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Working Paper
The Anatomy of Out-of-Sample Forecasting Accuracy
Rapach, David E.; Borup, Daniel; Goulet Coulombe, Philippe; Montes Schütte, Erik Christian; Schwenk-Nebbe, Sander (2022-11-07)
We develop metrics based on Shapley values for interpreting time-series forecasting models, including“black-box” models from machine learning. Our metrics are model agnostic, so that they are applicable to any model (linear or nonlinear, parametric or nonparametric). Two of the metrics, iShapley-VI and oShapley-VI, measure the importance of individual predictors in fitted models for explaining the in-sample and out-of-sample predicted target values, respectively. The third metric is the performance-based Shapley value (PBSV), our main methodological contribution. PBSV measures the ...
FRB Atlanta Working Paper , Paper 2022-16

Working Paper
The Role of Oil Price Shocks in Causing U.S. Recessions
Kilian, Lutz; Vigfusson, Robert J. (2014-08-20)
Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide a formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of ...
International Finance Discussion Papers , Paper 1114

Working Paper
Container Trade and the U.S. Recovery
Kilian, Lutz; Nomikos, Nikos; Zhou, Xiaoqing (2021-06-17)
Since the 1970s, exports and imports of manufactured goods have been the engine of international trade and much of that trade relies on container shipping. This paper introduces a new monthly index of the volume of container trade to and from North America. Incorporating this index into a structural macroeconomic VAR model facilitates the identification of shocks to domestic U.S. demand as well as foreign demand for U.S. manufactured goods. We show that, unlike in the Great Recession, the primary determinant of the U.S. economic contraction in early 2020 was a sharp drop in domestic demand. ...
Working Papers , Paper 2108

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
Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors
Mertens, Elmar; McCracken, Michael W.; Clark, Todd E. (2017-09-25)
We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee?s Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts.
Working Papers (Old Series) , Paper 1715

Working Paper
Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors : The Federal Reserve's Approach
Reifschneider, David L.; Tulip, Peter (2017-02-24)
Since November 2007, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve has regularly published participants? qualitative assessments of the uncertainty attending their individual forecasts of real activity and inflation, expressed relative to that seen on average in the past. The benchmarks used for these historical comparisons are the average root mean squared forecast errors (RMSEs) made by various private and government forecasters over the past twenty years. This paper documents how these benchmarks are constructed and discusses some of their properties. We draw several ...
Finance and Economics Discussion Series , Paper 2017-020

Working Paper
Anchored Inflation Expectations and the Slope of the Phillips Curve
Jorgensen, Peter; Lansing, Kevin J. (2019-11-06)
We estimate a New Keynesian Phillips curve that allows for changes in the degree of anchoring of agents' subjective inflation forecasts. The estimated slope coefficient in U.S. data is stable over the period 1960 to 2019. Out-of-sample forecasts with the model resolve both the "missing disinflation puzzle" during the Great Recession and the "missing inflation puzzle" during the subsequent recovery. Using a simple New Keynesian model, we show that if agents solve a signal extraction problem to disentangle transitory versus permanent shocks to inflation, then an increase in the policy rule ...
Working Paper Series , Paper 2019-27

Working Paper
Evaluating the Information Value for Measures of Systemic Conditions
Oet, Mikhail V.; Dooley, John; Sarlin, Peter; Gramlich, Dieter; Ong, Stephen J. (2015-08-06)
Timely identification of coincident systemic conditions and forward-looking capacity to anticipate adverse developments are critical for macroprudential policy. Despite clear recognition of these factors in literature, an evaluation methodology and empirical tests for the information value of coincident measures are lacking. This paper provides a twofold contribution to the literature: (i) a general-purpose evaluation framework for assessing information value for measures of systemic conditions, and (ii) an empirical assessment of the information value for several alternative measures of US ...
Working Papers (Old Series) , Paper 1513

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 20-31

Working Paper
Inflation Expectations and Monetary Policy Design: Evidence from the Laboratory
Žakelj, Blaž; Pfajfar, Damjan (2015-06-11)
Using laboratory experiments within a New Keynesian framework, we explore the interaction between the formation of inflation expectations and monetary policy design. The central question in this paper is how to design monetary policy when expectations formation is not perfectly rational. Instrumental rules that use actual rather than forecasted inflation produce lower inflation variability and reduce expectational cycles. A forward-looking Taylor rule where a reaction coefficient equals 4 produces lower inflation variability than rules with reaction coefficients of 1.5 and 1.35. Inflation ...
Finance and Economics Discussion Series , Paper 2015-45

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