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Working Paper
Commodity Exports, Financial Frictions and International Spillovers
This paper offers a solution to the international co-movement puzzle found in open-economy macroeconomic models. We develop a small open-economy (SOE) dynamic stochastic general equilibrium (DSGE) model describing three endogenous channels that capture spillovers from the world to a commodity exporter: a world commodity price channel, a domestic commodity supply channel and a financial channel. We estimate our model with Bayesian methods on two commodity-exporting SOEs, namely Canada and South Africa. In addition to explaining international business cycle synchronization, the new model ...
Working Paper
Monetary policy and the house price boom across U.S. states
The authors use a dynamic factor model estimated via Bayesian methods to disentangle the relative importance of the common component in the Office of Federal Housing Enterprise Oversight?s house price movements from state- or region-specific shocks, estimated on quarterly state-level data from 1986 to 2004. The authors find that movements in house prices historically have mainly been driven by the local (state- or region-specific) component. The recent period (2001?04) has been different, however: ?Local bubbles? have been important in some states, but overall the increase in house prices is ...
Journal Article
M2 and monetary policy: a critical review of the recent debate
Could More Progressive Taxes Increase Income Inequality?
One paper posits that making taxes more progressive could boost lower-income households initially, but more money would eventually float to those with higher incomes.
International factors broadly explain postpandemic inflation
The recent co-movement of inflation across countries, including the U.S., can be explained in part by global and regional factors. Policymakers, who have tended to more closely look closer to home may want to more broadly consider global events and pressures when addressing changing inflation pressures.
Journal Article
Sudden Stops and COVID-19: Lessons from Mexico’s History
The COVID-19 pandemic produced a sharp contraction in capital flows in emerging markets during the spring of 2020. Such contractions are known as “sudden stops” and historically have been associated with significant downturns in a country’s economic activity. Evidence from Mexico’s financial crisis history suggests that sudden stops tend to exhibit a common pattern: the crisis lasts one to two years before a rapid but partial recovery, followed by years of protracted stagnation.
Journal Article
Forecasting the effects of reduced defense spending
Forecasts from a vector autoregressive model indicate that the substantial cuts in defense spending proposed by the Bush Administration in 1991 are likely to reduce GNP in both the short run and the long run. These forecasts hold even if proceeds from the spending cuts are used to reduce the federal debt. The long-range VAR forecasts, in particular, contrast markedly with those of the large-scale econometric models employed by the Congressional Budget Office.
Journal Article
Asset Pricing Through the Lens of the Hansen-Jagannathan Bound
Stochastic discount factor (SDF) models are the dominant framework for modern asset pricing. The Hansen-Jagannathan bound is a characterization of the admissible set of SDFs, given a vector of asset returns.
Report
Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach
We estimate a workhorse dynamic stochastic general equilibrium (DSGE) model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico’s business cycle and ...