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Measuring Real Activity Using a Weekly Economic Index
This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the onset of and policy response to the novel coronavirus in the United States. The WEI is a weekly composite index of real economic activity, with eight of ten series available the Thursday after the end of the reference week. In addition to being a weekly real activity index, the WEI has strong predictive power for output measures and provided an accurate nowcast of current-quarter GDP growth in the first half of 2020. We document how the WEI responded to key events and data ...
Working Paper
Dynamic Identification Using System Projections on Instrumental Variables
We propose System Projections on Instrumental Variables (SP-IV) to identify structural relationships using regressions of impulse responses from local projections or vector autoregressions. Relative to 2SLS with distributed lags as instruments, SP-IV weakens exogeneity requirements and can improve efficiency and effective instrument strength. We describe inference under strong and weak identification. The SP-IV estimator outperforms other estimators of Phillips Curve parameters in simulations. We estimate the Phillips Curve implied by the main business cycle shock of Angeletos et al. (2020) ...
Working Paper
A Robust Test for Weak Instruments with Multiple Endogenous Regressors
We generalize the popular bias-based test of Stock and Yogo (2005) for instrument strength in two-stage least-squares models with multiple endogenous regressors to be robust to heteroskedasticity and autocorrelation. Equivalently, we extend the robust test of Montiel Olea and Pflueger (2013) for a single endogenous regressor to the general case with multiple endogenous regressors. We describe a simple procedure for applied researchers to conduct our generalized first-stage test of instrument strength, and provide fast Matlab code for its implementation. In simulations, our test controls size ...
Working Paper
Do Monetary Policy Announcements Shift Household Expectations?
We use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. We first provide more general evidence that public confidence in the state of the economy reacts to certain types of macroeconomic news very quickly. Next, we show that surprises to the Federal Funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, ...
Working Paper
Measuring Real Activity Using a Weekly Economic Index
This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the onset of and policy response to the novel coronavirus in the United States. The WEI is a weekly composite index of real economic activity, with eight of 10 series available the Thursday after the end of the reference week. In addition to being a weekly real activity index, the WEI has strong predictive power for output measures and provided an accurate nowcast of current-quarter GDP growth in the first half of 2020, with weaker performance in the second half. We document ...
Working Paper
A Robust Test for Weak Instruments for 2SLS with Multiple Endogenous Regressors
We develop a test for instrument strength based on the bias of two-stage least squares (2SLS) that (1) generalizes the tests of Stock and Yogo (2005) and Sanderson and Windmeijer (2016) to be robust to heteroskedasticity and autocorrelation, and (2) extends the Montiel Olea and Pflueger (2013) robust test for models with a single endogenous regressor to multiple endogenous regressors. Our test can be based either on Stock and Yogo’s (2005) absolute bias criterion or on the 2SLS bias relative to Montiel Olea and Pflueger’s (2013) worst-case benchmark. We also develop extensions to test ...
Working Paper
Dynamic Identification Using System Projections and Instrumental Variables
We propose System Projections on Instrumental Variables (SP-IV) to estimate dynamic structural relationships using impulse responses obtained from local projections or vector autoregressions. SP-IV replaces lag sequences of instruments in traditional IV with lead sequences of endogenous variables. By allowing the inclusion of lagged variables as controls, SP-IV weakens exogeneity requirements and can improve efficiency and effective instrument strength relative to 2SLS. We provide inference procedures under strong and weak identification, and show that SP-IV outperforms conventional IV ...
Report
Do Monetary Policy Announcements Shift Household Expectations?
We use a decade of daily survey data from Gallup to study how monetary policy influences households’ beliefs about economic conditions. We first document that public confidence in the state of the economy reacts instantaneously to certain types of macroeconomic news. Next, we show that surprises to the federal funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. Specifically, we find that a surprise increase in the target rate robustly leads to an immediate decline in household confidence, at odds with previous findings ...
Working Paper
Dynamic Identification Using System Projections and Instrumental Variables
We propose System Projections with Instrumental Variables (SP-IV) to estimate dynamic structural relationships. SP-IV replaces lag sequences of instruments in traditional IV with lead sequences of endogenous variables. SP-IV allows the inclusion of controls to weaken exogeneity requirements, can be more efficient than IV with lags, and allows identification over many time horizons without creating many-weak-instruments problems. SP-IV also enables the estimation of structural relationships across impulse responses obtained from local projections or vector autoregressions. We provide a ...
Report
Identifying shocks via time-varying volatility
An n-variable structural vector auto-regression (SVAR) can be identified (up to shock order) from the evolution of the residual covariance across time if the structural shocks exhibit heteroskedasticity (Rigobon (2003), Sentana and Fiorentini (2001)). However, the path of residual covariances can only be recovered from the data under specific parametric assumptions on the variance process. I propose a new identification argument that identifies the SVAR up to shock orderings using the autocovariance structure of second moments of the residuals, implied by an arbitrary stochastic process for ...