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Working Paper
Fed-Driven Systemic Tail Risk: High-Frequency Measurement, Evidence and Implications
Yang, Xiye; Neely, Christopher J.; Erdemlioglu, Deniz (2025-05-27)
We develop a framework to measure market-wide (systemic) tail risk in the cross-section of asset returns. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we estimate time-varying jump intensities and multi-asset tail risk around Fed policy announcements. While most FOMC announcements generate systemic left-tail risk, there is no evidence that macro announcements have a similar effect. The magnitude of the tail risk induced by Fed policy announcements varies over the business cycle, peaks during the global financial crisis and remains high during phases ...
Working Papers , Paper 2023-016

Working Paper
Tests of Conditional Predictive Ability: Existence, Size, and Power
McCracken, Michael W. (2020-12-18)
We investigate a test of conditional predictive ability described in Giacomini and White (2006; Econometrica). Our main goal is simply to demonstrate existence of the null hypothesis and, in doing so, clarify just how unlikely it is for this hypothesis to hold. We do so using a simple example of point forecasting under quadratic loss. We then provide simulation evidence on the size and power of the test. While the test can be accurately sized we find that power is typically low.
Working Papers , Paper 2020-050

Working Paper
Evaluating Conditional Forecasts from Vector Autoregressions
McCracken, Michael W.; Clark, Todd E. (2014-10-02)
Many forecasts are conditional in nature. For example, a number of central banks routinely report forecasts conditional on particular paths of policy instruments. Even though conditional forecasting is common, there has been little work on methods for evaluating conditional forecasts. This paper provides analytical,Monte Carlo, and empirical evidence on tests of predictive ability for conditional forecasts from estimated models. In the empirical analysis, we consider forecasts of growth, unemployment, and inflation from a VAR, based on conditions on the short-term interest rate. Throughout ...
Working Papers (Old Series) , Paper 1413

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
Too Good to Be True? Fallacies in Evaluating Risk Factor Models
Robotti, Cesare; Gospodinov, Nikolay; Kan, Raymond (2017-11-01)
This paper is concerned with statistical inference and model evaluation in possibly misspecified and unidentified linear asset-pricing models estimated by maximum likelihood and one-step generalized method of moments. Strikingly, when spurious factors (that is, factors that are uncorrelated with the returns on the test assets) are present, the models exhibit perfect fit, as measured by the squared correlation between the model's fitted expected returns and the average realized returns. Furthermore, factors that are spurious are selected with high probability, while factors that are useful are ...
FRB Atlanta Working Paper , Paper 2017-9

Report
OLS Limit Theory for Drifting Sequences of Parameters on the Explosive Side of Unity
Magdalinos, Tassos; Petrova, Katerina (2024-08-01)
A limit theory is developed for the least squares estimator for mildly and purely explosive autoregressions under drifting sequences of parameters with autoregressive roots ρn satisfyingρn → ρ ∈ (—∞, —1] ∪ [1, ∞) and n (|ρn| —1) → ∞.Drifting sequences of innovations and initial conditions are also considered. A standard specification of a short memory linear process for the autoregressive innovations is extended to a triangular array formulation both for the deterministic weights and for the primitive innovations of the linear process, which are allowed to be ...
Staff Reports , Paper 1113

Working Paper
Inference for Local Projections
Inoue, Atsushi; Jordà, Òscar; Kuersteiner, Guido M. (2024-08-13)
Inference for impulse responses estimated with local projections presents interesting challenges and opportunities. Analysts typically want to assess the precision of individual estimates, explore the dynamic evolution of the response over particular regions, and generally determine whether the impulse generates a response that is any different from the null of no effect. Each of these goals requires a different approach to inference. In this article, we provide an overview of results that have appeared in the literature in the past 20 years along with some new procedures that we introduce ...
Working Paper Series , Paper 2024-29

Working Paper
Systemic Tail Risk: High-Frequency Measurement, Evidence and Implications
Yang, Xiye; Neely, Christopher J.; Erdemlioglu, Deniz (2023-07-20)
We develop a new framework to measure market-wide (systemic) tail risk in the cross-section of high-frequency stock returns. We estimate the time-varying jump intensities of asset prices and introduce a testing approach that identifies multi-asset tail risk based on the release times of scheduled news announcements. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we find that most of the FOMC announcements create systemic left tail risk, but there is no evidence that macro announcements do so. The magnitude of the tail risk induced by Fed news varies ...
Working Papers , Paper 2023-016

Report
Characteristic-Sorted Portfolios: Estimation and Inference
Schaumburg, Ernst; Cattaneo, Matias D.; Farrell, Max H.; Crump, Richard K. (2016-08-01)
Portfolio sorting is ubiquitous in the empirical finance literature, where it has been widely used to identify pricing anomalies. Despite its popularity, little attention has been paid to the statistical properties of the procedure. We develop a general framework for portfolio sorting by casting it as a nonparametric estimator. We present valid asymptotic inference methods, and a valid mean square error expansion of the estimator leading to an optimal choice for the number of portfolios. In practical settings, the optimal choice may be much larger than standard choices of five or ten. To ...
Staff Reports , Paper 788

Working Paper
xtcipsunb: The CIPS Panel Unit Root Test for Unbalanced Panel Data
Chudik, Alexander; Hoham, Benjamin (2026-07-07)
We develop and demonstrate the command xtcipsunb, which implements the cross-sectionally augmented panel unit root test (CIPS) from Pesaran (2007) and Pesaran, Smith and Yamagata (2013) for unbalanced panels. Several modifications relative to the existing Stata implementations of CIPS test are necessitated by the unbalanced panel data setting, including computing critical values through simulations for a given panel composition. We provide users the ability to specify a minimum number of cross-section units for the computation of cross-section averages, a minimum number of time periods for ...
Working Papers , Paper 2619

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