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Working Paper
A Uniformly Valid Test for Instrument Exogeneity
Gospodinov, Nikolay; Dovonon, Prosper (2025-09-25)
This paper studies the limiting behavior of the test for instrument exogeneity in linear models when there is uncertainty about the strength of the identification signal. We consider the test for conditional moment restrictions with an expanding set of constructed instruments. We establish the uniform validity of the standard normal asymptotic approximation, under the null, of this specification test over all possible degrees of model identification. As a result, this allows the researcher to use standard inference for testing instrument exogeneity without the need of any prior knowledge if ...
FRB Atlanta Working Paper , Paper 2025-9

Working Paper
Growth-at-Risk is Investment-at-Risk
McCracken, Michael W.; Amburgey, Aaron (2024-08-16)
We investigate the role financial conditions play in the composition of U.S. growth-at-risk. We document that, by a wide margin, growth-at-risk is investment-at-risk. That is, if financial conditions indicate U.S. real GDP growth will be in the lower tail of its conditional distribution, we know that the main contributor is a decline in investment. Consumption contributes under extreme financial stress. Government spending and net exports do not play a role. We show that leverage plays a key role in determining both consumption- and investment-at-risk, which provides support to the financial ...
Working Papers , Paper 2023-020

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

Report
Beta-Sorted Portfolios
Cattaneo, Matias D.; Wang, Weining; Crump, Richard K. (2023-07-01)
Beta-sorted portfolios—portfolios comprised of assets with similar covariation to selected risk factors— are a popular tool in empirical finance to analyze models of (conditional) expected returns. Despite their widespread use, little is known of their econometric properties in contrast to comparable procedures such as two-pass regressions. We formally investigate the properties of beta-sorted portfolio returns by casting the procedure as a two-step nonparametric estimator with a nonparametric first step and a beta-adaptive portfolios construction. Our framework rationalizes the ...
Staff Reports , Paper 1068

Working Paper
Spurious Inference in Unidentified Asset-Pricing Models
Robotti, Cesare; Gospodinov, Nikolay; Kan, Raymond (2014-10-31)
This paper studies some seemingly anomalous results that arise in possibly misspecified and unidentified linear asset-pricing models estimated by maximum likelihood and one-step generalized method of moments (GMM). Strikingly, when useless factors (that is, factors that are independent of 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, and the tests for correct model specification have asymptotic power that is equal to the nominal size. In other ...
FRB Atlanta Working Paper , Paper 2014-12

Working Paper
(Visualizing) Plausible Treatment Effect Paths
Freyaldenhoven, Simon; Hansen, Christian (2025-09-24)
We consider estimation and inference for treatment effect paths. Examples include dynamic treatment effects, impulse response functions, and event study paths. We present two sets of plausible bounds to help visualize uncertainty associated with these paths. Both plausible bounds are often tighter than traditional confidence intervals, and can provide insights even when traditional (uniform) confidence bands appear uninformative. Our first set of bounds covers the average (or overall) effect rather than the entire path. Our second set of bounds imposes data-driven smoothness restrictions on ...
Working Papers , Paper 25-27

Working Paper
An Augmented Anderson-Hsiao Estimator for Dynamic Short-T Panels
Chudik, Alexander; Pesaran, M. Hashem (2021-03-27)
This paper introduces the idea of self-instrumenting endogenous regressors in settings when the correlation between these regressors and the errors can be derived and used to bias-correct the moment conditions. The resulting bias-corrected moment conditions are less likely to be subject to the weak instrument problem and can be used on their own or in conjunction with other available moment conditions to obtain more efficient estimators. This approach can be applied to estimation of a variety of models such as spatial and dynamic panel data models. This paper focuses on the latter, and ...
Globalization Institute Working Papers , Paper 327

Report
A New Jackknife Variance Estimator for Time-Series and Panel Regressions
Lopez Gaffney, Ignacio; Crump, Richard K.; Gospodinov, Nikolay (2024-10-01)
We introduce a new jackknife variance estimator for time-series and panel-data regressions. The novelty in our approach is that we first rotate the data using a particular choice of trigonometric basis functions. This rotation removes serial correlation in a broad class of time-series processes, including random walks, and enables the use of the conventional leave-one-out jackknife on the transformed space of the regressors and residuals. The procedure is tuning-parameter free and naturally adapts to the degree of persistence of the data. We prove the asymptotic validity of our variance ...
Staff Reports , Paper 1133

Working Paper
On the Real-Time Predictive Content of Financial Conditions Indices for Growth
McCracken, Michael W.; Amburgey, Aaron (2022-01-18)
We provide evidence on the real-time predictive content of the National Financial Conditions Index (NFCI), for conditional quantiles of U.S. real GDP growth. Our work is distinct from the literature in two specific ways. First, we construct (unofficial) real-time vintages of the NFCI. This allows us to conduct out-of-sample analysis without introducing the kind of look-ahead biases that are naturally introduced when using a single current vintage. We then develop methods for conducting asymptotic inference on tests of equal tick loss between nested quantile regression models when the data are ...
Working Papers , Paper 2022-003

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

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