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Working Paper
Constructing Fan Charts from the Ragged Edge of SPF Forecasts
We develop a model that permits the estimation of a term structure of both expectations and forecast uncertainty for application to professional forecasts such as the Survey of Professional Forecasters (SPF). Our approach exactly replicates a given data set of predictions from the SPF (or a similar forecast source) without measurement error. Our model captures fixed horizon and fixed-event forecasts, and can accommodate changes in the maximal forecast horizon available from the SPF. The model casts a decomposition of multi-period forecast errors into a sequence of forecast updates that may be ...
Working Paper
Indeterminacy and Imperfect Information
We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less informed agents observe only a strict subset of the full information set. All types of agents form expectations rationally, but agents with limited information need to solve a dynamic signal extraction problem to gather information about the variables they do not observe. We show that for parameter values that imply a unique equilibrium under full ...
Working Paper
Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors
We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee?s Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts.
Working Paper
Managing beliefs about monetary policy under discretion
In models of monetary policy, discretionary policymaking often lacks the ability to manage public beliefs, which explains the theoretical appeal of policy rules and commitment strategies. But as shown in this paper, when a policymaker possesses private information, belief management becomes an integral part of optimal discretion policies and improves their performance. ; Solving for optimal policy in a simple New Keynesian model, this paper shows how discretionary losses are reduced when the policymaker has private information. Furthermore, disinflations are pursued more vigorously, when the ...
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 Paper
Measuring the level and uncertainty of trend inflation
Firmly-anchored inflation expectations are widely viewed as playing a central role in the successful conduct of monetary policy. This paper presents estimates of trend inflation, based on information contained in survey expectations, the term structure of interest rates, and realized inflation rates. My application combines a variety of data sources at the monthly frequency and it can flexibly handle missing data arising from infrequent observations and limited data availability. In order to assess whether inflation expectations are anchored, uncertainty surrounding future changes in trend ...
Discussion Paper
The Expected Real Interest Rate in the Long Run : Time Series Evidence with the Effective Lower Bound
In response to the global financial crisis, the Federal Open Market Committee lowered the target for the federal funds rate to a range of 0 to 25 basis points in December 2008, and maintained that target range until the end of 2015. Over that same period, longer-term interest rates in the United States were at historically low levels.
Working Paper
Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors
We estimate uncertainty measures for point forecasts obtained from survey data, pooling information embedded in observed forecast errors for different forecast horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. We apply our method to forecasts for various macroeconomic variables from the Survey of Professional Forecasters. Compared to constant variance approaches, our stochastic volatility model improves the accuracy of uncertainty measures for survey forecasts. Our method can also be applied to ...
Working Paper
What is the Predictive Value of SPF Point and Density Forecasts?
This paper presents a new approach to combining the information in point and density forecasts from the Survey of Professional Forecasters (SPF) and assesses the incremental value of the density forecasts. Our starting point is a model, developed in companion work, that constructs quarterly term structures of expectations and uncertainty from SPF point forecasts for quarterly fixed horizons and annual fixed events. We then employ entropic tilting to bring the density forecast information contained in the SPF’s probability bins to bear on the model estimates. In a novel application of ...
Working Paper
Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors
We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee's Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts.