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Keywords:stochastic volatility 

Working Paper
Measurement Errors and Monetary Policy: Then and Now

Should policymakers and applied macroeconomists worry about the difference between real-time and final data? We tackle this question by using a VAR with time-varying parameters and stochastic volatility to show that the distinctionbetween real-time data and final data matters for the impact of monetary policy shocks: The impact on final data is substantially and systematically different (in particular, larger in magnitude for different measures of real activity) from theimpact on real-time data. These differences have persisted over the last 40 years and should be taken into account when ...
Working Paper , Paper 15-13

Working Paper
Assessing International Commonality in Macroeconomic Uncertainty and Its Effects

This paper uses a large vector autoregression (VAR) to measure international macroeconomic uncertainty and its effects on major economies, using two datasets, one with GDP growth rates for 19 industrialized countries and the other with a larger set of macroeconomic indicators for the U.S., euro area, and U.K. Using basic factor model diagnostics, we first provide evidence of significant commonality in international macroeconomic volatility, with one common factor accounting for strong comovement across economies and variables. We then turn to measuring uncertainty and its effects with a large ...
Working Papers (Old Series) , Paper 1803

Working Paper
Measuring Uncertainty and Its Impact on the Economy

We propose a new framework for measuring uncertainty and its effects on the economy, based on a large VAR model with errors whose stochastic volatility is driven by two common unobservable factors, representing aggregate macroeconomic and financial uncertainty. The uncertainty measures can also influence the levels of the variables so that, contrary to most existing measures, ours reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Moreover, identification of the uncertainty shocks is ...
Working Papers (Old Series) , Paper 1622

Working Paper
A New Way to Quantify the Effect of Uncertainty

This paper develops a new way to quantify the effect of uncertainty and other higher-order moments. First, we estimate a nonlinear model using Bayesian methods with data on uncertainty, in addition to common macro time series. This key step allows us to decompose the exogenous and endogenous sources of uncertainty, calculate the effect of volatility following the cost of business cycles literature, and generate data-driven policy functions for any higherorder moment. Second, we use the Euler equation to analytically decompose consumption into several terms--expected consumption, the ex-ante ...
Working Papers , Paper 1705

Working Paper
A Class of Time-Varying Parameter Structural VARs for Inference under Exact or Set Identification

This paper develops a new class of structural vector autoregressions (SVARs) with time-varying parameters, which I call a drifting SVAR (DSVAR). The DSVAR is the first structural time-varying parameter model to allow for internally consistent probabilistic inference under exact?or set?identification, nesting the widely used SVAR framework as a special case. I prove that the DSVAR implies a reduced-form representation, from which structural inference can proceed similarly to the widely used two-step approach for SVARs: beginning with estimation of a reduced form and then choosing among ...
Working Papers (Old Series) , Paper 1811

Working Paper
A New Model of Inflation, Trend Inflation, and Long-Run Inflation Expectations

A knowledge of the level of trend inflation is key to many current policy decisions, and several methods of estimating trend inflation exist. This paper adds to the growing literature which uses survey-based long-run forecasts of inflation to estimate trend inflation. We develop a bivariate model of inflation and long-run forecasts of inflation which allows for the estimation of the link between trend inflation and the long-run forecast. Thus, our model allows for the possibilities that long-run forecasts taken from surveys can be equated with trend inflation, that the two are completely ...
Working Papers (Old Series) , Paper 1520

Rare shocks, great recessions

We estimate a DSGE model where rare large shocks can occur, by replacing the commonly used Gaussian assumption with a Student?s t distribution. Results from the Smets and Wouters (2007) model estimated on the usual set of macroeconomic time series over the 1964-2011 period indicate that 1) the Student?s t specification is strongly favored by the data even when we allow for low-frequency variation in the volatility of the shocks and 2) the estimated degrees of freedom are quite low for several shocks that drive U.S. business cycles, implying an important role for rare large shocks. This result ...
Staff Reports , Paper 585

Working Paper
Sequential Bayesian Inference for Vector Autoregressions with Stochastic Volatility

We develop a sequential Monte Carlo (SMC) algorithm for Bayesian inference in vector autoregressions with stochastic volatility (VAR-SV). The algorithm builds particle approximations to the sequence of the model’s posteriors, adapting the particles from one approximation to the next as the window of available data expands. The parallelizability of the algorithm’s computations allows the adaptations to occur rapidly. Our particular algorithm exploits the ability to marginalize many parameters from the posterior analytically and embeds a known Markov chain Monte Carlo (MCMC) algorithm for ...
Working Papers , Paper 201929

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 Papers , Paper 2021-02

Working Paper
Does Realized Volatility Help Bond Yield Density Prediction?

We suggest using "realized volatility" as a volatility proxy to aid in model-based multivariate bond yield density forecasting. To do so, we develop a general estimation approach to incorporate volatility proxy information into dynamic factor models with stochastic volatility. The resulting model parameter estimates are highly efficient, which one hopes would translate into superior predictive performance. We explore this conjecture in the context of density prediction of U.S. bond yields by incorporating realized volatility into a dynamic Nelson-Siegel (DNS) model with stochastic ...
Finance and Economics Discussion Series , Paper 2015-115


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