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Working Paper
A New Model of Inflation, Trend Inflation, and Long-Run Inflation Expectations
Koop, Gary; Chan, Joshua C. C.; Clark, Todd E. (2015-10-21)
A knowledge of the level of trend inflation is key to many current policy decisions, and several methods of estimating trend inflation exist. This paper adds to the growing literature which uses survey-based long-run forecasts of inflation to estimate trend inflation. We develop a bivariate model of inflation and long-run forecasts of inflation which allows for the estimation of the link between trend inflation and the long-run forecast. Thus, our model allows for the possibilities that long-run forecasts taken from surveys can be equated with trend inflation, that the two are completely ...
Working Papers (Old Series) , Paper 1520

Working Paper
Online Estimation of DSGE Models
Herbst, Edward; Schorfheide, Frank; Cai, Michael; Matlin, Ethan; Del Negro, Marco; Sarfati, Reca (2020-02-28)
This paper illustrates the usefulness of sequential Monte Carlo (SMC) methods in approximating DSGE model posterior distributions. We show how the tempering schedule can be chosen adaptively, document the accuracy and runtime benefits o fgeneralized data tempering for “online” estimation (that is, re-estimating a model asnew data become available), and provide examples of multimodal posteriors that are well captured by SMC methods. We then use the online estimation of the DSGE model to compute pseudo-out-of-sample density forecasts and study the sensitivity ofthe predictive performance to ...
Finance and Economics Discussion Series , Paper 2020-023

Working Paper
Ties That Bind: Estimating the Natural Rate of Interest for Small Open Economies
Zhang, Ren; Wynne, Mark A.; Martinez-Garcia, Enrique; Grossman, Valerie (2021-03-05)
This paper estimates the natural rate of interest for six small open economies (Australia, Canada, South Korea, Sweden, Switzerland and the U.K.) with a structural New Keynesian model using Bayesian techniques. Our empirical analysis establishes the following four main findings: First, we show that the open economy framework provides a better fit of the data than its closed economy counterpart for the six countries we investigate. Second, we also show that, in all six countries, a Taylor (1993)-type monetary policy rule that tracks the Wicksellian short-term natural rate fits the data better ...
Globalization Institute Working Papers , Paper 359

Report
Forecasting in large macroeconomic panels using Bayesian Model Averaging
Potter, Simon M.; Koop, Gary (2003-03-01)
This paper considers the problem of forecasting in large macroeconomic panels using Bayesian model averaging. Practical methods for implementing Bayesian model averaging with factor models are described. These methods involve algorithms that simulate from the space defined by all possible models. We explain how these simulation algorithms can also be used to select the model with the highest marginal likelihood (or highest value of an information criterion) in an efficient manner. We apply these methods to the problem of forecasting GDP and inflation using quarterly U.S. data on 162 time ...
Staff Reports , Paper 163

Report
Identifying and evaluating sample selection bias in consumer payment surveys
Hitczenko, Marcin (2015-11-23)
Making meaningful inferences based on survey data depends on the ability to recognize and adjust for discrepancies between the survey respondents and the target population; this partly involves understanding how survey samples differ with respect to heterogeneous clusters of the population. Ex post adjustments for unbiased population parameter estimates are usually based on easily measured variables with known distributions in the target population, like age, gender, or income. This paper focuses on identifying and assessing the effect of an overlooked source of heterogeneity and potential ...
Research Data Report , Paper 15-7

Working Paper
Anchored or Not: How Much Information Does 21st Century Data Contain on Inflation Dynamics?
Kiley, Michael T. (2022-03-30)
Inflation was low and stable in the United States during the first two decades of the 21st century and broke out of its stable range in 2021. Experience in the early 21st century differed from that of the second half of the 20th century, when inflation showed persistent movements including the "Great Inflation" of the 1970s. This analysis examines the extent to which the experience from 2000-2019 should lead a Bayesian decisionmaker to update their assessment of inflation dynamics. Given a prior for inflation dynamics consistent with 1960-1999 data, a Bayesian decisionmaker would not ...
Finance and Economics Discussion Series , Paper 2022-016

Working Paper
Capital-Task Complementarity and the Decline of the U.S. Labor Share of Income
Orak, Musa (2017-03)
This paper provides evidence that shifts in the occupational composition of the U.S. workforce are the most important factor explaining the trend decline in the labor share over the past four decades. Estimates suggest that while there is unitary elasticity between equipment capital and non-routine tasks, equipment capital and routine tasks are highly substitutable. Through the lenses of a general equilibrium model with occupational choice and the estimated production technology, I document that the fall in relative price of equipment capital alone can explain 72 percent of the observed ...
International Finance Discussion Papers , Paper 1200

Discussion Paper
Measuring and Managing COVID-19 Model Risk
Jensen, Mark J. (2020-06-18)
One of the many lessons learned from the financial crisis is the increased awareness of model risk. In this article, I apply the best practices of model risk management found in SR 11-7 (which offers regulatory guidance on the best practices for managing model risk) to COVID-19 models. In particular, I investigate the Institute of Health Metrics and Evaluation's (IHME) model to see if it has been effectively challenged with a critical assessment of its conceptual soundness, ongoing monitoring, and outcomes analysis.
Policy Hub , Paper 2020-07

Working Paper
The global component of local inflation: revisiting the empirical content of the global slack hypothesis with Bayesian methods
Martinez-Garcia, Enrique (2015-02-01)
The global slack hypothesis is central to the discussion of the trade-offs that monetary policy faces in an increasingly more integrated world. The workhorse New Open Economy Macro (NOEM) model of Martnez-Garca and Wynne (2010), which fleshes out this hypothesis, shows how expected future local inflation and global slack affect current local inflation. In this paper, I propose the use of the orthogonalization method of Aoki (1981) and Fukuda (1993) on the workhorse NOEM model to further decompose local inflation into a global component and an inflation differential component. I find that the ...
Globalization Institute Working Papers , Paper 225

Working Paper
What Do Sectoral Dynamics Tell Us About the Origins of Business Cycles?
Matthes, Christian; Schwartzman, Felipe (2019-03-29)
We use economic theory to rank the impact of structural shocks across sectors. This ranking helps us to identify the origins of U.S. business cycles. To do this, we introduce a Hierarchical Vector Auto-Regressive model, encompassing aggregate and sectoral variables. We find that shocks whose impact originate in the "demand" side (monetary, household, and government consumption) account for 43 percent more of the variance of U.S. GDP growth at business cycle frequencies than identified shocks originating in the "supply" side (technology and energy). Furthermore, corporate financial shocks, ...
Working Paper , Paper 19-9

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