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Working Paper
Liquidity Premia, Price-Rent Dynamics, and Business Cycles
Zha, Tao; Wang, Pengfei; Miao, Jianjun (2014-08-01)
n the U.S. economy during the past 25 years, house prices exhibit fluctuations considerably larger than house rents, and these large fluctuations tend to move together with business cycles. We build a simple theoretical model to characterize these observations by showing the tight connection between price-rent fluctuation and the liquidity constraint faced by productive firms. After developing economic intuition for this result, we estimate a medium-scale dynamic general equilibrium model to assess the empirical importance of the role the price-rent fluctuation plays in the business cycle. ...
FRB Atlanta Working Paper , Paper 2014-15

Working Paper
A narrative approach to a fiscal DSGE model
Drautzburg, Thorsten (2016-03-28)
This version: March 28, 2016 First version: February 2014 {{p}} Structural DSGE models are used both for analyzing policy and the sources of business cycles. Conclusions based on full structural models are, however, potentially affected by misspecification. A competing method is to use partially identified VARs based on narrative shocks. This paper asks whether both approaches agree. First, I show that, theoretically, the narrative VAR approach is valid in a class of DSGE models with Taylor-type policy rules. Second, I quantify whether the two approaches also agree empirically, that is, ...
Working Papers , Paper 16-11

Working Paper
Credit-Market Sentiment and the Business Cycle
López-Salido, J. David; Zakrajšek, Egon; Stein, Jeremy C. (2015-04-25)
Using U.S. data from 1929 to 2015, we show that elevated credit-market sentiment in year t-2 is associated with a decline in economic activity in years t and t+1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. When credit risk is aggressively priced, spreads subsequently widen. The timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t-2 also forecasts a change in the composition of external finance: Net debt ...
Finance and Economics Discussion Series , Paper 2015-28

Working Paper
Metro Business Cycles
Gascon, Charles S.; Arias, Maria A.; Rapach, David E. (2014-11-11)
We construct monthly economic activity indices for the 50 largest U.S. metropolitan statistical areas (MSAs) beginning in 1990. Each index is derived from a dynamic factor model based on twelve underlying variables capturing various aspects of metro area economic activity. To accommodate mixed-frequency data and differences in data-publication lags, we estimate the dynamic factor model using a maximum- likelihood approach that allows for arbitrary patterns of missing data. Our indices highlight important similarities and differences in business cycles across MSAs. While a number of MSAs ...
Working Papers , Paper 2014-46

Working Paper
Lending Relationships and Optimal Monetary Policy
Bethune, Zachary; Wong, Russell; Rocheteau, Guillaume; Zhang, Cathy (2020-09-25)
We construct and calibrate a monetary model of corporate finance with endogenous formation of lending relationships. The equilibrium features money demands by firms that depend on their access to credit and a pecking order of financing means. We describe the mechanism through which monetary policy affects the creation of relationships and firms' incentives to use internal or external finance. We study optimal monetary policy following an unanticipated destruction of relationships under different commitment assumptions. The Ramsey solution uses forward guidance to expedite creation of new ...
Working Paper , Paper 20-13

Journal Article
Branding the Great Recession
Siems, Thomas F. (2012)
Financial Insights , Volume 1 , Issue 1 , Pages 1-3

Working Paper
Entry and Exit, Unemployment, and Macroeconomic Tail Risk
Bernstein, Joshua; Throckmorton, Nathaniel A.; Richter, Alexander W. (2020-06-24)
This paper builds a nonlinear business cycle model with endogenous firm entry and exit and equilibrium unemployment. The entry and exit mechanism generates asymmetry and amplifies the transmission of productivity shocks, exposing the economy to significant tail risk. When calibrating the rates of entry and exit to match their shares of job creation and destruction, our quantitative model generates higher-order moments consistent with U.S. data. Firm exit particularly amplifies the severity and persistence of deep recessions such as the COVID-19 crisis. In the absence of entry and exit, the ...
Working Papers , Paper 2018

Working Paper
Reputation and Liquidity Traps
Nakata, Taisuke (2014-06-17)
Can the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy sufficiently ...
Finance and Economics Discussion Series , Paper 2014-50

Discussion Paper
Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu
Verner, Emil; Luck, Stephan; Correia, Sergio A. (2020-03-27)
The COVID-19 outbreak has sparked urgent questions about the impact of pandemics, and associated countermeasures, on the real economy. Policymakers are in uncharted territory, with little guidance on what the expected economic fallout will be and how the crisis should be managed. In this blog post, we use insights from a recent research paper to discuss two sets of questions. First, what are the real economic effects of a pandemic—and are these effects temporary or persistent? Second, how does the local public health response affect the economic severity of the pandemic? In particular, do ...
Liberty Street Economics , Paper 20200327

Working Paper
Monetary Policy and Economic Performance since the Financial Crisis
Caldara, Dario; Gagnon, Etienne; Martinez-Garcia, Enrique; Neely, Christopher J. (2020-08-27)
We review macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools.
Finance and Economics Discussion Series , Paper 2020-065

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