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Journal Article
The Phillips Curve during the Pandemic: Bringing Regional Data to Bear
Higgins, Patrick C. (2021-09-09)
The Phillips curve appears to have held up well at the regional level during the COVID-19 era. Areas of the country that took relatively large hits to their unemployment rate and employment-population ratio during the pandemic have had lower inflation, on average, than areas that took relatively small hits. And, just as prior to the pandemic, the inverse relationship between inflation and unemployment continues to be statistically stronger for the prices of services than of goods.The Phillips curve appears to have held up well at the regional level during the COVID-19 era. Areas of the ...
Policy Hub , Volume 2021 , Issue 11 , Pages 20

Working Paper
Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?
Raissi, Mehdi; Mohaddes, Kamiar (2017-02-01)
This paper studies the impact of commodity terms of trade (CToT) volatility on economic growth (and its sources) in a sample of 69 commodity-dependent countries, and assesses the role of Sovereign Wealth Funds (SWFs) and quality of institutions in their long-term growth performance. Using annual data over the period 1981-2014, we employ the Cross-Sectionally augmented Autoregressive Distributive Lag (CS-ARDL) methodology for estimation to account for cross-country heterogeneity, cross-sectional dependence, and feedback effects. We find that while CToT volatility exerts a negative impact on ...
Globalization Institute Working Papers , Paper 304

Report
Approximating Grouped Fixed Effects Estimation via Fuzzy Clustering Regression
Lewis, Daniel J.; Melcangi, Davide; Pilossoph, Laura; Toner-Rodgers, Aidan (2022-09-01)
We propose a new, computationally-efficient way to approximate the “grouped fixed-effects” (GFE) estimator of Bonhomme and Manresa (2015), which estimates grouped patterns of unobserved heterogeneity. To do so, we generalize the fuzzy C-means objective to regression settings. As the regularization parameter m approaches 1, the fuzzy clustering objective converges to the GFE objective; moreover, we recast this objective as a standard Generalized Method of Moments problem. We replicate the empirical results of Bonhomme and Manresa (2015) and show that our estimator delivers almost identical ...
Staff Reports , Paper 1033

Working Paper
How have global shocks impacted the real effective exchange rates of individual Euro area countries since the Euro's creation?
Mehl, Arnaud; Chudik, Alexander; Bussiere, Matthieu (2011)
This paper uncovers the response pattern to global shocks of euro area countries' real effective exchange rates before and after the start of Economic and Monetary Union (EMU), a largely open ended question when the euro was created. We apply to that end a newly developed methodology based on high dimensional VAR theory. This approach features a dominant unit to a large set of over 60 countries' real effective exchange rates and is based on the comparison of two estimated systems: one before and one after EMU. ; We find strong evidence that the pattern of responses depends crucially on the ...
Globalization Institute Working Papers , Paper 102

Working Paper
Debt, inflation and growth robust estimation of long-run effects in dynamic panel data models
Chudik, Alexander; Pesaran, M. Hashem; Raissi, Mehdi; Mohaddes, Kamiar (2013-11-01)
This paper investigates the long-run effects of public debt and inflation on economic growth. Our contribution is both theoretical and empirical. On the theoretical side, we develop a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in dynamic heterogeneous panel data models with cross-sectionally dependent errors. The relative merits of the CS-DL approach and other existing approaches in the literature are discussed and illustrated with small sample evidence obtained by means of Monte Carlo simulations. On the empirical side, using data on a ...
Globalization Institute Working Papers , Paper 162

Working Paper
Mean Group Estimation in Presence of Weakly Cross-Correlated Estimators
Chudik, Alexander; Pesaran, M. Hashem (2018-11-14)
This paper extends the mean group (MG) estimator for random coefficient panel data models by allowing the underlying individual estimators to be weakly cross-correlated. Weak cross-sectional dependence of the individual estimators can arise, for example, in panels with spatially correlated errors. We establish that the MG estimator is asymptotically correctly centered, and its asymptotic covariance matrix can be consistently estimated. The random coefficient specification allows for correct inference even when nothing is known about the weak cross-sectional dependence of the errors. This is ...
Globalization Institute Working Papers , Paper 349

Report
Nonconforming Preferences: Jumbo Mortgage Lending and Large Bank Stress Tests
Haughwout, Andrew F.; Morgan, Donald P.; Neubauer, Michael; Pinkovskiy, Maxim L.; Van der Klaauw, Wilbert (2022-09-01)
The 2010s saw a profound shift towards jumbo mortgage lending by large banks that are regulated under the Dodd-Frank Act. Using data from the Home Mortgage Disclosure Act, we show that the “jumbo shift” is correlated with being subject to the Comprehensive Capital Analysis and Review (CCAR) stress tests, and that financial regulation caused CCAR-regulated banks to change preference for nonconforming relative to conforming loans of similar size. We discuss potential mechanisms through which regulation could have affected bank incentives.
Staff Reports , Paper 1029

Working Paper
Is there a debt-threshold effect on output growth?
Chudik, Alexander; Pesaran, M. Hashem; Raissi, Mehdi; Mohaddes, Kamiar (2015-07-01)
This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with crosssectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 ...
Globalization Institute Working Papers , Paper 245

Report
Workers’ Perceptions of Earnings Growth and Employment Risk
Van der Klaauw, Wilbert; Koşar, Gizem (2023-02-01)
In addition to realized earnings and employment shocks, forward-looking individuals are presumed to condition their consumption and labor supply decisions on their subjective beliefs about future labor market risks. This paper uses rich panel data to document considerable individual heterogeneity in earnings growth expectations and in the perceived likelihood of voluntary and involuntary job exits. We examine how expectations evolve over the working life and business cycle, and how they co-vary with macroeconomic expectations and personal experiences. While largely consistent with patterns in ...
Staff Reports , Paper 1056

Working Paper
How Much Should We Trust Regional-Exposure Designs?
Majerovitz, Jeremy; Sastry, Karthik (2023-07-27)
Many prominent studies in macroeconomics, labor, and trade use panel data on regions to identify the local effects of aggregate shocks. These studies construct regional-exposure instruments as an observed aggregate shock times an observed regional exposure to that shock. We argue that the most economically plausible source of identification in these settings is uncorrelatedness of observed and unobserved aggregate shocks. Even when the regression estimator is consistent, we show that inference is complicated by cross-regional residual correlations induced by unobserved aggregate shocks. We ...
Working Papers , Paper 2023-018

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