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Journal Article
The Discrepancy Between Expenditure- and Income-Side Estimates of US Output
The United States has two measures of economic output: gross domestic product (GDP) and gross domestic income (GDI). While these are conceptually equivalent, their initial estimates differ because these initial estimates are computed from different and incomplete data sources. I study the difference, or “statistical discrepancy,” between GDP and GDI in percent and document three features. First, its size does not materially shrink on average as more data become available. Second, the size of the initial discrepancy in absolute value does not predict the size of the discrepancy in absolute ...
Journal Article
Can Yield Curve Inversions Be Predicted?
An inverted Treasury yield curve?a yield curve where short-term Treasury interest rates are higher than long-term Treasury interest rates?is a good predictor of recessions. Because of this, economists and policymakers often assess the risk of a yield curve inversion when the yield curve is flattening. I study the forecastability of yield curve inversions. Professional forecasters did not predict the beginning of the yield curve inversions prior to the 1990?1991, 2001, and 2008?2009 recessions. In all three cases, professional forecasters failed to predict the magnitude of the rise in ...
Working Paper
Proxy SVARs: Asymptotic Theory, Bootstrap Inference, and the Effects of Income Tax Changes in the United States
Proxy structural vector autoregressions (SVARs) identify structural shocks in vector autoregressions (VARs) with external proxy variables that are correlated with the structural shocks of interest but uncorrelated with other structural shocks. We provide asymptotic theory for proxy SVARs when the VAR innovations and proxy variables are jointly ?-mixing. We also prove the asymptotic validity of a residual-based moving block bootstrap (MBB) for inference on statistics that depend jointly on estimators for the VAR coefficients and for covariances of the VAR innovations and proxy variables. These ...
Working Paper
Identifying Structural VARs with a Proxy Variable and a Test for a Weak Proxy
This paper develops a simple estimator to identify structural shocks in vector autoregressions (VARs) by using a proxy variable that is correlated with the structural shock of interest but uncorrelated with other structural shocks. When the proxy variable is weak, modeled as local to zero, the estimator is inconsistent and converges to a distribution. This limiting distribution is characterized, and the estimator is shown to be asymptotically biased when the proxy variable is weak. The F statistic from the projection of the proxy variable onto the VAR errors can be used to test for a weak ...
Working Paper
Random Walk Forecasts of Stationary Processes Have Low Bias
We study the use of a zero mean first difference model to forecast the level of a scalar time series that is stationary in levels. Let bias be the average value of a series of forecast errors. Then the bias of forecasts from a misspecified ARMA model for the first difference of the series will tend to be smaller in magnitude than the bias of forecasts from a correctly specified model for the level of the series. Formally, let P be the number of forecasts. Then the bias from the first difference model has expectation zero and a variance that is O(1/P-squared), while the variance of the bias ...
Journal Article
Residual Seasonality in GDP Growth Remains after Latest BEA Improvements
Measuring economic growth is complicated by seasonality, the regular fluctuation in economic activity that depends on the season of the year. The BEA uses statistical techniques to remove seasonality from its estimates of GDP, but some research has indicated that seasonality remains. As a result, the BEA began a three-phase plan in 2015 to improve its seasonal-adjustment techniques, and in July 2018, it completed phase 3. Our analysis indicates that even after these latest improvements by the BEA, residual seasonality in GDP growth remains. On average, this residual seasonality makes GDP ...
Journal Article
The Effects of the Federal Reserve Chair’s Testimony on Treasury Interest Rates
Communication by the Federal Reserve is important for the conduct of monetary policy. We study how one form of Federal Reserve communication, the congressional testimony by the Chair of the Board of Governors (the Fed Chair), affects interest rates on 2-year and 10-year Treasury Notes. We study three types of Fed Chair testimony: the first day of Monetary Policy Report testimony, the second day of Monetary Policy Report testimony, and testimonies not associated with the Monetary Policy Report but that still relate to monetary policy. We find that the average size of interest rate changes is ...
Working Paper
Business Cycles and Low-Frequency Fluctuations in the US Unemployment Rate
I show that business cycles can generate most of the low-frequency movements in the unemployment rate. First, I provide evidence that the unemployment rate is stationary, while its flows have unit roots. Then, I model the log unemployment rate as the error correction term of log labor flows in a vector error correction model (VECM) with intercepts that change over the business cycle. Feeding historical expansions and recessions into the VECM generates large low-frequency movements in the unemployment rate. Frequent recessions from the late 1960s to the early 1980s interrupt labor market ...
Journal Article
Underemployment Following the Great Recession and the COVID-19 Recession
The underemployment rate, the percent of employed people who are working part-time but prefer to be working full-time, moves closely with the unemployment rate, rising during recessions and falling during expansions. Following the Great Recession, the underemployment rate had stayed persistently elevated when compared to the unemployment rate, that is, until the COVID-19 recession. Since then, it has been consistent with its pre-2008 levels. We find that changes in relative industry size account for essentially none of the underemployment rate increase after the Great Recession nor the ...
Working Paper
Understanding the Aspects of Federal Reserve Forward Guidance
This paper studies the effects of Federal Open Market Committee (FOMC) forward guidance language. I estimate two policy surprises at FOMC meetings: a change in the current federal funds rate and an orthogonal change in the expected path of the federal funds rate. From February 2000 to June 2003, the FOMC only gave forward guidance about risks to the economic outlook, and a surprise increase in the expected federal funds rate path had expansionary effects. This is consistent with models of central bank information effects, where a positive economic outlook causes private agents to revise up ...