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Jel Classification:E37 

Working Paper
Core and 'Crust': Consumer Prices and the Term Structure of Interest Rates

We propose a no-arbitrage model that jointly explains the dynamics of consumer prices as well as the nominal and real term structures of risk-free rates. In our framework, distinct core, food, and energy price series combine into a measure of total inflation to price nominal Treasuries. This approach captures different frequencies in inflation fluctuations: Shocks to core are more persistent and less volatile than shocks to food and, especially, energy (the 'crust'). We find that a common structure of latent factors determines and predicts the term structure of yields and inflation. The model ...
Working Paper Series , Paper WP-2014-11

Working Paper
Forecasting Economic Activity with Mixed Frequency Bayesian VARs

Mixed frequency Bayesian vector autoregressions (MF-BVARs) allow forecasters to incorporate a large number of mixed frequency indicators into forecasts of economic activity. This paper evaluates the forecast performance of MF-BVARs relative to surveys of professional forecasters and investigates the influence of certain specification choices on this performance. We leverage a novel real-time dataset to conduct an out-of-sample forecasting exercise for U.S. real gross domestic product (GDP). MF-BVARs are shown to provide an attractive alternative to surveys of professional forecasters for ...
Working Paper Series , Paper WP-2016-5

Working Paper
Why Does the Yield-Curve Slope Predict Recessions?

Why is an inverted yield-curve slope such a powerful predictor of future recessions? We show that a decomposition of the yield curve slope into its expectations and risk premia components helps disentangle the channels that connect fluctuations in Treasury rates and the future state of the economy. In particular, a change in the yield curve slope due to a monetary policy easing, measured by the current real-interest rate level and its expected path, is associated with an increase in the probability of a future recession within the next year. In contrast, a decrease in risk premia is ...
Working Paper Series , Paper WP-2018-15

Working Paper
Inflation Uncertainty and Disagreement in Bond Risk Premia

This paper examines the relation between variations in perceived inflation uncertainty and bond premia. Using the subjective probability distributions available in the Survey of Professional Forecasters we construct a quarterly time series of average individual uncertainty about inflation forecasts since 1968. We show that this ex-ante measure of inflation uncertainty differs importantly from measures of disagreement regarding inflation forecasts and other proxies, such as model-based ex-post measures of macroeconomic risk. Inflation uncertainty is an important driver of bond premia, but the ...
Working Paper Series , Paper WP-2014-24

Working Paper
Anchored Inflation Expectations and the Flatter Phillips Curve

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

Working Paper
Betting the House

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

Working Paper
The Great Mortgaging: Housing Finance, Crises, and Business Cycles

This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks? balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a ...
Working Paper Series , Paper 2014-23

Working Paper
Learning in the Oil Futures Markets: Evidence and Macroeconomic Implications

We show that a model where investors learn about the persistence of oil-price movements accounts well for the fluctuations in oil-price futures since the late 1990s. Using a DSGE model, we then show that this learning process alters the impact of oil shocks, making it time-dependent and consistent with the muted impact oil-price changes had on macroeconomic outcomes during the early 2000s and again over the past two years. The Spring 2008 increase in oil prices had a larger impact because market participants considered that it was likely driven by permanent shocks.
International Finance Discussion Papers , Paper 1179

Working Paper
The Macroeconomic Impact of Financial and Uncertainty Shocks

The extraordinary events surrounding the Great Recession have cast a considerable doubt on the traditional sources of macroeconomic instability. In their place, economists have singled out financial and uncertainty shocks as potentially important drivers of economic fluctuations. Empirically distinguishing between these two types of shocks, however, is difficult because increases in economic uncertainty are strongly associated with a widening of credit spreads, an indication of a tightening in financial conditions. This paper uses the penalty function approach within the SVAR framework to ...
International Finance Discussion Papers , Paper 1166

Working Paper
The Role of Oil Price Shocks in Causing U.S. Recessions

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

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