Search Results
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 ...
Working Paper
Dynamic Identification Using System Projections on Instrumental Variables
We propose System Projections on Instrumental Variables (SP-IV) to estimate structural relationships using regressions of structural impulse responses obtained from local projections or vector autoregressions. Relative to IV with distributed lags of shocks as instruments, SP-IV imposes weaker exogeneity requirements and can improve efficiency and increase effective instrument strength relative to the typical 2SLS estimator. We describe inference under strong and weak identification. The SP-IV estimator outperforms other estimators of Phillips Curve parameters in simulations. We estimate the ...
Report
Robust inference in models identified via heteroskedasticity
Identification via heteroskedasticity exploits differences in variances across regimes to identify parameters in simultaneous equations. I study weak identification in such models, which arises when variances change very little or the variances of multiple shocks change close to proportionally. I show that this causes standard inference to become unreliable, outline two tests to detect weak identification, and establish conditions for the validity of nonconservative methods for robust inference on an empirically relevant subset of the parameter vector. I apply these tools to monetary policy ...
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Latent Heterogeneity in the Marginal Propensity to Consume
We estimate the unconditional distribution of the marginal propensity to consume (MPC) using clustering regression and the 2008 stimulus payments. Since we do not measure heterogeneity as the variation of MPCs with observables, we can recover the full distribution of MPCs. Households spent at least one quarter of the rebate, and individual households used rebates for different goods. While many observables are individually correlated with our estimated MPCs, these relationships disappear when tested jointly, except for nonsalary income and the average propensity to consume. Household ...
Working Paper
A Robust Test for Weak Instruments with Multiple Endogenous Regressors
We extend the popular bias-based test of Stock and Yogo (2005) for instrument strength in linear instrumental variables regressions with multiple endogenous regressors to be robust to heteroskedasticity and autocorrelation. Equivalently, we extend the robust test of Montiel Olea and Pflueger (2013) for one 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 efficient and easy-to-use Matlab code for its implementation. We demonstrate ...
Report
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 ...
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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 ...
Report
A Robust Test for Weak Instruments with Multiple Endogenous Regressors
We extend the popular bias-based test of Stock and Yogo (2005) for instrument strength in linear instrumental variables regressions with multiple endogenous regressors to be robust to heteroskedasticity and autocorrelation. Equivalently, we extend the robust test of Montiel Olea and Pflueger (2013) for one 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 efficient and easy-to-use Matlab code for its implementation. We demonstrate ...
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
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 ...