Search Results
Working Paper
Financial variables and macroeconomic forecast errors
A large set of financial variables has only limited power to predict a latent factor common to the year-ahead forecast errors for real Gross Domestic Product (GDP) growth, the unemployment rate, and Consumer Price Index (CPI) inflation for three sets of professional forecasters: the Federal Reserve?s Greenbook, the Survey of Professional Forecasters (SPF), and the Blue Chip Consensus Forecasts. Even when a financial variable appears to be fairly robust across sample periods in explaining the latent factor, from an economic standpoint its contribution appears modest. Still, several financial ...
Working Paper
Measuring the Natural Rate of Interest: International Trends and Determinants
U.S. estimates of the natural rate of interest?the real short-term interest rate that would prevail absent transitory disturbances?have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there through the end of 2015. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach-Williams ...
Working Paper
Mortgage Loss Severities: What Keeps Them So High?
Mortgage loss-given-default (LGD) increased significantly when house prices plummeted during the financial crisis, but it has remained over 40 percent in recent years, despite a strong housing recovery. Our results indicate that the sustained high LGDs post-crisis is due to a combination of an overhang of crisis-era foreclosures and prolonged liquidation timelines, which have offset higher sales recoveries. Simulations show that cutting foreclosure timelines by one year would cause LGD to decrease by 5 to 8 percentage points, depending on the tradeoff between lower liquidation expenses and ...
Working Paper
Sample Selection Models Without Exclusion Restrictions: Parameter Heterogeneity and Partial Identification
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
Censored Density Forecasts: Production and Evaluation
This paper develops methods for the production and evaluation of censored density forecasts. The focus is on censored density forecasts that quantify forecast risks in a middle region of the density covering a specified probability, and ignore the magnitude but not the frequency of outlying observations. We propose a fixed-point algorithm that fits a potentially skewed and fat-tailed density to the inner observations, acknowledging that the outlying observations may be drawn from a different but unknown distribution. We also introduce a new test for calibration of censored density forecasts. ...
Working Paper
Nonlinear Budget Set Regressions for the Random Utility Model
This paper is about the nonparametric regression of a choice variable on a nonlinear budget set when there is general heterogeneity, i.e., in the random utility model (RUM). We show that utility maximization makes this a three-dimensional regression with piecewise linear, convex budget sets with a more parsimonious specification than previously derived. We show that the regression allows for measurement and/or optimization errors in the outcome variable. We characterize all of the restrictions of utility maximization on the budget set regression and show how to check these restrictions. We ...
Working Paper
Mortgage Loss Severities: What Keeps Them So High?
Mortgage loss-given-default (LGD) increased significantly when house prices plummeted and delinquencies rose during the financial crisis, but it has remained over 40 percent in recent years despite a strong housing recovery. Our results indicate that the sustained high LGDs post-crisis are due to a combination of an overhang of crisis-era foreclosures and prolonged foreclosure timelines, which have offset higher sales recoveries. Simulations show that cutting foreclosure timelines by one year would cause LGD to decrease by 5?8 percentage points, depending on the trade-off between lower ...
Working Paper
The Contribution of Foreign Holdings of U.S. Treasury Securities to the U.S. Long-Term Interest Rate: An Empirical Investigation of the Impact of the Zero Lower Bound
We find empirical evidence of a possible structural break in the relationship between the foreign holdings of U.S. Treasury securities and the U.S. long-term interest rate occurring at the time when U.S. monetary policy became constrained at the zero-lower bound (ZLB). The estimated marginal effect of the foreign holdings ratio on the U.S. long-term interest rate, particularly its long-run effect, appears to have become stronger during the ZLB regime than it was before. We argue that the leading explanation of this apparent break is the nonlinearity introduced by the ZLB. Motivated by theory, ...
Working Paper
Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States
In economic unions the fiscal authority consists not of one, but many governments. We analyze whether partisanship of state-level politicians affects federal policies, such as fiscal stimulus in the U.S. Using data from close elections, we find partisan differences in the marginal propensity to spend federal transfers: Republican governors spend less. This partisan difference has tended to increase with measures of polarization. We quantify the aggregate effects in a New Keynesian model of Republican and Democratic states in a monetary union: Lowering partisan differences to levels ...
Working Paper
Correcting for Endogeneity in Models with Bunching
We show that in models with endogeneity, bunching at the lower or upper boundary of the distribution of the treatment variable may be used to build a correction for endogeneity. We derive the asymptotic distribution of the parameters of the corrected model, provide an estimator of the standard errors, and prove the consistency of the bootstrap. An empirical application reveals that time spent watching television, corrected for endogeneity, has roughly no net effect on cognitive skills and a significant negative net effect on non-cognitive skills in children.