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Jel Classification:C30 

Working Paper
Identifying Global and National Output and Fiscal Policy Shocks Using a GVAR
The paper contributes to the growing Global VAR (GVAR) literature by showing how global and national shocks can be identified within a GVAR framework. The usefulness of the proposed approach is illustrated in an application to the analysis of the interactions between public debt and real output growth in a multi-country setting, and the results are compared to those obtained from standard single-country VAR analysis. We find that on average (across countries) global shocks explain about one-third of the long-horizon forecast error variance of output growth, and about one-fifth of the long-run variance of the rate of change of debt-to-GDP. Evidence on the degree of cross-sectional dependence in these variables and their innovations is exploited to identify the global shocks, and priors are used to identify the national shocks within a Bayesian framework. It is found that posterior median debt elasticity with respect to output is much larger when the rise in output is due to a fiscal policy shock, as compared to when the rise in output is due to a positive technology shock. The cross-country average of the median debt elasticity is 1.58 when the rise in output is due to a fiscal expansion as compared to 0.75 when the rise in output follows from a favorable output shock.
AUTHORS: Pesaran, M. Hashem; Chudik, Alexander; Mohaddes, Kamiar
DATE: 2018-12-26

Working Paper
FRED-MD: A Monthly Database for Macroeconomic Research
This paper describes a large, monthly frequency, macroeconomic database with the goal of establishing a convenient starting point for empirical analysis that requires "big data." The dataset mimics the coverage of those already used in the literature but has three appealing features. First, it is designed to be updated monthly using the FRED database. Second, it will be publicly accessible, facilitating comparison of related research and replication of empirical work. Third, it will relieve researchers from having to manage data changes and revisions. We show that factors extracted from our dataset share the same predictive content as those based on various vintages of the so-called Stock-Watson dataset. In addition, we suggest that diffusion indexes constructed as the partial sum of the factor estimates can potentially be useful for the study of business cycle chronology.
AUTHORS: McCracken, Michael W.; Ng, Serena
DATE: 2015-06-15

Working Paper
How Persistent Are Unconventional Monetary Policy Effects?
Event studies show that the Federal Reserve?s announcements of forward guidance and large Scale asset purchases had large and desired effects on asset prices but they do not tell us how long such effects last. Wright (2012) used a structural vector autoregression (SVAR) to argue that unconventional policies have very transient effects on bond yields, with half-lives of 3 to 6 months. The present paper shows, however, that the SVAR is very possibly misspecified, structurally unstable, forecasts very poorly and therefore delivers spurious inference. In addition, the implied in-sample return predictability from the SVAR greatly exceeds a level consistent with rational asset pricing and reasonable risk aversion. Restricted models that respect more plausible asset return predictability are more stable and imply that the unconventional monetary policy shocks were fairly persistent. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices.
AUTHORS: Neely, Christopher J.
DATE: 2014-02-09

Working Paper
Asymptotically Valid Bootstrap Inference for Proxy SVARs
Proxy structural vector autoregressions identify structural shocks in vector autoregressions with external variables that are correlated with the structural shocks of interest but uncorrelated with all other structural shocks. We provide asymptotic theory for this identification approach under mild ?-mixing conditions that cover a large class of uncorrelated, but possibly dependent innovation processes, including conditional heteroskedasticity. We prove consistency of a residual-based moving block bootstrap for inference on statistics such as impulse response functions and forecast error variance decompositions. Wild bootstraps are proven to be generally invalid for these statistics and their coverage rates can be badly and persistently mis-sized.
AUTHORS: Jentsch, Carsen; Lunsford, Kurt Graden
DATE: 2019-05-03

Working Paper
Firm Dynamics and the Origins of Aggregate Fluctuations
What drives aggregate fluctuations? I test the granular hypothesis, according to which the largest firms in the economy drive aggregate dynamics, by estimating a dynamic factor model with firm-level data and controlling for the propagation of firm-level shocks using multi-firm growth model. Each time series, the growth rate of sales of a specific firm, is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results suggest that, once I control for aggregate shocks, idiosyncratic shocks do not explain much of U.S. GDP growth fluctuations.
AUTHORS: Stella, Andrea
DATE: 2015-04-22

Working Paper
International Transmission of Japanese Monetary Shocks Under Low and Negative Interest Rates: A Global Favar Approach
We examine the implications of Japanese monetary shocks under recent very low and sometimes negative interest rates to the Japanese economy as well as three of its major trading partners: Korea, China and the United States. We follow the literature in using movements in 2-year Japanese government bond rates as proxies for changes in monetary conditions in the neighborhood of the zero lower bound. We examine the implications of shocks to the 2-year rate in a series of factor-augmented vector autoregressive?or FAVAR?models, in which both local and global conditions are proxied by latent factors generated from domestic economic indicators and weighted indicators of major trading partners, respectively. Our results suggest that shocks to 2-year Japanese rates do have substantive impacts on Japanese economic activity and inflation in conditions of low or even negative short-term rates. However, we find only modest global spillovers from Japanese monetary policy shocks, as their impact on the economic conditions of major Japanese trading partners is muted, particularly relative to the impact of innovations in 2-year U.S. Treasury yields over the same period.
AUTHORS: Tai, Andrew; Spiegel, Mark M.
DATE: 2017-02-28

Working Paper
Measuring the Effects of Dollar Appreciation on Asia: A Favar Approach
Exchange rate shocks have mixed effects on economic activity in both theory and empirical VAR models. In this paper, we extend the empirical literature by considering the implications of a positive shock to the U.S. dollar in a factor-augmented vector autoregression (FAVAR) model for the U.S. and three large Asian economies: Korea, Japan and China. The FAVAR framework allows us to represent a country?s aggregate economic activity by a latent factor, generated from a broad set of underlying observable economic indicators. To control for global conditions, we also include in the FAVAR a ?global conditions index,? which is another latent factor generated from the economic indicators of major trading partners. We find that a dollar appreciation shock reduces economic activity and inflation not only for the U.S. economy, but also for all three Asian economies. This result, which is robust to a number of alternative specifications, suggests that in spite of their disparate economic structures and policy regimes, the dollar appreciation shock affects the Asian economies primarily through its impact on U.S. aggregate demand; and this demand channel dominates the expenditure-switching channel that affects a country?s export competitiveness.
AUTHORS: Tai, Andrew; Spiegel, Mark M.; Liu, Zheng
DATE: 2016-11-14

Working Paper
Assessing the Evidence on Neighborhood Effects from Moving to Opportunity
The Moving to Opportunity (MTO) experiment randomly assigned housing vouchers that could be used in low-poverty neighborhoods. Consistent with the literature, I find that receiving an MTO voucher had no effect on outcomes like earnings, employment, and test scores. However, after studying the assumptions identifying neighborhood effects with MTO data, this paper reaches a very different interpretation of these results than found in the literature. I first specify a model in which the absence of effects from the MTO program implies an absence of neighborhood effects. I present theory and evidence against two key assumptions of this model: That poverty is the only determinant of neighborhood quality, and that outcomes only change across one threshold of neighborhood quality. I then show that in a more realistic model of neighborhood effects that relaxes these assumptions, the absence of effects from the MTO program is perfectly compatible with the presence of neighborhood effects. This analysis illustrates why the implicit identification strategies used in the literature on MTO can be misleading. This paper is a revision of a working paper previously published as 11-22, 11-22R, 12-33, and 12-33R. WP 15-05
AUTHORS: Aliprantis, Dionissi
DATE: 2015-03-25

Working Paper
From Organization to Activity in the US Collateralized Interbank Market
This paper studies and connects market organization and activity in the US collateralized interbank market using an assumption-neutral approach. We apply cluster analysis to aggregate activity factors suggested by prior studies to support two market organizations: three-tier and core-periphery. We find that four bank-specific factors and one economic conditions factor explain interbank activity for both alternative organizations. We also find evidence that the interbank market organization affects institutions? borrowing and lending. While both organizations moderate interbank activity, the three-tier structure detects distinct market operations which are not represented in the core-periphery structure.
AUTHORS: Oet, Mikhail V.; Ong, Stephen J.
DATE: 2015-12-14

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