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Jel Classification:C32 

Working Paper
When Can Trend-Cycle Decompositions Be Trusted?

In this paper, we examine the results of GDP trend-cycle decompositions from the estimation of bivariate unobserved components models that allow for correlated trend and cycle innovations. Three competing variables are considered in the bivariate setup along with GDP: the unemployment rate, the inflation rate, and gross domestic income. We find that the unemployment rate is the best variable to accompany GDP in the bivariate setup to obtain accurate estimates of its trend-cycle correlation coefficient and the cycle. We show that the key feature of unemployment that allows for precise ...
Finance and Economics Discussion Series , Paper 2016-099

Working Paper
Indeterminacy and Imperfect Information

We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less informed agents observe only a strict subset of the full information set. All types of agents form expectations rationally, but agents with limited information need to solve a dynamic signal extraction problem to gather information about the variables they do not observe. We show that for parameter values that imply a unique equilibrium under full ...
Working Paper , Paper 19-17

Working Paper
The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States: Reply to Jentsch and Lunsford

In this reply to a comment by Jentsch and Lunsford, we show that, when focusing on the relevant impulse responses, the evidence for economic and statistically significant macroeconomic effects of tax changes in Mertens and Ravn (2013) remains present for a range of asymptotically valid inference methods.
Working Papers , Paper 1805

Working Paper
The Empirical Implications of the Interest-Rate Lower Bound

Using Bayesian methods, we estimate a nonlinear DSGE model in which the interest-rate lower bound is occasionally binding. We quantify the size and nature of disturbances that pushed the U.S. economy to the lower bound in late 2008 as well as the contribution of the lower bound constraint to the resulting economic slump. We find that the interest-rate lower bound was a significant constraint on monetary policy that exacerbated the recession and inhibited the recovery, as our mean estimates imply that the zero lower bound (ZLB) accounted for about 30 percent of the sharp contraction in U.S. ...
Finance and Economics Discussion Series , Paper 2012-83

Working Paper
Indeterminacy and Learning: An Analysis of Monetary Policy in the Great Inflation

We argue in this paper that the Great Inflation of the 1970s can be understood as the result of equilibrium indeterminacy in which loose monetary policy engendered excess volatility in macroeconomic aggregates and prices. We show, however, that the Federal Reserve inadvertently pursued policies that were not anti-inflationary enough because it did not fully understand the economic environment it was operating in. Specifically, it had imperfect knowledge about the structure of the U.S. economy and it was subject to data misperceptions. The real-time data flow at that time did not capture the ...
Working Paper , Paper 14-2

Working Paper
Assessing International Commonality in Macroeconomic Uncertainty and Its Effects

This paper uses a large vector autoregression to measure international macroeconomic uncertainty and its effects on major economies. We provide evidence of significant commonality in macroeconomic volatility, with one common factor driving strong comovement across economies and variables. We measure uncertainty and its effects with a large model in which the error volatilities feature a factor structure containing time-varying global components and idiosyncratic components. Global uncertainty contemporaneously affects both the levels and volatilities of the included variables. Our new ...
Working Papers , Paper 201803R

Working Paper
Asymmetric Responses of Consumer Spending to Energy Prices: A Threshold VAR Approach

We document asymmetric responses of consumer spending to energy price shocks: Using a multiple-regime threshold vector autoregressive model estimated with Bayesian methods on US data, we find that positive energy price shocks have a larger negative effect on consumption compared with the increase in consumption in response to negative energy price shocks. For large shocks, the cumulative consumption responses are three to five times larger for positive than for negative shocks. Digging into disaggregated spending, we find that the estimated asymmetric responses are strongest for durable ...
Working Papers , Paper 202017

Report
Measuring Global Financial Market Stresses

We propose measures of financial market stress for forty-six countries and regions across the world. Our measures indicate that worldwide financial market stresses rose significantly in March following the widespread economic shutdowns in the wake of the COVID-19 pandemic. However, hardly anywhere in the world did these March peaks in financial stresses reach those seen during the trough of the 2007-09 Global Financial Crisis. Since March, financial market conditions normalized rapidly with financial market stresses around average levels. We also show that our financial stress measures ...
Staff Reports , Paper 940

Working Paper
What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs

We study the effects of news shocks on inventory accumulation in a structural VAR framework. We establish that inventories react strongly and positively to news about future increases in total factor productivity. Theory suggests that the transmission channel of news shocks to inventories works through movements in marginal costs, through movements in sales, or through interest rates. We provide evidence that changes in external and internal rates of return are central to the transmission for such news shocks. We do not find evidence of a strong substitution effect that shifts production from ...
Working Paper , Paper 19-18

Working Paper
All Fluctuations Are Not Created Equal: The Differential Roles of Transitory versus Persistent Changes in Driving Historical Monetary Policy

The historical analysis of FOMC behavior using estimated simple policy rules requires the specification of either an estimated natural rate of unemployment or an output gap. But in the 1970s, neither output gap nor natural rate estimates appear to guide FOMC deliberations. This paper uses the data to identify the particular implicit unemployment rate gap (if any) that is consistent with FOMC behavior. While its ability appears to have improved over time, our results indicate that, both before the Volcker period and through the Bernanke period, the FOMC distinguished persistent movements in ...
Working Papers (Old Series) , Paper 1814

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