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Working Paper
Dynamic Identification Using System Projections on Instrumental Variables
Lewis, Daniel J.; Mertens, Karel (2024-07-03)
We propose System Projections on Instrumental Variables (SP-IV) to estimate structural relationships using regressions of structural impulse responses obtained from local projections or vector autoregressions. Relative to IV with distributed lags of shocks as instruments, SP-IV imposes weaker exogeneity requirements and can improve efficiency and increase effective instrument strength relative to the typical 2SLS estimator. We describe inference under strong and weak identification. The SP-IV estimator outperforms other estimators of Phillips Curve parameters in simulations. We estimate the ...
Working Papers , Paper 2204

Working Paper
Working less and bargain hunting more: macro implications of sales during Japan's lost decades
Watanabe, Kota; Sudo, Nao; Watanabe, Tsutomu; Ueda, Kozo (2014-09-01)
Standard New Keynesian models have often neglected temporary sales. In this paper, we ask whether this treatment is appropriate. In the empirical part of the paper, we provide evidence using Japanese scanner data covering the last two decades that the frequency of sales was closely related with macroeconomic developments. Specifically, we find that the frequency of sales and hours worked move in opposite directions in response to technology shocks, producing a negative correlation between the two. We then construct a dynamic stochastic general equilibrium model that takes households' ...
Globalization Institute Working Papers , Paper 194

Report
Pandemic-Era Inflation Drivers and Global Spillovers
Silva, Alvaro; Kalemli-Özcan, Ṣebnem; Yildirim, Muhammed A.; di Giovanni, Julian (2023-11-01)
We estimate a multi-country, multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–23 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/EUR exchange rate. The quantification exercise yields four key findings. ...
Staff Reports , Paper 1080

Working Paper
The Sine Aggregatio Approach to Applied Macro
Conley, Timothy G.; Dupor, Bill; Ebsim, Mahdi (2022-11-11)
We develop a method to use disaggregate data to conduct causal inference in macroeconomics. The approach permits one to infer the aggregate effect of a macro treatment using regional outcome data and a valid instrument. We estimate a macro effect without (sine) the aggregation (aggregatio) of the outcome variable. We exploit cross-equation parameter restrictions to increase precision relative to traditional, aggregate series estimates and provide a method to assess robustness to departures from these restrictions. We illustrate our method via estimating the jobs effect of oil price changes ...
Working Papers , Paper 2022-014

Working Paper
Attention and a Paradox of Uncertainty
Chiang, Yu-Ting (2024-10-08)
I show that macroeconomic uncertainty during recessions can arise from people paying more attention to aggregate events. When information is dispersed, people's attempts to acquire more information can lead to higher aggregate volatility, forecast dispersion, and uncertainty about aggregate output. Information rigidity is reduced, consistent with evidence in forecast surveys, and distinct from the prediction of exogenous volatility shocks. When the model is calibrated to U.S. data, endogenous attention accounts for half of the observed fluctuations in volatility, forecast dispersion, and ...
Working Papers , Paper 2022-004

Working Paper
Estimating (Markov-Switching) VAR Models without Gibbs Sampling: A Sequential Monte Carlo Approach
Herbst, Edward P.; Bognanni, Mark (2014-11-12)
Vector autoregressions with Markov-switching parameters (MS-VARs) offer dramatically better data fit than their constant-parameter predecessors. However, computational complications, as well as negative results about the importance of switching in parameters other than shock variances, have caused MS-VARs to see only sparse usage. For our first contribution, we document the effectiveness of Sequential Monte Carlo (SMC) algorithms at estimating MSVAR posteriors. Relative to multi-step, model-specific MCMC routines, SMC has the advantages of being simpler to implement, readily parallelizable, ...
Working Papers (Old Series) , Paper 1427

Working Paper
Commodity Exports, Financial Frictions and International Spillovers
Houssa, Romain; Mohimont, Jolan; Otrok, Christopher (2022-12-17)
This paper offers a solution to the international co-movement puzzle found in open-economy macroeconomic models. We develop a small open-economy (SOE) dynamic stochastic general equilibrium (DSGE) model describing three endogenous channels that capture spillovers from the world to a commodity exporter: a world commodity price channel, a domestic commodity supply channel and a financial channel. We estimate our model with Bayesian methods on two commodity-exporting SOEs, namely Canada and South Africa. In addition to explaining international business cycle synchronization, the new model ...
Globalization Institute Working Papers , Paper 419

Journal Article
Does Intra-Firm Bargaining Matter for Business Cycle Dynamics?
Krause, Michael U.; Lubik, Thomas A. (2013-07)
We analyze the implications of intra-firm bargaining for business cycle dynamics in models with large firms and search frictions. Intra-firm bargaining implies a feedback from the marginal revenue product to wage setting, which leads firms to over-hire in order to reduce workers' bargaining position within the firm. The keys to this effect are decreasing returns and/or downward-sloping demand. We show that equilibrium wages and employment are higher in steady state compared with a bargaining framework in which firms neglect this feedback effect. However, the effects of intra-firm bargaining ...
Economic Quarterly , Issue 3Q , Pages 229-250

Working Paper
Mortgage Borrowing and the Boom-Bust Cycle in Consumption and Residential Investment
Zhou, Xiaoqing (2021-03-24)
This paper studies the transmission of the major shocks in the U.S. housing market in the 2000s to consumption and residential investment. Using geographically disaggregated data, I show that residential investment is more responsive to these shocks than consumption, as measured by elasticities and the implied contributions to GDP growth. I develop a structural life-cycle model featuring multiple types of housing investment to understand the large responses of residential investment. Consistent with the microdata, the model generates lumpy debt accumulation, lumpy housing investment and a ...
Working Papers , Paper 2103

Working Paper
Micro price dynamics during Japan's lost decades
Ueda, Kozo; Watanabe, Kota; Sudo, Nao (2013)
We study micro price dynamics and their macroeconomic implications using daily scanner data from 1988 to 2013. We provide five facts. First, posted prices in Japan are ten times as flexible as those in the U.S. scanner data. Second, regular prices are almost as flexible as those in the U.S. and Euro area. Third, the heterogeneity of frequency and size of price change across products is sizable and maintained throughout the sample period. Fourth, during Japan's lost decades, temporary sales have played an increasingly important role in households' consumption expenditure. Fifth, the frequency ...
Globalization Institute Working Papers , Paper 159

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