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Working Paper
Assessing Macroeconomic Tail Risks in a Data-Rich Environment
Cook, Thomas R.; Doh, Taeyoung (2019-11-20)
We use a large set of economic and financial indicators to assess tail risks of the three macroeconomic variables: real GDP, unemployment, and inflation. When applied to U.S. data, we find evidence that a dense model using principal components (PC) as predictors might be misspecified by imposing the “common slope” assumption on the set of predictors across multiple quantiles. The common slope assumption ignores the heterogeneous informativeness of individual predictors on different quantiles. However, the parsimony of the PC-based approach improves the accuracy of out-of-sample forecasts ...
Research Working Paper , Paper RWP 19-12

Working Paper
Identification Using Higher-Order Moments Restrictions
Andrade, Philippe; Ferroni, Filippo; Melosi, Leonardo (2023-08-18)
We exploit inequality restrictions on higher-order moments of the distribution of structural shocks to sharpen their identification. We show that these constraints can be treated as necessary conditions and used to shrink the set of admissible rotations. We illustrate the usefulness of this approach showing, by simulations, how it can dramatically improve the identification of monetary policy shocks when combined with widely used sign-restriction schemes. We then apply our methodology to two empirical questions: the effects of monetary policy shocks in the U.S. and the effects of sovereign ...
Working Paper Series , Paper WP 2023-28

Discussion Paper
Assessing monetary accommodation: a simple empirical model of monetary policy and its implications for unemployment and inflation
Armen, Alan; Koenig, Evan F. (2015-12)
This note suggests that household wealth growth and a long-forward interest rate can be used to construct a simple and convenient reference standard for assessing the current stance of monetary policy. It shows that the difference between the federal funds rate and this reference interest rate is a powerful predictor of the unemployment rate and inflation, producing real-time forecasts that are competitive with consensus-based forecasts from surveys of forecasting professionals. Moreover, one can understand past FOMC policy actions as efforts to adjust the stance of policy, so measured, in ...
Staff Papers , Issue Dec

Working Paper
Monitoring the world business cycle
Camacho, Maximo; Martinez-Martin, Jaime (2015-02-01)
We propose a Markov-switching dynamic factor model to construct an index of global business cycle conditions, to perform short-term forecasts of world GDP quarterly growth in real time and to compute real-time business cycle probabilities. To overcome the real-time forecasting challenges, the model accounts for mixed frequencies, for asynchronous data publication and for leading indicators. Our pseudo real-time results show that this approach provides reliable and timely inferences of the world quarterly growth and of the world state of the business cycle on a monthly basis.
Globalization Institute Working Papers , Paper 228

Working Paper
Computing Equilibria of Stochastic Heterogeneous Agent Models Using Decision Rule Histories
Veracierto, Marcelo (2020-02-01)
This paper introduces a general method for computing equilibria with heterogeneous agents and aggregate shocks that is particularly suitable for economies with private information. Instead of the cross-sectional distribution of agents across individual states, the method uses as a state variable a vector of spline coefficients describing a long history of past individual decision rules. Applying the computational method to a Mirrlees RBC economy with known analytical solution recovers the solution perfectly well. This test provides considerable confidence on the accuracy of the method.
Working Paper Series , Paper WP 2020-05

Working Paper
Analyzing data revisions with a dynamic stochastic general equilibrium model
Sill, Keith; Croushore, Dean (2014-09-23)
We use a structural dynamic stochastic general equilibrium model to investigate how initial data releases of key macroeconomic aggregates are related to final revised versions and how identified aggregate shocks influence data revisions. The analysis sheds light on how well preliminary data approximate final data and on how policy makers might condition their view of the preliminary data when formulating policy actions. The results suggest that monetary policy shocks and multifactor productivity shocks lead to predictable revisions to the initial release data on output growth and inflation.
Working Papers , Paper 14-29

Journal Article
Why Are Americans Saving So Much of Their Income?
Smith, Andrew Lee (2020-12-04)
For much of 2020, Americans have saved a greater share of their income than ever before. This increase in savings appears to be predominantly driven by precautionary motives. Therefore, consumers may be reluctant to draw down these savings in the future to support spending.
Economic Bulletin

Working Paper
Raiders of the Lost High-Frequency Forecasts: New Data and Evidence on the Efficiency of the Fed's Forecasting
Chang, Andrew C.; Levinson, Trace J. (2020-10-23)
We introduce a new dataset of real gross domestic product (GDP) growth and core personal consumption expenditures (PCE) inflation forecasts produced by the staff of the Board of Governors of the Federal Reserve System. In contrast to the eight Greenbook forecasts a year the staff produces for Federal Open Market Committee (FOMC) meetings, our dataset has roughly weekly forecasts. We use these new data to study whether the staff forecasts efficiently and whether efficiency, or lack thereof, is time-varying. Prespecified regressions of forecast errors on forecast revisions show that the staff's ...
Finance and Economics Discussion Series , Paper 2020-090

Working Paper
The forecasting power of consumer attitudes for consumer spending
Olivei, Giovanni P.; Barnes, Michelle L. (2014-10-30)
The widely studied Reuters/Michigan Index of Consumer Sentiment is constructed from the answers to five questions from the more comprehensive Reuters/Michigan Surveys of Consumers. Yet little work has been done on what predictive power the information taken from this more thorough compilation of consumer attitudes and expectations may have for forecasting consumption expenditures. The authors construct a limited set of real-time summary measures for 42 questions selected from these broader Surveys corresponding to three broad economic determinants of consumption?income and wealth, prices, and ...
Working Papers , Paper 14-10

Working Paper
What's the Story? A New Perspective on the Value of Economic Forecasts
Sinha, Nitish R.; Hollrah, Christopher A.; Sharpe, Steven A. (2017-11-03)
We apply textual analysis tools to measure the degree of optimism versus pessimism of the text that describes Federal Reserve Board forecasts published in the Greenbook. The resulting measure of Greenbook text sentiment, ?Tonality,? is found to be strongly correlated, in the intuitive direction, with the Greenbook point forecast for key economic variables such as unemployment and inflation. We then examine whether Tonality has incremental power for predicting unemployment, GDP growth, and inflation up to four quarters ahead. We find it to have significant and substantive predictive power for ...
Finance and Economics Discussion Series , Paper 2017-107

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