Search Results
Discussion Paper
Excluding items from personal consumption expenditures inflation
Core inflation measures constructed by excluding particularly volatile items from the price index have a long history. The most common such measures are indexes excluding the prices of food and energy items. This paper attempts to shed some statistical light on the impact of excluding certain items from the personal consumption expenditures (PCE) price index. In particular, I am interested in the trade-off between reducing shortrun volatility (relative to the volatility of the headline index) and possibly distorting the measurement of inflation over longer horizons. Some of the questions this ...
Discussion Paper
Estimating the output gap in real time
I propose a novel method of estimating the potential level of U.S. GDP in real time. The proposed wage-based measure of economic potential remains virtually unchanged when new data are released. The distance between current and potential output ? the output gap ? satisfies Okun?s law and outperforms many other measures of slack in forecasting inflation. Thus, I provide a robust statistical tool useful for understanding current economic conditions and guiding policymaking.
Discussion Paper
Assessing monetary accommodation: a simple empirical model of monetary policy and its implications for unemployment and inflation
This note suggests that household wealth growth and a long-forward interest rate can be used to construct a simple and convenient reference standard for assessing the current stance of monetary policy. It shows that the difference between the federal funds rate and this reference interest rate is a powerful predictor of the unemployment rate and inflation, producing real-time forecasts that are competitive with consensus-based forecasts from surveys of forecasting professionals. Moreover, one can understand past FOMC policy actions as efforts to adjust the stance of policy, so measured, in ...
Discussion Paper
How the global perspective can help us identify structural shocks
This paper argues that global perspective can help us with the identification of structural shocks by utilizing the information on the signs of the responses of individual countries (cross section units). We demonstrate the main idea by means of Monte Carlo experiments and present an empirical application where we look at the effects of oil supply shocks on output and on global exchange rate constellation. Using a large-scale GVAR model of oil prices and the global economy, we find supply shocks tend to have a stronger impact on emerging economies' real output as compared with mature ...
Discussion Paper
Cross-country variation in the anchoring of inflation expectations
This paper develops a method for measuring the anchoring of long-run inflation expectations that does not require estimates of long-run inflation expectations. Such estimates exist for only a few developed economies, and even then only a short time series is available. By not requiring estimates of long-term inflation expectations, this method is able to measure the anchoring of inflation expectations in sixty-four different developed and developing countries. In addition, with rolling-window estimations we can measure the anchoring of expectations across time within a country, and thus we ...
Discussion Paper
All in the family: the close connection between nominal-GDP targeting and the Taylor Rule
The classic Taylor rule for adjusting the stance of monetary policy is formally a special case of nominal- gross-domestic-product (GDP) targeting. Suitably implemented, moreover, nominal-GDP targeting satisfies the definition of a "flexible inflation targeting" policy rule. However, nominal-GDP targeting would require more discipline from policymakers than some analysts think is realistic.
Discussion Paper
Exchange rate pass-through into U.K. import prices: evidence from disaggregated data
In this paper we estimate the rate of exchange rate pass-through (ERPT) into U.K. import prices using disaggregated data at the SITC-2 and SITC-3 digit levels. We show that the ERPT varies at the disaggregate level. Because of this heterogeneity at the disaggregate level, the estimate of the ERPT using aggregate data is found substantially upward-biased in our U.K. data. The upward bias exaggerates the impact of exchange rate movements on the competitiveness of imported goods relative to domestically produced goods. Further, we investigate the source of the heterogeneity of the ERPT at the ...
Discussion Paper
Immigrants’ employment outcomes over the business cycle
Immigrants have figured prominently in U.S. economic growth for decades, but the recent recession hit them hard. Immigrants? labor market outcomes began deteriorating even before the recession was officially under way, largely as a result of the housing bust. An analysis of employment and unemployment rates over the past fifteen years shows that immigrants? labor market outcomes are more cyclical than those of natives. The greater cyclicality of immigrants? employment and unemployment is concentrated among less-educated immigrants, but college-educated immigrants nonetheless have ...
Discussion Paper
Inflation, slack, and Fed credibility
It is generally agreed that slack has some impact on inflation. There is much less agreement on what form the relationship takes and whether it is stable enough to reliably help predict inflation. This analysis focuses on the Great Moderation period. We find that slack (as measured by the unemployment rate) and changes in slack are negatively correlated with changes in inflation and also deviations of inflation from long-forward inflation expectations.> ; These relationships could have been exploited to produce forecasts of trimmed mean PCE inflation more accurate than rule-of-thumb ...
Discussion Paper
Openness and inflation
This paper reviews the evidence on the relationship between openness and inflation. There is a robust negative relationship across countries, first documented by Romer (1993), between a country's openness to trade and its long-run inflation rate. However, a key part of the standard explanation for this relationship?that central banks have a smaller incentive to engineer surprise inflations in more-open economies because the Phillips curve is steeper?seems at odds with the facts. While the United States is still not a very open economy by conventional measures, there are channels through which ...