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Working Paper
Searching for Hysteresis
Working Paper
Monetary Policy, Self-Fulfilling Expectations and the U.S. Business Cycle
I estimate a medium-scale New-Keynesian model and relax the conventional assumption that the central bank adopted an active monetary policy by pursuing inflation and output stability over the entire post-war period. Even after accounting for a rich structure, I find that monetary policy was passive prior to the Volcker disinflation. Sunspot shocks did not represent quantitatively relevant sources of volatility. By contrast, such passive interest rate policy accommodated fundamental productivity and cost shocks that de-anchored inflation expectations, propagated via self-fulfilling inflation ...
Working Paper
Using stochastic hierarchical aggregation constraints to nowcast regional economic aggregates
Recent decades have seen advances in using econometric methods to produce more timely and higher-frequency estimates of economic activity at the national level, enabling better tracking of the economy in real time. These advances have not generally been replicated at the sub–national level, likely because of the empirical challenges that nowcasting at a regional level presents, notably, the short time series of available data, changes in data frequency over time, and the hierarchical structure of the data. This paper develops a mixed– frequency Bayesian VAR model to address common ...
Working Paper
Reconciled Estimates of Monthly GDP in the US
In the US, income and expenditure-side estimates of GDP (GDPI and GDPE) measure "true" GDP with error and are available at a quarterly frequency. Methods exist for using these proxies to produce reconciled quarterly estimates of true GDP. In this paper, we extend these methods to provide reconciled historical true GDP estimates at a monthly frequency. We do this using a Bayesian mixed frequency vector autoregression (MF-VAR) involving GDPE, GDPI, unobserved true GDP, and monthly indicators of short-term economic activity. Our MF-VAR imposes restrictions that reflect a measurement-error ...
Working Paper
Specification Choices in Quantile Regression for Empirical Macroeconomics
Quantile regression has become widely used in empirical macroeconomics, in particular for estimating and forecasting tail risks to macroeconomic indicators. In this paper we examine various choices in the specification of quantile regressions for macro applications, for example, choices related to how and to what extent to include shrinkage, and whether to apply shrinkage in a classical or Bayesian framework. We focus on forecasting accuracy, using for evaluation both quantile scores and quantile-weighted continuous ranked probability scores at a range of quantiles spanning from the left to ...
Working Paper
(Re-)Connecting Inflation and the Labor Market: A Tale of Two Curves
We propose an empirical framework in which shocks to worker reallocation, aggregate activity, and labor supply drive the joint dynamics of labor market outcomes and inflation, and where reallocation shocks take two forms depending on whether they result from quits or from job loss. In order to link our approach with previous theoretical and empirical work, we extend the procedure for estimating a Bayesian sign-restricted VAR so that priors can be directly imposed on the VAR's impact matrix. We find that structural shocks that shift the Beveridge curve have different effects on inflation. ...
Working Paper
Financial Nowcasts and Their Usefulness in Macroeconomic Forecasting
Financial data often contain information that is helpful for macroeconomic forecasting, while multistep forecast accuracy also benefits by incorporating good nowcasts of macroeconomic variables. This paper considers the role of nowcasts of financial variables in making conditional forecasts of real and nominal macroeconomic variables using standard quarterly Bayesian vector autoregressions (BVARs). For nowcasting the quarterly value of a variety of financial variables, we document that the average of the available daily data and a daily random walk forecast to fill in the missing days in the ...
Working Paper
Financial Frictions, Financial Shocks, and Aggregate Volatility
I revisit the Great Inflation and the Great Moderation. I document an immoderation in corporate balance sheet variables so that the Great Moderation is best described as a period of divergent patterns in volatilities for real, nominal and financial variables. A model with time-varying financial frictions and financial shocks allowing for structural breaks in the size of shocks and the institutional framework is estimated. The paper shows that (i) while the Great Inflation was driven by bad luck, the Great Moderation is mostly due to better institutions; (ii) the slowdown in credit spreads is ...
Report
Time-Varying Structural Vector Autoregressions and Monetary Policy: a Corrigendum
This note corrects a mistake in the estimation algorithm of the time-varying structural vector autoregression model of Primiceri (2005) and shows how to correctly apply the procedure of Kim, Shephard, and Chib (1998) to the estimation of VAR, DSGE, factor, and unobserved components models with stochastic volatility. Relative to Primiceri (2005), the main difference in the new algorithm is the ordering of the various Markov Chain Monte Carlo steps, with each individual step remaining the same.
Working Paper
Financial Frictions, Financial Shocks, and Aggregate Volatility
The Great Moderation in the U.S. economy was accompanied by a widespread increase in the volatility of financial variables. We explore the sources of the divergent patterns in volatilities by estimating a model with time-varying financial rigidities subject to structural breaks in the size of the exogenous processes and two institutional characteristics: the coefficients in the monetary policy rule and the severity of the financial rigidity at the steady state. To do so, we generalize the estimation methodology developed by Curdia and Finocchiaro (2013). Institutional changes are key in ...