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Working Paper
Persistence Dependence in Empirical Relations: The Velocity of Money
Verbrugge, Randal J.; Ashley, Richard (2015-12-15)
Standard theory predicts persistence dependence in numerous economic relationships. (For example, persistence dependence is precisely the kind of nonlinear relationship posited in the Permanent Income Hypothesis; persistence dependence is the inverse of ?frequency dependence? in a relationship.) Until recently, however, it was challenging to achieve credible inference about persistence dependence in an economic relationship using available methods. However, recently developed econometric tools (Ashley and Verbrugge, 2009a) allow one to elegantly quantify the variation in a time-series ...
Working Papers (Old Series) , Paper 1530

Working Paper
Dynamic Factor Models, Cointegration, and Error Correction Mechanisms
Barigozzi, Matteo; Luciani, Matteo; Lippi, Marco (2016-02-16)
The paper studies Non-Stationary Dynamic Factor Models such that: (1) the factors Ft are I(1) and singular, i.e. Ft has dimension r and is driven by a q-dimensional white noise, the common shocks, with q < r, and (2) the idiosyncratic components are I(1). We show that Ft is driven by r-c permanent shocks, where c is the cointegration rank of Ft, and q - (r - c) < c transitory shocks, thus the same result as in the non-singular case for the permanent shocks but not for the transitory shocks. Our main result is obtained by combining the classic Granger Representation Theorem with recent ...
Finance and Economics Discussion Series , Paper 2016-018

Working Paper
Bias in Local Projections
Johannsen, Benjamin K.; Herbst, Edward (2021-01-04)
Local projections (LPs) are a popular tool in macroeconomic research. We show that LPs are often used with very small samples in the time dimension. Consequently, LP point estimates can be severely biased. We derive simple expressions for this bias and propose a way to bias-correct LPs. Small sample bias can also lead autocorrelation-robust standard errors to dramatically understate sampling uncertainty. We argue they should be avoided in LPs like the ones we study. Using identified monetary policy shocks, we demonstrate that the bias in point estimates can be economically meaningful and the ...
Finance and Economics Discussion Series , Paper 2020-010r1

Report
Economic Benefits of COVID-19 Screening Tests
Droste, Michael; Mina, Michael J.; Atkeson, Andrew; Stock, James H. (2020-11-09)
We assess the economic value of screening testing programs as a policy response to the ongoing COVID-19 pandemic. We find that the fiscal, macroeconomic, and health benefits of rapid SARS-CoV-2 screening testing programs far exceed their costs, with the ratio of economic benefits to costs typically in the range of 2-15 (depending on program details), not counting the monetized value of lives saved. Unless the screening test is highly specific, however, the signal value of the screening test alone is low, leading to concerns about adherence. Confirmatory testing increases the net economic ...
Staff Report , Paper 616

Working Paper
Common Factors, Trends, and Cycles in Large Datasets
Barigozzi, Matteo; Luciani, Matteo (2017-11-13)
This paper considers a non-stationary dynamic factor model for large datasets to disentangle long-run from short-run co-movements. We first propose a new Quasi Maximum Likelihood estimator of the model based on the Kalman Smoother and the Expectation Maximisation algorithm. The asymptotic properties of the estimator are discussed. Then, we show how to separate trends and cycles in the factors by mean of eigenanalysis of the estimated non-stationary factors. Finally, we employ our methodology on a panel of US quarterly macroeconomic indicators to estimate aggregate real output, or Gross ...
Finance and Economics Discussion Series , Paper 2017-111

Working Paper
Bias in Local Projections
Johannsen, Benjamin K.; Herbst, Edward (2020-01-31)
Local projections (LPs) are a popular tool in applied macroeconomic research. We survey the related literature and find that LPs are often used with very small samples in the time dimension. With small sample sizes, given the high degree of persistence in most macroeconomic data, impulse responses estimated by LPs can be severely biased. This is true even if the right-hand-side variable in the LP is iid, or if the data set includes a large cross-section (i.e., panel data). We derive a simple expression to elucidate the source of the bias. Our expression highlights the interdependence between ...
Finance and Economics Discussion Series , Paper 2020-010

Discussion Paper
The Rise in Deposit Flightiness and Its Implications for Financial Stability
Blickle, Kristian S.; Li, Jian; Lu, Xu; Ma, Yiming (2025-07-10)
Deposits are often perceived as a stable funding source for banks. However, the risk of deposits rapidly leaving banks—known as deposit flightiness—has come under increased scrutiny following the failures of Silicon Valley Bank and other regional banks in March 2023. In a new paper, we show that deposit flightiness is not constant over time. In particular, flightiness reached historic highs after expansions in bank reserves associated with rounds of quantitative easing (QE). We argue that this elevated deposit flightiness may amplify the banking sector’s response to subsequent monetary ...
Liberty Street Economics , Paper 20250710

Report
Aggregation and the PPP puzzle in a sticky-price model
Nechio, Fernanda; Carvalho, Carlos (2008-10-01)
We study the purchasing power parity (PPP) puzzle in a multisector, two-country, sticky-price model. Firms' price stickiness differs across sectors, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, these differences lead sectoral real exchange rates to exhibit heterogeneous dynamics. We show that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent when compared with a counterfactual one-sector world economy that features the same average frequency of price changes and is ...
Staff Reports , Paper 351

Working Paper
Debt Limits and Credit Bubbles in General Equilibrium
Phan, Toan; Vailakis, Yiannis; Martins-da-Rocha, V. Filipe (2019-10-11)
We provide a novel characterization of self-enforcing debt limits in a general equilibrium framework of risk sharing with limited commitment, where defaulters are subject to recourse (a fractional loss of current and future endowments) and exclusion from future credit. We show that debt limits are exactly equal to the present value of recourse plus a credit bubble component. We provide applications to models of sovereign debt, private collateralized debt, and domestic public debt. Implications include an original equivalence mapping among distinct institutional arrangements, thereby ...
Working Paper , Paper 19-19

Working Paper
Skewness and Time-Varying Second Moments in a Nonlinear Production Network: Theory and Evidence
Dew-Becker, Ian; Vedolin, Andrea (2025-09-04)
This paper studies asymmetry in economic activity in a multisector model with shocks to productivity and labor wedges. Complementarity across inputs—creating nonlinear intersectoral interactions—creates negative skewness. The analysis generates additional predictions—skewness is smaller at the sector than aggregate level, sector-specific shocks are unskewed, and sector centrality rises following negative shocks—and finds empirical support for them. Skewness arising out of intersector interactions helps reconcile differences in skewness at the micro and macro level. Finally, we show ...
Working Paper Series , Paper WP 2025-18

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