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Journal Article
Tracking U.S. Real GDP Growth During the Pandemic
During this fast-moving pandemic, it's vital that policymakers can rely on real-time estimates of real GDP growth. Jonas Arias and Minchul Shin show us how it's done.
Working Paper
Macroeconomic Forecasting and Variable Ordering in Multivariate Stochastic Volatility Models
We document five novel empirical findings on the well-known potential ordering drawback associated with the time-varying parameter vector autoregression with stochastic volatility developed by Cogley and Sargent (2005) and Primiceri (2005), CSP-SV. First, the ordering does not affect point prediction. Second, the standard deviation of the predictive densities implied by different orderings can differ substantially. Third, the average length of the prediction intervals is also sensitive to the ordering. Fourth, the best ordering for one variable in terms of log-predictive scores does not ...
Working Paper
The Macroeconomic Risks of Undesirably Low Inflation
This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.
Working Paper
Uniform Priors for Impulse Responses
There has been a call for caution when using the conventional method for Bayesian inference in set-identified structural vector autoregressions on the grounds that the uniform prior over the set of orthogonal matrices could be nonuniform for key objects of interest. This paper challenges this call. Although the prior distributions of individual impulse responses induced by the conventional method may be nonuniform, they typically do not drive the posteriors if one does not condition on the reduced-form parameters. Importantly, when the focus is on joint inference, the uniform prior over the ...
Working Paper
Monetary Policy, Trend Inflation and the Great Moderation: An Alternative Interpretation - Comment
Working with a small-scale calibrated New-Keynesian model, Coibion and Gorodnichenko (2011) find that the reduction in trend inflation during Volcker's mandate was a key factor behind the Great Moderation. We revisit this finding with an estimated New-Keynesian model with trend inflation and no indexation based on Christiano, Eichenbaum and Evans (2005). First, our simulations confirm Coibion and Gorodnichenko's (2011) main finding. Second, we show that a trend inflation-immune Taylor rule based on economic theory can avoid indeterminacy even at high levels of trend inflation such as those ...
Working Paper
The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure
This paper studies the effects of monetary policy shocks using structural VARs. We achieve identification by imposing sign and zero restrictions on the systematic component of monetary policy. Importantly, our identification scheme does not restrict the contemporaneous response of output to a monetary policy shock. Using data for the period 1965?2007, we consistently find that an increase in the federal funds rate induces a contraction in output. We also find that monetary policy shocks are contractionary during the Great Moderation. Finally, we show that the identification strategy in Uhlig ...
Working Paper
Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications
In this paper, we develop algorithms to independently draw from a family of conjugate posterior distributions over the structural parameterization when sign and zero restrictions are used to identify SVARs. We call this family of conjugate posterior distributions normal-generalized-normal. Our algorithms draw from a conjugate uniform-normal-inverse-Wishart posterior over the orthogonal reduced-form parameterization and transform the draws into the structural parameterization; this transformation induces a normal-generalized-normal posterior distribution over the structural parameterization. ...
Working Paper
The Causal Effects of Lockdown Policies on Health and Macroeconomic Outcomes
We assess the causal impact of epidemic-induced lockdowns on health and macroeconomic outcomes and measure the trade-off between containing the spread of an epidemic and economic activity. To do so, we estimate an epidemiological model with time-varying parameters and use its output as information for estimating SVARs and LPs that quantify the causal effects of nonpharmaceutical policy interventions. We apply our approach to Belgian data for the COVID-19 epidemic during 2020. We find that additional government mandated mobility curtailments would have reduced deaths at a very small cost in ...
Working Paper
The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure
Following Leeper, Sims, and Zha (1996), we identify monetary policy shocks in SVARs by restricting the systematic component of monetary policy. In particular, we impose sign and zero restrictions only on the monetary policy equation. Since we do not restrict the response of output to a monetary policy shock, we are agnostic in Uhlig's (2005) sense. But, in contrast to Uhlig (2005), our results support the conventional view that a monetary policy shock leads to a decline in output. Hence, our results show that the contractionary effects of monetary policy shocks do not hinge on questionable ...
Working Paper
Alternative Strategies: How Do They Work? How Might They Help?
Several structural developments in the U.S. economy—including lower neutral interest rates and a flatter Phillips curve—have challenged the ability of the current monetary policy framework to deliver on the Federal Open Market Committee’s (FOMC) dual-mandate goals. This paper explores whether makeup strategies, in which policymakers seek to stabilize average inflation around the inflation target over some horizon, could strengthen the FOMC’s ability to fulfill its dual mandate. The quantitative analysis discussed here suggests that credible makeup strategies may provide some moderate ...