Search Results
Journal Article
The baby boom, the baby bust, and asset markets
Journal Article
On the transition to a fully funded Social Security system
Journal Article
What is the optimal rate of inflation?
Working Paper
A simple adaptive measure of core inflation
This paper proposes a new measure of core inflation and compares it with several existing measures. The new measure is adaptive and is designed to track sudden and persistent movements inflation, such as those arising from changes in monetary policy regimes. the adaptive measure is a superior predictor of (locally) mean reverting components of inflation, and appears to filter out transients more effectively than existing measures.
Journal Article
Adapting to instability in money demand: forecasting money growth with a time-varying parameter model
Conventional money demand models appear to be unstable, and this complicates the problem of conducting monetary policy. One way to deal with parameter instability is to learn how to adapt quickly when parameters shift. This paper applies a time-varying-parameter estimator to conventional money demand models and evaluates its usefulness as a forecasting tool. In relative terms, the time-varying-parameter estimator improves significantly on ordinary least squares. In absolute terms, we continue to have difficulty tracking money demand through turbulent periods.
Journal Article
Inflation uncertainty and excess returns on stocks and banks
This paper investigates the relation between inflation uncertainty and excess returns on stocks and bonds. It quantifies the effect of inflation uncertainty by comparing actual excess returns with those expected by a hypothetical naive investor who treats inflation forecasts as if they were known with certainty. The evidence suggests that ignoring inflation uncertainty results in only small pricing errors, on average.
Report
Trend inflation and inflation persistence in the New Keynesian Phillips curve
The New Keynesian Phillips curve (NKPC) asserts that inflation depends on expectations of real marginal costs, but empirical research has shown that purely forward-looking versions of the model generate too little inflation persistence. In this paper, we offer a resolution of the persistence problem. We hypothesize that inflation is highly persistent because of drift in trend inflation, a feature that many versions of the NKPC neglect. We derive a version of the NKPC as a log-linear approximation around a time-varying inflation trend and examine whether it explains deviations of inflation ...
Working Paper
Idiosyncratic risk and the equity premium: evidence from the Consumer Expenditure Survey
This paper uses household consumption data to investigate whether uninsurable idiosyncratic risk accounts for the equity premium. The analysis complements and extends prior empirical work by relaxing maintained assumptions about idiosyncratic income shocks. Following Mankiw (1986), the paper develops an equilibrium factor model in which risk premia depend on the covariance between an asset's return and certain moments of the cross-sectional distribution for consumption growth. Cross-sectional consumption factors are constructed using data from the Consumer Expenditure Survey, but they do ...
Working Paper
Optimized Taylor Rules for Disinflation When Agents are Learning
Highly volatile transition dynamics can emerge when a central bank disinflates while operating without full transparency. In our model, a central bank commits to a Taylor rule whose form is known but whose coefficient are not. Private agents learn about policy parameters via Bayesian updating. Under McCallum's (1999) timing protocol, temporarily explosive dynamics can arise, making the transition highly volatile. Locally-unstable dynamics emerge when there is substantial disagreement between actual and perceived feedback parameters. The central bank can achieve low average inflation, but its ...