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800,000 Years of Climate Risk
Adrian, Tobias; Boyarchenko, Nina; Giannone, Domenico; Prasad, Ananthakrishnan; Seneviratne, Dulani; Xiao, Yanzhe (2022-09-01)
We use a long history of global temperature and atmospheric carbon dioxide (CO2) concentration to estimate the conditional joint evolution of temperature and CO2 at a millennial frequency. We document three basic facts. First, the temperature–CO2 dynamics are non-linear, so that large deviations in either temperature or CO2 concentrations take a long time to correct–on the scale of multiple millennia. Second, the joint dynamics of temperature and CO2 concentrations exhibit multimodality around historical turning points in temperature and concentration cycles, so that prior to the start of ...
Staff Reports , Paper 1031

Working Paper
Better the Devil You Know: Improved Forecasts from Imperfect Models
Oh, Dong Hwan; Patton, Andrew J. (2021-11-05)
Many important economic decisions are based on a parametric forecasting model that is known to be good but imperfect. We propose methods to improve out-of-sample forecasts from a mis- specied model by estimating its parameters using a form of local M estimation (thereby nesting local OLS and local MLE), drawing on information from a state variable that is correlated with the misspecication of the model. We theoretically consider the forecast environments in which our approach is likely to o¤er improvements over standard methods, and we nd signicant fore- cast improvements from ...
Finance and Economics Discussion Series , Paper 2021-071

Working Paper
Does inequality cause financial distress? Evidence from lottery winners and neighboring bankruptcies
Agarwal, Sumit; Scholnick, Barry; Mikhed, Vyacheslav (2016-02-11)
Revised Oct 2016. We test the hypothesis that income inequality causes financial distress. To identify the effect of income inequality, we examine lottery prizes of random dollar magnitudes in the context of very small neighborhoods (13 households on average). We find that a C$1,000 increase in the lottery prize causes a 2.4% rise in subsequent bankruptcies among the winners? close neighbors. We also provide evidence of conspicuous consumption as a mechanism for this causal relationship. The size of lottery prizes increases the value of visible assets (houses, cars, motorcycles), but not ...
Working Papers , Paper 16-4

Working Paper
The Taylor rule and forecast intervals for exchange rates
Wang, Jian; http://fedora:8080/fcrepo/rest/objects/authors/ (2008)
This paper attacks the Meese-Rogoff (exchange rate disconnect) puzzle from a different perspective: out-of-sample interval forecasting. Most studies in the literature focus on point forecasts. In this paper, we apply Robust Semi-parametric (RS) interval forecasting to a group of Taylor rule models. Forecast intervals for twelve OECD exchange rates are generated and modified tests of Giacomini and White (2006) are conducted to compare the performance of Taylor rule models and the random walk. Our contribution is twofold.> ; First, we find that in general, Taylor rule models generate tighter ...
Globalization Institute Working Papers , Paper 22

Working Paper
Leveraged bubbles
Taylor, Alan M.; Jordà, Òscar; Schularick, Moritz (2015-08-01)
What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms,asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous ...
Working Paper Series , Paper 2015-10

Working Paper
Sample Selection Models Without Exclusion Restrictions: Parameter Heterogeneity and Partial Identification
Honore, Bo E.; Hu, Luojia (2021-07)
This paper studies semiparametric versions of the classical sample selection model (Heckman (1976, 1979)) without exclusion restrictions. We extend the analysis in Honoré and Hu (2020) by allowing for parameter heterogeneity and derive implications of this model. We also consider models that allow for heteroskedasticity and briefly discuss other extensions. The key ideas are illustrated in a simple wage regression for females. We find that the derived implications of a semiparametric version of Heckman's classical sample selection model are consistent with the data for women with no college ...
Working Paper Series , Paper WP 2022-33

Working Paper
Robust Inference in First-Price Auctions : Experimental Findings as Identifying Restrictions
Zhu, Yu; Grundl, Serafin J. (2019-02-07)
In laboratory experiments bidding in first-price auctions is more aggressive than predicted by the risk-neutral Bayesian Nash Equilibrium (RNBNE) - a finding known as the overbidding puzzle. Several models have been proposed to explain the overbidding puzzle, but no canonical alternative to RNBNE has emerged, and RNBNE remains the basis of the structural auction literature. Instead of estimating a particular model of overbidding, we use the overbidding restriction itself for identification, which allows us to bound the valuation distribution, the seller's payoff function, and the optimal ...
Finance and Economics Discussion Series , Paper 2019-006

Working Paper
Local Projections
Jordà, Òscar; Taylor, Alan M. (2024-08-12)
A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state-of-the art for the practitioner, discusses best practices and ...
Working Paper Series , Paper 2024-24

Working Paper
Optimal Taxation, Marriage, Home Production, and Family Labor Supply
Gayle, George-Levi; Shephard, Andrew (2016-05-23)
An empirical approach to optimal income taxation design is developed within an equilibrium collective marriage market model with imperfectly transferable utility. Taxes distort labour supply and time allocation decisions, as well as marriage market outcomes, and the within household decision process. Using data from the American Community Survey and American Time Use Survey, we structurally estimate our model and explore empirical design problems. We consider the optimal design problem when the planner is able to condition taxes on marital status, as in the U.S. tax code, but we allow the ...
Working Papers , Paper 2016-10

Working Paper
Fitting a distribution to survey data for the half-life of deviations from PPP
Fisher, Mark (2015-12-15)
This note presents a nonparametric Bayesian approach to fitting a distribution to the survey data provided in Kilian and Zha (2002) regarding the prior for the half-life of deviations from purchasing power parity (PPP). A point mass at infinity is included. The unknown density is represented as an average of shape-restricted Bernstein polynomials, each of which has been skewed according to a preliminary parametric fit. A sparsity prior is adopted for regularization.
FRB Atlanta Working Paper , Paper 2015-15

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