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Working Paper
Bayesian Estimation and Comparison of Conditional Moment Models
Simoni, Anna; Shin, Minchul; Chib, Siddhartha (2019-12-09)
We provide a Bayesian analysis of models in which the unknown distribution of the outcomes is speci?ed up to a set of conditional moment restrictions. This analysis is based on the nonparametric exponentially tilted empirical likelihood (ETEL) function, which is constructed to satisfy a sequence of unconditional moments, obtained from the conditional moments by an increasing (in sample size) vector of approximating functions (such as tensor splines based on the splines of each conditioning variable). The posterior distribution is shown to satisfy the Bernstein-von Mises theorem, subject to a ...
Working Papers , Paper 19-51

Working Paper
Estimating Dynamic Macroeconomic Models : How Informative Are the Data?
Beltran, Daniel O.; Draper, David (2016-08)
Central banks have long used dynamic stochastic general equilibrium (DSGE) models, which are typically estimated using Bayesian techniques, to inform key policy decisions. This paper offers an empirical strategy that quantifies the information content of the data relative to that of the prior distribution. Using an off-the-shelf DSGE model applied to quarterly Euro Area data from 1970:3 to 2009:4, we show how Monte Carlo simulations can reveal parameters for which the model's structure obscures identification. By integrating out components of the likelihood function and conducting a Bayesian ...
International Finance Discussion Papers , Paper 1175

Newsletter
Looking down the road with ALEX: Forecasting U.S. GDP
Brave, Scott A.; Butters, R. Andrew; Fogarty, Michael (2020-10-23)
In this article, we examine the recovery from the recession that began with the onset of the Covid-19 pandemic in the U.S. To do so, we present and discuss for the first time the results from a mixed-frequency Bayesian vector autoregressive model called ALEX. This model uses 107 monthly and quarterly indicators of economic activity to forecast the near-term path of U.S. real gross domestic product (GDP).
Chicago Fed Letter , Issue 447 , Pages 5

Working Paper
Endogenous Uncertainty
Clark, Todd E.; Carriero, Andrea; Marcellino, Massimiliano (2018-03-29)
We show that macroeconomic uncertainty can be considered as exogenous when assessing its effects on the U.S. economy. Instead, financial uncertainty can at least in part arise as an endogenous response to some macroeconomic developments, and overlooking this channel leads to distortions in the estimated effects of financial uncertainty shocks on the economy. We obtain these empirical findings with an econometric model that simultaneously allows for contemporaneous effects of both uncertainty shocks on economic variables and of economic shocks on uncertainty. While the traditional econometric ...
Working Papers (Old Series) , Paper 1805

Working Paper
Uniform Priors for Impulse Responses
Arias, Jonas E.; Rubio-Ramirez, Juan F.; Waggoner, Daniel F. (2020-09-09)
There has been a call for caution when using the conventional method for Bayesian inference in set-identified structural vector autoregressions on the grounds that the uniform prior over the set of orthogonal matrices could be nonuniform for key objects of interest. This paper challenges this call. Although the prior distributions of individual impulse responses induced by the conventional method may be nonuniform, they typically do not drive the posteriors if one does not condition on the reduced-form parameters. Importantly, when the focus is on joint inference, the uniform prior over the ...
Working Papers , Paper 22-30

Report
Online Estimation of DSGE Models
Herbst, Edward; Schorfheide, Frank; Cai, Michael; Matlin, Ethan; Del Negro, Marco; Sarfati, Reca (2019-08-01)
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, explore the benefits of an SMC variant we call generalized tempering for ?online? estimation, 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 of DSGE models with and without financial frictions and document the benefits of conditioning DSGE model forecasts on nowcasts ...
Staff Reports , Paper 893

Working Paper
Understanding Uncertainty Shocks and the Role of Black Swans
Veldkamp, Laura (2022-12)
Economic uncertainty is a powerful force in the modern economy. Research shows that surges in uncertainty can trigger business cycles, bank runs and asset price fluctuations. But where do sudden surges in uncertainty come from? This paper provides a data-disciplined theory of belief formation that explains large fluctuations in uncertainty. It argues that people do not know the true distribution of macroeconomic outcomes. Like Bayesian econometricians, they estimate a distribution. Our main contribution is to explain why real-time estimation of distributions with non-normal tails results in ...
Finance and Economics Discussion Series , Paper 2022-083

Working Paper
(Re-)Connecting Inflation and the Labor Market: A Tale of Two Curves
Ahn, Hie Joo; Rudd, Jeremy B. (2024-07-11)
We propose an empirical framework in which shocks to worker reallocation, aggregate activity, and labor supply drive the joint dynamics of labor market outcomes and inflation, and where reallocation shocks take two forms depending on whether they result from quits or from job loss. In order to link our approach with previous theoretical and empirical work, we extend the procedure for estimating a Bayesian sign-restricted VAR so that priors can be directly imposed on the VAR's impact matrix. We find that structural shocks that shift the Beveridge curve have different effects on inflation. ...
Finance and Economics Discussion Series , Paper 2024-050

Report
A 14-Variable Mixed-Frequency VAR Model
Beauchemin, Kenneth (2013-12-19)
This paper describes recent modifications to the mixed-frequency model vector autoregression (MF-VAR) constructed by Schorfheide and Song (2012). The changes to the model are restricted solely to the set of variables included in the model; all other aspects of the model remain unchanged. Forecast evaluations are conducted to gauge the accuracy of the revised model to standard benchmarks and the original model.
Staff Report , Paper 493

Working Paper
Get the Lowdown: The International Side of the Fall in the U.S. Natural Rate of Interest
Martinez-Garcia, Enrique (2021-02-20)
I investigate the downward drift of U.S. interest rates from 1984:Q1 to 2019:Q4. For this, I bring the workhorse two-country New Keynesian model to data on the U.S. and an aggregate of its major trading partners using Bayesian techniques. I show that the U.S. natural (or equilibrium) interest rate recovered from the model has fallen more gradually than the long-run U.S. real rate, cushioned by productivity shocks. Since inflation expectations became well-anchored in the ‘90s, this implies that the continued interest rate decline is largely explained by the real rate tracking the natural ...
Globalization Institute Working Papers , Paper 403

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