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Working Paper
Monetary Policy Effectiveness in China: Evidence from a FAVAR Model
Fernald, John G.; Spiegel, Mark M.; Swanson, Eric T. (2014-02-24)
We use a broad set of Chinese economic indicators and a dynamic factor model framework to estimate Chinese economic activity and inflation as latent variables. We incorporate these latent variables into a factor-augmented vector autoregression (FAVAR) to estimate the effects of Chinese monetary policy on the Chinese economy. A FAVAR approach is particularly well-suited to this analysis due to concerns about Chinese data quality, a lack of a long history for many series, and the rapid institutional and structural changes that China has undergone. We find that increases in bank reserve ...
Working Paper Series , Paper 2014-7

Working Paper
The St. Louis Fed DSGE Model
Faria-e-Castro, Miguel (2024-06)
This document contains a technical description of the dynamic stochastic general equilibrium (DSGE) model developed and maintained by the Research Division of the St. Louis Fed as one of its tools for forecasting and policy analysis. The St. Louis Fed model departs from an otherwise standard medium-scale New Keynesian DSGE model along two main dimensions: first, it allows for household heterogeneity, in the form of workers and capitalists, who have different marginal propensities to consume (MPC). Second, it explicitly models a fiscal sector endowed with multiple spending and revenue ...
Working Papers , Paper 2024-014

Discussion Paper
Exploring the TIPS‑Treasury Valuation Puzzle
Roussellet, Guillaume (2024-07-01)
Since the late 1990s, the U.S. Treasury has issued debt in two main forms: nominal bonds, which provide fixed-cash scheduled payments, and Treasury Inflation Protected Securities—or TIPS—which provide the holder with inflation-protected payments that rise with U.S. inflation. At the heart of their relative valuation lie market participants’ expectations of future inflation, an object of interest for academics, policymakers, and investors alike. After briefly reviewing the theoretical and empirical links between TIPS and Treasury yields, this post, based on a recent research paper, ...
Liberty Street Economics , Paper 20240701

Working Paper
Fiscal Multipliers and Financial Crises
Faria-e-Castro, Miguel (2022-01)
I study the effects of the US fiscal policy response to the Great Recession, accounting both for standard tools and financial sector interventions. A nonlinear model calibrated to the US allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been one-third larger in the absence of that response, for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages ...
Working Papers , Paper 2018-023

Working Paper
Piecewise-Linear Approximations and Filtering for DSGE Models with Occasionally Binding Constraints
Schorfheide, Frank; Aruoba, S. Boragan; Cuba-Borda, Pablo A.; Villalvazo, Sergio; Higa-Flores, Kenji (2020-04-06)
We develop an algorithm to construct approximate decision rules that are piecewise-linear and continuous for DSGE models with an occasionally binding constraint. The functional form of the decision rules allows us to derive a conditionally optimal particle ﬁlter (COPF) for the evaluation of the likelihood function that exploits the structure of the solution. We document the accuracy of the likelihood approximation and embed it into a particle Markov chain Monte Carlo algorithm to conduct Bayesian estimation. Compared with a standard bootstrap particle ﬁlter, the COPF signiﬁcantly ...
Working Papers , Paper 20-13

Journal Article
A Model of U.S. Monetary Policy Before and After the Great Recession
Andolfatto, David (2015)
The author studies a simple dynamic general equilibrium monetary model to interpret key macroeconomic developments in the U.S. economy both before and after the Great Recession. In normal times, when the Federal Reserve?s policy rate is above the interest paid on reserves, countercyclical monetary policy works in a textbook manner. When a shock drives the policy rate to the zero lower bound, the economy enters a liquidity-trap scenario in which open market purchases of government securities have no real or nominal effects, apart from expanding the supply of excess reserves in the banking ...
Review , Volume 97 , Issue 3 , Pages 233-56

Working Paper
A Quantitative Analysis of Countercyclical Capital Buffers
Faria-e-Castro, Miguel (2019-03-19)
What are the quantitative effects of countercyclical capital buffers (CCyB)? I study this question in the context of a nonlinear DSGE model with a financial sector that is subject to occasional panics. A calibrated version of the model is combined with US data to estimate sequences of structural shocks, allowing me to study policy counterfactuals. First, I show that raising capital buffers during leverage expansions can reduce the frequency of crises by more than half. Second, I show that lowering capital buffers during a panic can moderate the intensity of the resulting crisis. A ...
Working Papers , Paper 2019-8

Journal Article
Policymakers Have Options for Additional Accommodation: Forward Guidance and Yield Curve Control
Bundick, Brent; Smith, Andrew Lee (2020-07-15)
With the federal funds rate near zero, policymakers are evaluating options for providing additional monetary policy accommodation, including a tool known as yield curve control. We find that despite low nominal Treasury yields, some scope for additional accommodation remains should policymakers deem it appropriate. However, we argue that forward guidance about future interest rates could deliver much, though not all, of the accommodation of yield curve control.
Economic Bulletin

Working Paper
A Unified Framework to Estimate Macroeconomic Stars
Zaman, Saeed (2022-08-15)
We develop a flexible semi-structural time-series model to estimate jointly several macroeconomic "stars" -- i.e., unobserved long-run equilibrium levels of output (and growth rate of output), the unemployment rate, the real rate of interest, productivity growth, price inflation, and wage inflation. The ingredients of the model are in part motivated by economic theory and in part by the empirical features necessitated by the changing economic environment. Following the recent literature on inflation and interest rate modeling, we explicitly model the links between long-run survey expectations ...
Working Papers , Paper 21-23R

Working Paper
Term Structure Modeling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs
Li, Canlin; Wei, Min (2014-03-24)
This paper estimates an arbitrage-free term structure model with both observable yield factors and Treasury and Agency MBS supply factors, and uses it to evaluate the term premium effects of the Federal Reserve's large-scale asset purchase programs. Our estimates show that the first and the second large-scale asset purchase programs and the maturity extension program jointly reduced the 10-year Treasury yield by about 100 basis points.
Finance and Economics Discussion Series , Paper 2014-07

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