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Credit Frictions in the Great Recession
Pastorino, Elena; Lopez, Pierlauro; Midrigan, Virgiliu; Kehoe, Patrick J. (2020-12-15)
Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the ...
Staff Report , Paper 617

Working Paper
Living Up to Expectations: The Effectiveness of Forward Guidance and Inflation Dynamics Post-Global Financial Crisis
Martínez García, Enrique; Sims, Eric; Cole, Stephen J. (2025-04-03)
This paper studies the effectiveness of forward guidance when central banks face private agents with heterogeneous expectations allowing for a degree of bounded rationality. Exploiting unique survey-based measures of expected inflation, output growth and interest rates, we estimate a small-scale New Keynesian model with forward guidance shocks for the United States and the other G7 countries plus Spain. We find that the share of fully-informed rational expectations (FIRE) agents in aggregate expectations is similar for the U.S., the U.K., Germany and other major advanced economies (albeit far ...
Globalization Institute Working Papers , Paper 424

Working Paper
A Likelihood-Based Comparison of Macro Asset Pricing Models
Chen, Andrew Y.; Wasyk, Rebecca; Winkler, Fabian (2017-03)
We estimate asset pricing models with multiple risks: long-run growth, long-run volatility, habit, and a residual. The Bayesian estimation accounts for the entire likelihood of consumption, dividends, and the price-dividend ratio. We find that the residual represents at least 80% of the variance of the price-dividend ratio. Moreover, the residual tracks most recognizable features of stock market history such as the 1990's boom and bust. Long run risks and habit contribute primarily in crises. The dominance of the residual comes from the low correlation between asset prices and consumption ...
Finance and Economics Discussion Series , Paper 2017-024

Working Paper
150 years of boom and bust: what drives mineral commodity prices?
Stuermer, Martin (2014-12-12)
My paper provides long-run evidence on the dynamic effects of supply and demand shocks on mineral commodity prices. I assemble and analyze a new data set of price and production levels of copper, lead, tin, and zinc from 1840 to 2010. Price fluctuations are primarily driven by demand rather than supply shocks. Demand shocks affect the price persistently for up to five-teen years, whereas the effect of mineral supply shocks persists for a maximum of five years. My paper shows that price surges caused by rapid industrialization are a recurrent phenomenon throughout history. Mineral commodity ...
Working Papers , Paper 1414

Working Paper
Rising Market Concentration and the Decline of Food Price Shock Pass-Through to Core Inflation
Brown, Jason; Tousey, Colton (2019-06-13)
Using a vector autoregression that allows for time-varying parameters and stochastic volatility, we show that U.S. core inflation became 75 percent less responsive to shocks in food prices since the late 1970s. The decline in the pass-through of food price shocks to inflation is a result of a decline in both volatility and the persistence of food price changes in inflation. This decline in pass-through coincides with a period of increasing concentration in the food supply chain, especially among U.S. grocery retailers and distributors. We find that 60 percent of the variation in pass-through ...
Research Working Paper , Paper RWP 19-2

Working Paper
Monetary Policy Uncertainty and Economic Fluctuations at the Zero Lower Bound
Doehr, Rachel; Martinez-Garcia, Enrique (2021-11-11)
We propose a TVP-VAR with stochastic volatility for the unemployment rate, core inflation and the federal funds rate augmented with survey-based interest rate expectations and uncertainty and a FAVAR with a wider set of observable variables and alternative monetary policy measures in order to explore U.S. monetary policy, accounting for the zero lower bound. We find that a rise in monetary policy uncertainty increases unemployment and lowers core inflation; the effects on unemployment in particular are robust (a gradual 0.4 percentage point increase), lasting more than two years after the ...
Globalization Institute Working Papers , Paper 412

Working Paper
Missing Import Price Changes and Low Exchange Rate Pass-Through
Vigfusson, Robert J.; Gagnon, Etienne; Mandel, Benjamin R. (2012)
A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics (BLS) microdata, we ...
International Finance Discussion Papers , Paper 1040

Working Paper
Trade Costs and Inflation Dynamics
Cuba-Borda, Pablo A.; Queraltó, Albert; Reyes-Heroles, Ricardo M.; Scaramucci, Mikaël (2025-03-04)
We explore how shocks to trade costs affect inflation dynamics in the global economy. We exploit bilateral trade flows of final and intermediate goods together with the structure of static trade models that deliver gravity equations to identify exogenous changes in trade costs between countries. We then use a local projections approach to assess the effects of trade cost shocks on consumer price (CPI) inflation. Higher trade costs of final goods lead to large but short-lived increases in inflation, while increases in trade costs of intermediate goods generate small but persistent increases in ...
Working Papers , Paper 2508

Working Paper
A New Perspective on the Finance-Development Nexus
Quintin, Erwan; Corbae, Dean; Amaral, Pedro S. (2016-12-02)
The existing literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. To that end, we describe a dynamic extension of Allen and Gale (1989)?s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lower tranching costs in that environment lead to capital deepening and raise aggregate output. The implications of lower ...
Working Papers (Old Series) , Paper 1629

Report
Exploiting the monthly data flow in structural forecasting
Reichlin, Lucrezia; Monti, Francesca; Giannone, Domenico (2015-12-01)
This paper develops a framework that allows us to combine the tools provided by structural models for economic interpretation and policy analysis with those of reduced-form models designed for nowcasting. We show how to map a quarterly dynamic stochastic general equilibrium (DSGE) model into a higher frequency (monthly) version that maintains the same economic restrictions. Moreover, we show how to augment the monthly DSGE with auxiliary data that can enhance the analysis and the predictive accuracy in now-casting and forecasting. Our empirical results show that both the monthly version of ...
Staff Reports , Paper 751

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