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Working Paper
Time-varying Uncertainty of the Federal Reserve’s Output Gap Estimate
A factor stochastic volatility model estimates the common component to estimates of the output gap produced by the staff of the Federal Reserve, its time-varying volatility, and time-varying, horizon-specific forecast uncertainty. Output gap estimates are very uncertain, even well after the fact, especially at business cycle turning points. However, the common component of the output gap estimates is clearly procyclical, and innovations to the common factor produce persistent positive effects on economic activity. Output gaps estimated by the Congressional Budget Office have very similar ...
Journal Article
Global effects of U.S. monetary policy: is unconventional policy different?
U.S. monetary policy can affect asset prices both in the United States and outside of the country as investors arbitrage away price differentials between assets with similar risk/reward characteristics. Since late 2008, however, the conventional tool for monetary policy in the United States?the federal funds rate?has been near zero. As a result, the Federal Reserve has turned to unconventional monetary policies to provide additional accommodation. These unconventional policies may have altered the response of asset prices to Fed policy. Berge and Cao show that changes in U.S. monetary policy ...
Working Paper
Which Output Gap Estimates Are Stable in Real Time and Why?
Output gaps that are estimated in real time can differ substantially from those estimated after the fact. We aim to understand the real-time instability of output gap estimates by comparing a suite of reduced-form models. We propose a new statistical decomposition and find that including a Okun’s law relationship improves real-time stability by alleviating the end-point problem. Models that include the unemployment rate also produce output gaps with relevant economic content. However, we find that no model of the output gap is clearly superior to the others along each metric we consider.
Working Paper
A chronology of turning points in economic activity: Spain 1850-2011
This paper codifies in a systematic and transparent way a historical chronology of business cycle turning points for Spain reaching back to 1850 at annual frequency, and 1939 at monthly frequency. Such an exercise would be incomplete without assessing the new chronology itself and against others ?this we do with modern statistical tools of signal detection theory. We also use these tools to determine which of several existing economic activity indexes provide a better signal on the underlying state of the economy. We conclude by evaluating candidate leading indicators and hence construct ...
Journal Article
The global impact of U.S. monetary policy
Travis Berge and Guangye Cao assess the effects of U.S. monetary policy on asset prices in 50 countries. They find a similar reaction of asset prices to conventional and unconventional monetary policies.
Working Paper
Duration Dependence, Monetary Policy Asymmetries, and the Business Cycle
We produce business cycle chronologies for U.S. states and evaluate the factors that change the probability of moving from one phase to another. We find strong evidence for positive duration dependence in all business cycle phases but find that the effect is modest relative to other state- and national-level factors. Monetary policy shocks also have a strong influence on the transition probabilities in a highly asymmetric way. The effect of policy shocks depends on the current state of the cycle as well as the sign and size of the shock.
Working Paper
Understanding Survey Based Inflation Expectations
Survey based measures of inflation expectations are not informationally efficient yet carry important information about future inflation. This paper explores the economic significance of informational inefficiencies of survey expectations. A model selection algorithm is applied to the inflation expectations of households and professionals using a large panel of macroeconomic data. The expectations of professionals are best described by different indicators than the expectations of households. A forecast experiment finds that it is difficult to exploit informational inefficiencies to improve ...
Working Paper
A chronology of turning points in economic activity: Spain, 1850-2011
This paper codifies in a systematic and transparent way a historical chronology of business cycle turning points for Spain reaching back to 1850 at annual frequency, and 1939 at monthly frequency. Such an exercise would be incomplete without assessing the new chronology itself and against others ?this we do with modern statistical tools of signal detection theory. We also use these tools to determine which of several existing economic activity indexes provide a better signal on the underlying state of the economy. We conclude by evaluating candidate leading indicators and hence construct ...
Working Paper
A chronology of international business cycles through non-parametric decoding
This paper introduces a new empirical strategy for the characterization of business cycles. It combines non-parametric decoding methods that classify a series into expansions and recessions but does not require specification of the underlying stochastic process generating the data. It then uses network analysis to combine the signals obtained from different economic indicators to generate a unique chronology. These methods generate a record of peak and trough dates comparable, and in one sense superior, to the NBER's own chronology. The methods are then applied to 22 OECD countries to obtain ...
Journal Article
Future recession risks: an update
In 2010, statistical experiments based on components of the Conference Board?s Leading Economic Index showed a significant possibility of a U.S. recession over a 24-month period. Since then, the European sovereign debt crisis has aggravated international threats to the U.S. economy. Moreover, the Japanese earthquake and tsunami demonstrated that the U.S. economy is vulnerable to outside disruptions. Updated forecasts suggest that the probability of a U.S. recession has remained elevated and may have increased over the past year, in part because of foreign financial and economic crises.