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Jel Classification:E47 

Working Paper
Reconsidering the Fed’s Forecasting Advantage

Previous studies show the Fed has a forecast advantage over the private sector, either because it devotes more resources to forecasting or because it has an informational advantage in knowing the path of future monetary policy. We evaluate the Fed’s forecast advantage to determine how much of it results from the Fed’s knowledge of the conditioning path. We develop two tests—an instrumental variable encompassing test and a path-dependent encompassing test—to equalize the Fed’s information set with the private sector’s. We find that, generally, the Fed does not encompass the private ...
Working Papers , Paper 2022-001

Journal Article
To Improve the Accuracy of GDP Growth Forecasts, Add Financial Market Conditions

More timely data on current macroeconomic conditions can reduce uncertainty about forecasts, helping policymakers mitigate the risk of extreme economic outcomes. We find that incorporating financial market conditions along with current macroeconomic conditions improves the forecast accuracy of future GDP growth. Forecasts based only on current macroeconomic conditions eventually converge to those incorporating financial market conditions, lending further support to this approach.
Economic Bulletin , Issue June 2, 2021 , Pages 5

Working Paper
Reconsidering the Fed’s Forecasting Advantage

Previous studies show the Fed has a forecast advantage over the private sector, either because it devotes more resources to forecasting or because it has an informational advantage in knowing the path of future monetary policy. We evaluate the Fed’s forecast advantage to determine how much of it results from the Fed’s knowledge of the conditioning path. We develop two tests—an instrumental variable encompassing test and a path-dependent encompassing test—to equalize the Fed’s information set with the private sector’s. We find that, generally, the Fed does not encompass the private ...
Working Papers , Paper 2022-001

Discussion Paper
Assessing monetary accommodation: a simple empirical model of monetary policy and its implications for unemployment and inflation

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
Financial Business Cycles

Using Bayesian methods, I estimate a DSGE model where a recession is initiated by losses suffered by banks and exacerbated by their inability to extend credit to the real sector. The event triggering the recession has the workings of a redistribution shock: a small sector of the economy -- borrowers who use their home as collateral -- defaults on their loans. When banks hold little equity in excess of regulatory requirements, the losses require them to react immediately, either by recapitalizing or by deleveraging. By deleveraging, banks transform the initial shock into a credit crunch, and, ...
International Finance Discussion Papers , Paper 1116

Working Paper
Dividend Momentum and Stock Return Predictability: A Bayesian Approach

A long tradition in macro finance studies the joint dynamics of aggregate stock returns and dividends using vector autoregressions (VARs), imposing the cross-equation restrictions implied by the Campbell-Shiller (CS) identity to sharpen inference. We take a Bayesian perspective and develop methods to draw from any posterior distribution of a VAR that encodes a priori skepticism about large amounts of return predictability while imposing the CS restrictions. In doing so, we show how a common empirical practice of omitting dividend growth from the system amounts to imposing the extra ...
FRB Atlanta Working Paper , Paper 2021-25

Working Paper
International Evidence on Extending Sovereign Debt Maturities

Portfolio diversification is as important to debt management as it is to asset management. In this paper, we focus on diversification of sovereign debt issuance by examining the extension of the maximum maturity of issued debt. In particular, we examine the potential costs to the U.S. Treasury of introducing 50-year bonds as a financing option. Based on evidence from foreign government bond markets with such long-term debt, our results suggest that a 50-year Treasury bond would likely trade at an average yield that is at most 20 basis points above that of a 30-year bond. Our results based on ...
Working Paper Series , Paper 2021-19

Working Paper
The zero lower bound and endogenous uncertainty

This paper documents a strong negative correlation between macroeconomic uncertainty and real GDP growth since the Great Recession. Prior to that event the correlation was weak, even when conditioning on recessions. At the same time, many central banks reduced their policy rate to its zero lower bound (ZLB), which we contend contributed to the strong correlation between macroeconomic uncertainty and real GDP growth. To test that theory, we use a model where the ZLB occasionally binds. The model roughly matches the correlation in the data?away from the ZLB the correlation is weak but strongly ...
Working Papers , Paper 1405

Working Paper
Surveys of Professionals

This chapter provides an overview of surveys of professional forecasters, with a focus on the U.S. Survey of Professional Forecasters and the European Central Bank Survey of Professional Forecasters. A distinguishing feature of these surveys is that they collect point and density forecasts and make the data publicly available. We discuss their structure, issues involved in using the data, and the construction of measures such as disagreement and uncertainty at the aggregate and individual levels. Our review also summarizes the findings of studies exploring issues such as the alignment of ...
Working Papers , Paper 22-13

Report
Revisiting useful approaches to data-rich macroeconomic forecasting

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

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