Search Results
Speech
Monetary rules: theory and practice
Frameworks for Central Banking in the Next Century Policy Conference, Hoover Institution, Stanford, CA President Plosser discusses his views on the benefits of a systematic, rule-like approach to monetary policy. He gave related remarks on May 28, 2014, at the 2014 Bank of Japan?Institute for Monetary and Economic Studies Conference.
Working Paper
Risk Management in Monetary Policymaking: The 1994-95 Fed Tightening Episode
The 1994-95 Fed tightening episode was one of the most notable in the Fed’s history. First, the FOMC raised the policy rate by 300 basis points in a year, even though headline and core inflation were trending lower prior to the liftoff that occurred in February 1994. Second, the Fed’s actions caught the Treasury market by surprise, triggering a sharp decline in long-term bond prices. Third, Fed Chair Alan Greenspan and the Federal Open Market Committee were regularly surprised that inflation was not rising by more than the forecasts suggested during the episode. This article presents some ...
Discussion Paper
The Central Banking Beauty Contest
Expectations can play a significant role in driving economic outcomes, with central banks factoring market sentiment into policy decisions and market participants forming their own assumptions about monetary policy. But how well do central banks understand the expectations of market participants—and vice versa? Our model, developed in a recent paper, features a dynamic game between (i) a monetary authority that cannot commit to an inflation target and (ii) a set of market participants that understand the incentives created by that credibility problem. In this post, we describe the game, a ...
Journal Article
Examining the Performance of FOMC Inflation Forecasts
Calendar-year inflation forecasts from Federal Open Market Committee meeting participants typically start near 2% and then are revised in response to incoming data. Before the pandemic when actual inflation was mostly below 2%, participants consistently lowered their forecasts over time. From 2021 onward when inflation surged to 40-year highs, participants consistently raised their forecasts over time. In both periods, cumulative forecast revisions help predict the size of subsequent forecast errors. This implies that the typical inflation forecast was slow to adjust to new information that ...
Journal Article
Forecasts Point to Cautious Optimism for Near-term Rebound
Forecasts suggest the economy is on the road to recovery, though it could take a year or more for activity to return to pre-pandemic levels.
Discussion Paper
A Bayesian VAR Model Perspective on the Lagged Effect of Monetary Policy
Over the last few years, the U.S. economy has experienced unusually high inflation and an unprecedented pace of monetary policy tightening. While inflation has fallen recently, it remains above target, and the economy continues to expand at a robust pace. Does the resilience of the U.S. economy imply that monetary policy has been ineffectual? Or does it reflect that policy acts with “long and variable lags” and so we haven’t yet observed the full effect of the monetary tightening that has already taken place? Using a Bayesian vector autoregressive (BVAR) model, we show that economic ...
Working Paper
Addressing COVID-19 Outliers in BVARs with Stochastic Volatility
Incoming data in 2020 posed sizable challenges for the use of VARs in economic analysis: Enormous movements in a number of series have had strong effects on parameters and forecasts constructed with standard VAR methods. We propose the use of VAR models with time-varying volatility that include a treatment of the COVID extremes as outlier observations. Typical VARs with time-varying volatility assume changes in uncertainty to be highly persistent. Instead, we adopt an outlier-adjusted stochastic volatility (SV) model for VAR residuals that combines transitory and persistent changes in ...
Working Paper
A Hitchhiker’s Guide to Empirical Macro Models
This paper describes a package which uses MATLAB functions and routines to estimate VARs, local projections and other models with classical or Bayesian methods. The toolbox allows a researcher to conduct inference under various prior assumptions on the parameters, to produce point and density forecasts, to measure spillovers and to trace out the causal effect of shocks using a number of identification schemes. The toolbox is equipped to handle missing observations, mixed frequencies and time series with large cross-section information (e.g. panels of VAR and FAVAR). It also contains a number ...
Newsletter
Economic Outlook Symposium: Summary of 2014 Results and 2015 Forecasts
According to participants in the Chicago Fed?s annual Economic Outlook Symposium, the U.S. economy is forecasted to grow at a pace slightly above average in 2015, with inflation ticking lower and the unemployment rate edging down.
Challenges in Nowcasting GDP Growth
Real gross domestic product (GDP) declined at an annualized rate of 4.8 percent in the first quarter, according to the first estimate from the U.S. Bureau of Economic Analysis (BEA), 3.8 percentage points more than the decline anticipated by the Atlanta Fed's final GDPNow model projection. Why was the error, which was easily the model's largest on record for final GDPNow forecasts, so big? Chart 1 looks at GDPNow's forecast errors since the model went live in mid-2014 and breaks them down into forecast errors for the various subcomponents' contributions to GDP growth.