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Report
Robust inference in models identified via heteroskedasticity
Lewis, Daniel J. (2018-12-01)
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 ...
Staff Reports , Paper 876

Working Paper
Pooled Bewley Estimator of Long-Run Relationships in Dynamic Heterogenous Panels
Smith, Ron P.; Chudik, Alexander; Pesaran, M. Hashem (2023-11-08)
Using a transformation of the autoregressive distributed lag model due to Bewley, a novel pooled Bewley (PB) estimator of long-run coefficients for dynamic panels with heterogeneous short-run dynamics is proposed. The PB estimator is directly comparable to the widely used Pooled Mean Group (PMG) estimator, and is shown to be consistent and asymptotically normal. Monte Carlo simulations show good small sample performance of PB compared to the existing estimators in the literature, namely PMG, panel dynamic OLS (PDOLS) and panel fully-modified OLS (FMOLS). Application of two bias-correction ...
Globalization Institute Working Papers , Paper 409

Report
On the Validity of Classical and Bayesian DSGE-Based Inference
Petrova, Katerina (2024-01-01)
This paper studies large sample classical and Bayesian inference in a prototypical linear DSGE model and demonstrates that inference on the structural parameters based on a Gaussian likelihood is unaffected by departures from Gaussianity of the structural shocks. This surprising result is due to a cancellation in the asymptotic variance resulting into a generalized information equality for the block corresponding to the structural parameters. The underlying reason for the cancellation is the certainty equivalence property of the linear rational expectation model.The main implication of this ...
Staff Reports , Paper 1084

Report
A Jackknife Variance Estimator for Panel Regressions
Lopez Gaffney, Ignacio; Crump, Richard K.; Gospodinov, Nikolay (2024-10-01)
We introduce a new jackknife variance estimator for panel-data regressions. Our variance estimator can be motivated as the conventional leave-one-out jackknife variance estimator on a transformed space of the regressors and residuals using orthonormal trigonometric basis functions. We prove the asymptotic validity of our variance estimator and demonstrate desirable finite-sample properties in a series of simulation experiments. We also illustrate how our method can be used for jackknife bias-correction in a variety of time-series settings.
Staff Reports , Paper 1133

Working Paper
Half-panel jackknife fixed effects estimation of panels with weakly exogenous regressor
Chudik, Alexander; Yang, Jui-Chung; Pesaran, M. Hashem (2016-08-31)
This paper considers estimation and inference in fixed effects (FE) panel regression models with lagged dependent variables and/or other weakly exogenous (or predetermined) regressors when NN (the cross section dimension) is large relative to TT (the time series dimension). The paper first derives a general formula for the bias of the FE estimator which is a generalization of the Nickell type bias derived in the literature for the pure dynamic panel data models. It shows that in the presence of weakly exogenous regressors, inference based on the FE estimator will result in size distortions ...
Globalization Institute Working Papers , Paper 281

Report
The relationship between expected inflation, disagreement, and uncertainty: evidence from matched point and density forecasts
Rich, Robert W.; Tracy, Joseph (2006-07-01)
This paper examines matched point and density forecasts of inflation from the Survey of Professional Forecasters to analyze the relationship between expected inflation, disagreement, and uncertainty. We extend previous studies through our data construction and estimation methodology. Specifically, we derive measures of disagreement and uncertainty by using a decomposition proposed in earlier research by Wallis and by applying the concept of entropy from information theory. We also undertake the empirical analysis within a seemingly unrelated regression framework. Our results offer mixed ...
Staff Reports , Paper 253

Working Paper
The Effect of the Conservation Reserve Program on Rural Economies: Deriving a Statistical Verdict from a Null Finding
Wojan, Timothy R.; Lambert, Dayton; Brown, Jason (2018-05-01)
This article suggests two methods for deriving a statistical verdict from a null finding,allowing economists to more confidently conclude when ?not significant" can in fact be interpreted as ?no substantive effect." The proposed methodology can be extended to a variety of empirical contexts where size and power matter. The example used to demonstrate the method is the Economic Research Service's 2004 Report to Congress that was charged with statistically identifying any unintended negative employment consequences of the Conservation Reserve Program (the Program). The report failed to ...
Research Working Paper , Paper RWP 18-4

Working Paper
Bubbling Up? What Consumer Expectations Reveal About U.S. Housing Market Exuberance
Martínez García, Enrique; Pavlidis, Efthymios (2025-05-21)
We investigate the presence of speculative bubbles in the U.S. housing market after the global financial crisis. Unlike standard approaches that rely on observed economic fundamentals, our method leverages subjective price expectations from the University of Michigan Survey of Consumers to test for exuberance without imposing a specific model of intrinsic housing values. By applying recursive least-squares and quantile-based unit root tests to cumulative expectational errors, we uncover novel evidence of speculative dynamics at the aggregate level and across broad demographic and ...
Working Papers , Paper 2521

Journal Article
Factor-based prediction of industry-wide bank stress
Grover, Sean P.; McCracken, Michael W. (2014)
This article investigates the use of factor-based methods for predicting industry-wide bank stress. Specifically, using the variables detailed in the Federal Reserve Board of Governors? bank stress scenarios, the authors construct a small collection of distinct factors. We then investigate the predictive content of these factors for net charge-offs and net interest margins at the bank industry level. The authors find that the factors do have significant predictive content, both in and out of sample, for net interest margins but significantly less predictive content for net charge-offs. ...
Review , Volume 96 , Issue 2 , Pages 173-194

Working Paper
Pooled Bewley Estimator of Long-Run Relationships in Dynamic Heterogenous Panels
Smith, Ron P.; Chudik, Alexander; Pesaran, M. Hashem (2021-05-27)
This paper, using the Bewley (1979) transformation of the autoregressive distributed lag model, proposes a pooled Bewley (PB) estimator of long-run coefficients for dynamic panels with heterogeneous short-run dynamics, in the same setting as the widely used Pooled Mean Group (PMG) estimator. The Bewley transform enables us to obtain an analytical closed form expression for the PB, which is not available when using the maximum likelihood approach. This lets us establish asymptotic normality of PB as n,T→∞ jointly, allowing for applications with n and T large and of the same order of ...
Globalization Institute Working Papers , Paper 409

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