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Discussion Paper
The Third SNB-FRB-BIS High-Level Conference on Global Risk, Uncertainty, and Volatility: Monetary Policy and Banking Regulation under Elevated Uncertainty
The Swiss National Bank (SNB), the Division of International Finance of the Federal Reserve Board (FRB), and the Bank for International Settlements (BIS) jointly organized the third High-Level Conference on Global Risk, Uncertainty, and Volatility on November 14 and 15 of 2023. The conference brought academics and policymakers together to discuss the many sources of risk and uncertainty under which monetary policymakers and bank regulators operate, recent advances in measuring the multi-faceted nature of uncertainty, and how policymakers respond to these challenges.
Discussion Paper
Non-Financial Corporate Credit and Recessions
The global financial crisis of 2008-09 (GFC) followed an extended period of growth in non-financial corporate (NFC) sector debt. NFC corporate debt resumed its climb a few years after the GFC, and the pace of growth picked up in 2020, as firms took on debt to cover revenue lost during the pandemic or to build up precautionary liquidity buffers.
Working Paper
SONOMA: a Small Open ecoNOmy for MAcrofinance
We develop a new small open economy model (SONOMA) in which domestic corporate debt and equities are affected by shocks to both external credit and equity markets. In a novel empirical analysis of several small-but-developed economies, we show that both external debt and equity shocks are important determinants of domestic economic fluctuations, corporate leverage, and net foreign asset positions. SONOMA replicates our empirical facts about asset prices, financial flows, and economic activity.
Working Paper
Foreign economic policy uncertainty and U.S. equity returns
We document that foreign economic policy uncertainty (EPUF) has significant incremental predictive power for excess U.S. stock returns in the presence of domestic EPU, both in aggregate and for returns of portfolios constructed on firm characteristics, for 6 to 12-months-ahead horizons. We find that EPUF shocks primarily transmit to equity prices through cash flow news rather than the discount rate news channel. We examine whether responses of select macro-financial variables to an adverse EPUF shock are consistent with this transmission mechanism. Corporate investment outlays, payouts, and ...
Working Paper
Trend-Cycle Decomposition and Forecasting Using Bayesian Multivariate Unobserved Components
We propose a generalized multivariate unobserved components model to decompose macroeconomic data into trend and cyclical components. We then forecast the series using Bayesian methods. We document that a fully Bayesian estimation, that accounts for state and parameter uncertainty, consistently dominates out-of-sample forecasts produced by alternative multivariate and univariate models. In addition, allowing for stochastic volatility components in variables improves forecasts. To address data limitations, we exploit cross-sectional information, use the commonalities across variables, and ...