bank credit allocated disproportionately to financing investment in real ...
FRB Atlanta Working Paper , Paper 2016-9

Journal Article
Assessing simple policy rules: a view from a complete macroeconomic model

Review , Volume 83 , Issue Jul

Working Paper
Land Prices and Unemployment

We integrate the housing market and the labor market in a dynamic general equilibrium model with credit and search frictions. The model is confronted with the U.S. macroeconomic time series. Our estimated model can account for two prominent facts observed in the data. First, the land price and the unemployment rate tend to move in opposite directions over the business cycle. Second, a shock that moves the land price is capable of generating large volatility in unemployment. Our estimation indicates that a 10 percent drop in the land price leads to a 0.34 percentage point increase of the ...
Working Paper Series , Paper 2013-22

Working Paper
Liquidity Premia, Price-Rent Dynamics, and Business Cycles

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

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