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Keywords:skewness 

Working Paper
Asset Return Dynamics under Habits and Bad-Environment Good-Environment Fundamentals

We introduce a "bad environment-good environment" (BEGE) technology for consumption growth in a consumption-based asset pricing model with external habit formation. The model generates realistic non-Gaussian features of consumption growth and fits standard salient features of asset prices including the means and volatilities of equity returns and a low risk free rate. BEGE dynamics additionally allow the model to generate realistic properties of equity index options prices, and their comovements with the macroeconomic outlook. In particular, when option implied volatility is high, as ...
Finance and Economics Discussion Series , Paper 2015-53

Working Paper
Improving Inflation Forecasts Using Robust Measures

Both theory and extant empirical evidence suggest that the cross-sectional asymmetry across disaggregated price indexes might be useful in the forecasting of aggregate inflation. Trimmed-mean inflation estimators have been shown to be useful devices for forecasting headline PCE inflation. But does this stem from their ability to signal the underlying trend, or does it mainly come from their implicit signaling of asymmetry (when included alongside headline PCE)? We address this question by augmenting a “hard to beat” benchmark inflation forecasting model of headline PCE price inflation ...
Working Papers , Paper 22-23

Report
What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Dynamics?

We study individual earnings dynamics over the life cycle using panel data on millions of U.S. workers. Using nonparametric methods, we first show that the distribution of earnings changes exhibits substantial deviations from lognormality, such as negative skewness and very high kurtosis. Further, the extent of these nonnormalities varies significantly with age and earnings level, peaking around age 50 and between the 70th and 90th percentiles of the earnings distribution. Second, we estimate nonparametric impulse response functions and find important asymmetries: positive changes for ...
Staff Reports , Paper 710

Working Paper
Dissecting Idiosyncratic Earnings Risk

This paper examines whether nonlinear and non-Gaussian features of earnings dynamics are caused by hours or hourly wages. Our findings from the Norwegian administrative and survey data are as follows: (i) Nonlinear mean reversion in earnings is driven by the dynamics of hours worked rather than wages since wage dynamics are close to linear, while hours dynamics are nonlinear—negative changes to hours are transitory, while positive changes are persistent. (ii) Large earnings changes are driven equally by hours and wages, whereas small changes are associated mainly with wage shocks. (iii) ...
Working Papers , Paper 2022-024

Working Paper
Dissecting Idiosyncratic Earnings Risk

This paper examines whether nonlinear and non-Gaussian features of earnings dynamics are caused by hours or hourly wages. Our findings from the Norwegian administrative and survey data are as follows: (i) Nonlinear mean reversion in earnings is driven by the dynamics of hours worked rather than wages since wage dynamics are close to linear, while hours dynamics are nonlinear—negative changes to hours are transitory, while positive changes are persistent. (ii) Large earnings changes are driven equally by hours and wages, whereas small changes are associated mainly with wage shocks. (iii) ...
Working Papers , Paper 2022-024

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