Search Results
Report
Sectoral price facts in a sticky-price model
We develop a multi-sector sticky-price DSGE (dynamic stochastic general equilibrium) model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages induce across-sector pricing complementarities that contribute to a slow response of prices to aggregate shocks. In turn, input-market segmentation at the sectoral level induces within-sector pricing substitutability, which helps the model deliver a fast response of prices to sector-specific shocks. Estimating the factor-augmented vector autoregression specification of ...
Report
Inflation dynamics in a small open-economy model under inflation targeting: some evidence from Chile
This paper estimates a small open-economy dynamic stochastic general equilibrium (DSGE) model, specified along the lines of Gal and Monacelli (2005) and Lubik and Schorfheide (2007), using Chilean data for the full inflation-targeting period of 1999 to 2007. We study the specification of the policy rule followed by the Central Bank of Chile, the dynamic response of inflation to domestic and external shocks, and the change in these dynamics under different policy parameters. We use the DSGE-VAR methodology from our earlier work (2007) to assess the robustness of the conclusion to the presence ...
Working Paper
The Chicago Fed DSGE model
The Chicago Fed dynamic stochastic general equilibrium (DSGE) model is used for policy analysis and forecasting at the Federal Reserve Bank of Chicago. This article describes its specification and estimation, its dynamic characteristics and how it is used to forecast the US economy. In many respects the model resembles other medium scale New Keynesian frameworks, but there are several features which distinguish it: the monetary policy rule includes forward guidance, productivity is driven by neutral and investment specific technical change, multiple price indices identify inflation and there ...
Working Paper
Business cycles and remittances: can the Beveridge-Nelson decomposition provide new evidence?
In this paper, I analyze the business cycle properties of remittances and output series for three pairs of countries: United States-Mexico, United States-El Salvador, and Germany-Turkey. Using an unobserved components state-space model (via the Beveridge-Nelson decomposition), I decompose the remittances and output series into stochastic permanent and cyclical components. I then use the resulting stationary cyclical components to estimate co-movements between remittances and output series. Empirical results indicate that remittances are countercyclical with all the home countries: Mexico, El ...
Report
Monetary regime change and business cycles
This paper analyzes how changes in monetary policy regimes influence the business cycle in a small open economy. We estimate a dynamic stochastic general equilibrium (DSGE) model on Swedish data, explicitly taking into account the 1993 monetary regime change, from exchange rate targeting to inflation targeting. The results confirm that monetary policy reacted primarily to exchange rate movements in the target zone and to inflation in the inflation-targeting regime. Devaluation expectations were the principal source of volatility in the target zone period. In the inflation-targeting period, ...
Report
The macroeconomic effects of large-scale asset purchase programs
The effects of asset purchase programs on macroeconomic variables are likely to be moderate. We reach this conclusion after simulating the impact of the Federal Reserve?s second large-scale asset purchase program (LSAP II) in a DSGE model enriched with a preferred habitat framework and estimated on U.S. data. Our simulations suggest that such a program increases GDP growth by less than half a percentage point, although the effect on the level of GDP is very persistent. The program?s marginal contribution to inflation is very small. One key reason for our findings is that we estimate a small ...
Report
DSGE model-based forecasting
Dynamic stochastic general equilibrium (DSGE) models use modern macroeconomic theory to explain and predict comovements of aggregate time series over the business cycle and to perform policy analysis. We explain how to use DSGE models for all three purposes?forecasting, story telling, and policy experiments?and review their forecasting record. We also provide our own real-time assessment of the forecasting performance of the Smets and Wouters (2007) model data up to 2011, compare it with Blue Chip and Greenbook forecasts, and show how it changes as we augment the standard set of observables ...
Report
The term structure of inflation expectations
We present estimates of the term structure of inflation expectations, derived from an affine model of real and nominal yield curves. The model features stochastic covariation of inflation with the real pricing kernel, enabling us to extract a time-varying inflation risk premium. We fit the model not only to yields, but also to the yields' variance-covariance matrix, thus increasing identification power. We find that model-implied inflation expectations can differ substantially from break-even inflation rates when market volatility is high. Our model's ability to be updated weekly makes it ...
Working Paper
Reputation, career concerns, and job assignments
Does a worker who had a successful career have stronger or weaker incentives to manipulate his reputation than a worker who performed poorly? This paper presents a tractable model that allows us to study career concerns when the strength of a worker?s incentives depends on his employment history (the history of his past actions, jobs, and performances). More specifically, the paper incorporates standard job assignments into the main model in Holmstrom?s (1999) seminal paper on career concerns. Equilibrium wages, equilibrium job assignments, and the strength of career-concern incentives are ...
Working Paper
Estimation and evaluation of DSGE models: progress and challenges
Estimated dynamic stochastic equilibrium (DSGE) models are now widely used for empirical research in macroeconomics as well as for quantitative policy analysis and forecasting at central banks around the world. This paper reviews recent advances in the estimation and evaluation of DSGE models, discusses current challenges, and provides avenues for future research.