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Looking down the road with ALEX: Forecasting U.S. GDP
In this article, we examine the recovery from the recession that began with the onset of the Covid-19 pandemic in the U.S. To do so, we present and discuss for the first time the results from a mixed-frequency Bayesian vector autoregressive model called ALEX. This model uses 107 monthly and quarterly indicators of economic activity to forecast the near-term path of U.S. real gross domestic product (GDP).
Working Paper
The perils of working with Big Data and a SMALL framework you can use to avoid them
The use of “Big Data” to explain fluctuations in the broader economy or guide the business decisions of a firm is now so commonplace that in some instances it has even begun to rival more traditional government statistics and business analytics. Big data sources can very often provide advantages when compared to these more traditional data sources, but with these advantages also comes the potential for pitfalls. We lay out a framework called SMALL that we have developed in order to help interested parties as they navigate the big data minefield. Based on a set of five questions, the SMALL ...
Working Paper
Gathering insights on the forest from the trees: a new metric for financial conditions
By incorporating the Harvey accumulator into the large approximate dynamic factor framework of Doz et al. (2006), we are able to construct a coincident index of financial conditions from a large unbalanced panel of mixed frequency financial indicators. We relate our financial conditions index, or FCI, to the concept of a "financial crisis" using Markov-switching techniques. After demonstrating the ability of the index to capture "crisis" periods in U.S. financial history, we present several policy-geared threshold rules for the FCI using Receiver Operator Characteristics (ROC) curve ...
Journal Article
What is the relationship between large deficits and inflation in industrialized countries?
Examining industrialized countries, the authors find that large deficits are not associated with higher inflation contemporaneously, nor are they associated with the emergence of higher inflation in subsequent years. This finding suggests that countries that can afford large deficits have built solid reputations and institutions supporting a sound monetary policy and the reversion to a stable fiscal regime.
A Closer Look at the Correlation Between Google Trends and Initial Unemployment Insurance Claims
Since the onset of the pandemic, there has been growing interest in tracking labor market activity with “big data” sources like Google Trends.1 Just as an example, one can track how the number of Google searches with the term unemployment office has changed over the past week for the Chicago metro area or explore how unemployment became one of the top searched issues across the U.S. during the early months of the pandemic here.
Working Paper
Using the Eye of the Storm to Predict the Wave of Covid-19 UI Claims
We leverage an event-study research design focused on the seven costliest hurricanes to hit the US mainland since 2004 to identify the elasticity of unemployment insurance filings with respect to search intensity. Applying our elasticity estimate to the state-level Google Trends indexes for the topic “unemployment,” we show that out-of-sample forecasts made ahead of the official data releases for March 21 and 28 predicted to a large degree the extent of the Covid-19 related surge in the demand for unemployment insurance. In addition, we provide a robust assessment of the uncertainty ...
Working Paper
Using the Eye of the Storm to Predict the Wave of Covid-19 UI Claims
We leverage an event-study research design focused on the seven costliest hurricanes to hit the US mainland since 2004 to identify the elasticity of unemployment insurance filings with respect to search intensity. Applying our elasticity estimate to the state-level Google Trends indexes for the topic “unemployment,” we show that out-of-sample forecasts made ahead of the official data releases for March 21 and 28 predicted to a large degree the extent of the Covid-19 related surge in the demand for unemployment insurance. In addition, we provide a robust assessment of the uncertainty ...
Working Paper
The perils of working with Big Data and a SMALL framework you can use to avoid them
The use of “Big Data” to explain fluctuations in the broader economy or guide the business decisions of a firm is now so commonplace that in some instances it has even begun to rival more traditional government statistics and business analytics. Big data sources can very often provide advantages when compared to these more traditional data sources, but with these advantages also comes the potential for pitfalls. We lay out a framework called SMALL that we have developed in order to help interested parties as they navigate the big data minefield. Based on a set of five questions, the SMALL ...
Newsletter
Detecting early signs of financial instability
The authors analyze the usefulness of a new measure of nonfinancial leverage as an early warning indicator for financial instability and its consequences for economic growth.
Newsletter
Estimating the trend rate of economic growth using the CFNAI
This article shows how a new methodology for constructing the Chicago Fed National Activity Index (CFNAI) can be used to identify both the cyclical (medium-run) and trend (long-run) components of real gross domestic product (GDP) growth.