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Working Paper
Policy predictions if the model doesn’t fit
Del Negro, Marco; Schorfheide, Frank (2004)
This paper uses a novel method for conducting policy analysis with potentially misspecified DSGE models (Del Negro and Schorfheide 2004) and applies it to a simple New Keynesian DSGE model. We illustrate the sensitivity of the results to assumptions on the policy invariance of model misspecifications.
FRB Atlanta Working Paper , Paper 2004-38

Discussion Paper
Tax Buyouts: Raising Government Revenues without Increasing Labor Tax Distortions
Perri, Fabrizio; Schivardi, Fabiano; Del Negro, Marco (2011-08-17)
At a time of increasing fiscal pressures both here and abroad, it seems important to consider ways of raising government revenues without discouraging people from working. This post describes a revenue raising plan—a tax “buyout”—that does just that. The buyout would give you, the taxpayer, the option each year of paying a lump sum to the government in exchange for a given reduction in your marginal tax rate that year. In effect, you would use the lump sum payment to buy yourself a lower marginal tax rate, which would in turn give you more incentive to work. The buyout would be risk ...
Liberty Street Economics , Paper 20110817

Discussion Paper
A New Perspective on Low Interest Rates
Giannoni, Marc; Del Negro, Marco; Tambalotti, Andrea; Giannone, Domenico (2018-02-05)
Interest rates in the United States have remained at historically low levels for many years. This series of posts explores the forces behind the persistence of low rates. We briefly discuss some of the explanations advanced in the academic literature, and propose an alternative hypothesis that centers on the premium associated with safe and liquid assets. Our argument, outlined in a paper we presented at the Brookings Conference on Economic Activity last March, suggests that the increase in this premium since the late 1990s has been a key driver of the decline in the real return on U.S. ...
Liberty Street Economics , Paper 20180205

Discussion Paper
Global Trends in Interest Rates
Bok, Brandyn; Del Negro, Marco; Qian, Eric; Giannone, Domenico; Giannoni, Marc; Tambalotti, Andrea (2019-02-27)
Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.
Liberty Street Economics , Paper 20190227

Report
Fitting observed inflation expectations
Del Negro, Marco; Eusepi, Stefano (2010-11-01)
This paper provides evidence on the extent to which inflation expectations generated by a standard Christiano et al. (2005)/Smets and Wouters (2003)?type DSGE model are in line with what is observed in the data. We consider three variants of this model that differ in terms of the behavior of, and the public?s information on, the central banks? inflation target, allegedly a key determinant of inflation expectations. We find that: 1) time-variation in the inflation target is needed to capture the evolution of expectations during the post-Volcker period; 2) the variant where agents have ...
Staff Reports , Paper 476

Working Paper
Forming priors for DSGE models (and how it affects the assessment of nominal rigidities)
Del Negro, Marco; Schorfheide, Frank (2006)
In Bayesian analysis of dynamic stochastic general equilibrium (DSGE) models, prior distributions for some of the taste-and-technology parameters can be obtained from microeconometric or presample evidence, but it is difficult to elicit priors for the parameters that govern the law of motion of unobservable exogenous processes. Moreover, since it is challenging to formulate beliefs about the correlation of parameters, most researchers assume that all model parameters are independent of each other. We provide a simple method of constructing prior distributions for a subset of DSGE model ...
FRB Atlanta Working Paper , Paper 2006-16

Discussion Paper
A Time-Series Perspective on Safety, Liquidity, and Low Interest Rates
Giannoni, Marc; Tambalotti, Andrea; Giannone, Domenico; Bok, Brandyn; Del Negro, Marco (2018-02-06)
The previous post in this series discussed several possible explanations for the trend decline in U.S. real interest rates since the late 1990s. We noted that while interest rates have generally come down over the past two decades, this decline has been more pronounced for Treasury securities. The conclusion that we draw from this evidence is that the convenience associated with the safety and liquidity embedded in Treasuries is an important driver of the secular (long-term) decline in Treasury yields. In this post and the next, we provide an overview of the two complementary empirical ...
Liberty Street Economics , Paper 20180206

Working Paper
Monetary policy and the house price boom across U.S. states
Otrok, Christopher; Del Negro, Marco (2005)
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 ...
FRB Atlanta Working Paper , Paper 2005-24

Discussion Paper
A Bayesian VAR Model Perspective on the Lagged Effect of Monetary Policy
Crump, Richard K.; Del Negro, Marco; Dogra, Keshav; Gundam, Pranay; Lee, Donggyu; Nallamotu, Ramya; Pacula, Brian (2023-11-21)
Over the last few years, the U.S. economy has experienced unusually high inflation and an unprecedented pace of monetary policy tightening. While inflation has fallen recently, it remains above target, and the economy continues to expand at a robust pace. Does the resilience of the U.S. economy imply that monetary policy has been ineffectual? Or does it reflect that policy acts with “long and variable lags” and so we haven’t yet observed the full effect of the monetary tightening that has already taken place? Using a Bayesian vector autoregressive (BVAR) model, we show that economic ...
Liberty Street Economics , Paper 20231121a

Discussion Paper
Drivers of Inflation: The New York Fed DSGE Model’s Perspective
Del Negro, Marco; Gleich, Aidan; Goyal, Shlok; Johnson, Alissa; Tambalotti, Andrea (2022-03-01)
After a sharp decline in the first few months of the COVID-19 pandemic, inflation rebounded in the second half of 2020 and surged through 2021. This post analyzes the drivers of these developments through the lens of the New York Fed DSGE model. Its main finding is that the recent rise in inflation is mostly accounted for by a large cost-push shock that occurred in the second quarter of 2021 and whose inflationary effects persist today. Based on the model’s reading of historical data, this shock is expected to fade gradually over the course of 2022, returning quarterly inflation to close to ...
Liberty Street Economics , Paper 20220301

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