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A Bayesian Approach to Inference on Probabilistic Surveys
Del Negro, Marco; Casarin, Roberto; Bassetti, Federico (2022-07-01)
We propose a nonparametric Bayesian approach for conducting inference on probabilistic surveys. We use this approach to study whether U.S. Survey of Professional Forecasters density projections for output growth and inflation are consistent with the noisy rational expectations hypothesis. We find that in contrast to theory, for horizons close to two years, there is no relationship whatsoever between subjective uncertainty and forecast accuracy for output growth density projections, both across forecasters and over time, and only a mild relationship for inflation projections. As the horizon ...
Staff Reports , Paper 1025

Working Paper
Fiscal Implications of the Federal Reserve's Balance Sheet Normalization
Grasing, Jamie; Rosa, Carlo; Frame, W. Scott; Malin, Benjamin A.; Cavallo, Michele; Del Negro, Marco (2018-01-05)
The paper surveys the recent literature on the fiscal implications of central bank balance sheets, with a special focus on political economy issues. It then presents the results of simulations that describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury and, more broadly, on the government's overall fiscal position. We find that reducing longer-run reserve balances from $2.3 trillion (roughly the current amount) to $1 trillion reduces the likelihood of posting a quarterly net loss in the future from 30 ...
Working Papers , Paper 747

Discussion Paper
Why Are Interest Rates So Low?
Cocci, Matthew; Shahanaghi, Sara; Giannoni, Marc; Del Negro, Marco; Smith, Micah (2015-05-20)
In a recent series of blog posts, the former Chairman of the Federal Reserve System, Ben Bernanke, has asked the question: 'Why are interest rates so low?' (See part 1, part 2, and part 3.) He refers, of course, to the fact that the U.S. government is able to borrow at an annualized rate of around 2 percent for ten years, or around 3 percent for thirty years. If you expect that inflation is going to be on average 2 percent over the next ten or thirty years, this implies that the U.S. government can borrow at real rates of interest between 0 and 1 percent at the ten- and thirty-year ...
Liberty Street Economics , Paper 20150520

Discussion Paper
The Post-Pandemic r*
Baker, Katie; Casey, Logan; Del Negro, Marco; Gleich, Aidan; Nallamotu, Ramya (2023-08-09)
The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures, with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The whole term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This two-post series covers the evolution of both in the aftermath of the pandemic, with today’s post focusing especially ...
Liberty Street Economics , Paper 20230809

Discussion Paper
The Effect of Monetary and Fiscal Policy on Inequality
Del Negro, Marco; Dogra, Keshav; Pilossoph, Laura (2022-01-06)
How does accounting for households’ heterogeneity—and in particular inequality in income and wealth—change our approach to macroeconomics? What are the effects of monetary and fiscal policy on inequality, and what did we learn in this regard from the COVID-19 pandemic? What are the implications of inequality for the transmission of monetary policy, and its ability to stabilize the economy? These are some of the questions that were debated at a recent symposium on “Heterogeneity in Macroeconomics: Implications for Policy” organized by the new Applied Macroeconomics and Econometrics ...
Liberty Street Economics , Paper 20220106

Report
When does a central bank’s balance sheet require fiscal support?
Sims, Christopher A.; Del Negro, Marco (2014-11-01)
Using a simple general equilibrium model, we argue that it would be appropriate for a central bank with a large balance sheet composed of long-duration nominal assets to have access to, and be willing to ask for, support for its balance sheet by the fiscal authority. Otherwise its ability to control inflation may be at risk. This need for balance sheet support?a within-government transaction?is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank?s balance sheet is merged with that of the rest of the government.
Staff Reports , Paper 701

Report
The FRBNY DSGE model
Tambalotti, Andrea; Eusepi, Stefano; Sbordone, Argia M.; Linder, M. Henry; Del Negro, Marco; Hasegawa, Raiden B.; Cocci, Matthew; Giannoni, Marc (2013-10-01)
The goal of this paper is to present the dynamic stochastic general equilibrium (DSGE) model developed and used at the Federal Reserve Bank of New York. The paper describes how the model works, how it is estimated, how it rationalizes past history, including the Great Recession, and how it is used for forecasting and policy analysis.
Staff Reports , Paper 647

Discussion Paper
A DSGE Perspective on Safety, Liquidity, and Low Interest Rates
Tambalotti, Andrea; Giannoni, Marc; Gupta, Abhi; Giannone, Domenico; Li, Pearl; Del Negro, Marco (2018-02-07)
The preceding two posts in this series documented that interest rates on safe and liquid assets, such as U.S. Treasury securities, have declined significantly in the past twenty years. Of course, short-term interest rates in the United States are under the control of the Federal Reserve, at least in nominal terms. So it is legitimate to ask, To what extent is this decline driven by the Federal Reserve’s interest rate policy? This post addresses this question by coupling the results presented in the previous post with those obtained from an estimated dynamic stochastic general equilibrium ...
Liberty Street Economics , Paper 20180207

Working Paper
The Financial (In)Stability Real Interest Rate, R**
Del Negro, Marco; Benigno, Gianluca; Akinci, Ozge; Queraltó, Albert (2021-01-29)
We introduce the concept of financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint being binding. Increasing imbalances in the financial sector measured by an increase in leverage are accompanied by a lower threshold that could trigger financial instability events. We also construct a theoretical implied financial condition index and show how it is related to the gap between the natural ...
International Finance Discussion Papers , Paper 1308

Discussion Paper
Central Bank Solvency and Inflation
Del Negro, Marco; Sims, Christopher A. (2015-04-01)
The monetary base in the United States, defined as currency plus bank reserves, grew from about $800 billion in 2008 to $2 trillion in 2012, and to roughly $4 trillion at the end of 2014 (see chart below). Some commentators have viewed this increase in the monetary base as a sure harbinger of inflation. For example, one economist wrote that this “unprecedented expansion of the money supply could make the ’70s look benign.” These predictions of inflation rest on the monetarist argument that nominal income is proportional to the money supply. The fact that the money supply has expanded ...
Liberty Street Economics , Paper 20150401

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