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Working Paper
Anchored Inflation Expectations and the Flatter Phillips Curve
Jorgensen, Peter; Lansing, Kevin J. (2019-11-06)
Conventional versions of the Phillips curve cannot account for inflation dynamics during and after the U.S. Great Recession, leading many to conclude that the Phillips curve relationship has weakened or even disappeared. We show that if agents solve a signal extraction problem to disentangle temporary versus permanent shocks to inflation, then agents? inflation expectations should have become more ?anchored? over the Great Moderation period. An estimated New Keynesian Phillips curve that accounts for the increased anchoring of expected inflation exhibits a stable slope coefficient over the ...
Working Paper Series , Paper 2019-27

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
Betting the House
Taylor, Alan M.; Jordà, Òscar; Schularick, Moritz (2014-12)
Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection ...
Working Paper Series , Paper 2014-28

Report
Revisiting useful approaches to data-rich macroeconomic forecasting
Kapetanios, George; Groen, Jan J. J. (2008)
This paper analyzes the properties of a number of data-rich methods that are widely used in macroeconomic forecasting, in particular principal components (PC) and Bayesian regressions, as well as a lesser-known alternative, partial least squares (PLS) regression. In the latter method, linear, orthogonal combinations of a large number of predictor variables are constructed such that the covariance between a target variable and these common components is maximized. Existing studies have focused on modelling the target variable as a function of a finite set of unobserved common factors that ...
Staff Reports , Paper 327

Working Paper
Price dispersion and inflation: new facts and theoretical implications
Sheremirov, Viacheslav (2015-07-01)
From a macroeconomic perspective, price rigidity is often perceived to be an important source of price dispersion, with significant implications for the dynamic properties of aggregate variables, welfare calculations, and the design of optimal policy. For instance, in standard New Keynesian models, the key cost of business cycles stems from the price dispersion resulting from firms' inability to adjust prices instantaneously. However, different macroeconomic models make conflicting predictions about the level of price dispersion, as well as about its dynamic properties and sensitivity to ...
Working Papers , Paper 15-10

Working Paper
Real-Time Density Nowcasts of US Inflation: A Model-Combination Approach
Knotek, Edward S.; Zaman, Saeed (2020-10-22)
We develop a flexible modeling framework to produce density nowcasts for US inflation at a trading-day frequency. Our framework: (1) combines individual density nowcasts from three classes of parsimonious mixed-frequency models; (2) adopts a novel flexible treatment in the use of the aggregation function; and (3) permits dynamic model averaging via the use of weights that are updated based on learning from past performance. Together these features provide density nowcasts that can accommodate non-Gaussian properties. We document the competitive properties of the nowcasts generated from our ...
Working Papers , Paper 202031

Working Paper
The Power of Narratives in Economic Forecasts
Sharpe, Steven A.; Sinha, Nitish R.; Hollrah, Christopher A. (2020-01-03)
We apply textual analysis tools to the narratives that accompany Federal Reserve Board economic forecasts to measure the degree of optimism versus pessimism expressed in those narratives. Text sentiment is strongly correlated with the accompanying economic point forecasts, positively for GDP forecasts and negatively for unemployment and inflation forecasts. Moreover, our sentiment measure predicts errors in FRB and private forecasts for GDP growth and unemployment up to four quarters out. Furthermore, stronger sentiment predicts tighter than expected monetary policy and higher future stock ...
Finance and Economics Discussion Series , Paper 2020-001

Working Paper
Nowcasting Turkish GDP and News Decomposition
Modugno, Michele; Soybilgen, Baris; Yazgan, M. Ege (2016-05)
Real gross domestic product (GDP) data in Turkey are released with a very long delay compared with other economies, between 10 and 13 weeks after the end of the reference quarter. To infer the current state of the economy, policy makers, media, and market practitioners examine data that are more timely, that are released at higher frequencies than the GDP. In this paper, we propose an econometric model that automatically allows us to read through these more current and higher-frequency data and translate them into nowcasts for the Turkish real GDP. Our model outperforms nowcasts produced by ...
Finance and Economics Discussion Series , Paper 2016-044

Working Paper
Forecast Performance in Times of Terrorism
Benchimol, Jonathan; El-Shagi, Makram (2020-06-26)
Governments, central banks and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, a factor that should be considered by decision-makers. We focus on terrorism as a mostly endogenously driven form of political uncertainty and assess the forecasting performance of market-based and professional inflation and exchange rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, the performance of both ...
Globalization Institute Working Papers , Paper 390

Report
Fundamental disagreement
Moench, Emanuel; Crump, Richard K.; Andrade, Philippe; Eusepi, Stefano (2013-12-01)
We use the term structure of disagreement of professional forecasters to document a novel set of facts: (1) forecasters disagree at all horizons, including the long run; (2) the term structure of disagreement differs markedly across variables: it is downward sloping for real output growth, relatively flat for inflation, and upward sloping for the federal funds rate; (3) disagreement is time-varying at all horizons, including the long run. These new facts present a challenge to benchmark models of expectation formation based on informational frictions. We show that these models require two ...
Staff Reports , Paper 655

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