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Working Paper
Measuring the Natural Rate of Interest : International Trends and Determinants
Holston, Kathryn; Williams, John C.; Laubach, Thomas (2016-08-19)
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 ...
Finance and Economics Discussion Series , Paper 2016-073

Working Paper
Dynamic Identification Using System Projections and Instrumental Variables
Lewis, Daniel J.; Mertens, Karel (2023-01-10)
We propose System Projections on Instrumental Variables (SP-IV) to estimate dynamic structural relationships using impulse responses obtained from local projections or vector autoregressions. SP-IV replaces lag sequences of instruments in traditional IV with lead sequences of endogenous variables. By allowing the inclusion of lagged variables as controls, SP-IV weakens exogeneity requirements and can improve efficiency and effective instrument strength relative to 2SLS. We provide inference procedures under strong and weak identification, and show that SP-IV outperforms conventional IV ...
Working Papers , Paper 2204

Newsletter
Looking down the road with ALEX: Forecasting U.S. GDP
Brave, Scott A.; Butters, R. Andrew; Fogarty, Michael (2020-10-23)
In this article, we examine the recovery from the recession that began with the onset of the Covid-19 pandemic in the U.S. To do so, we present and discuss for the first time the results from a mixed-frequency Bayesian vector autoregressive model called ALEX. This model uses 107 monthly and quarterly indicators of economic activity to forecast the near-term path of U.S. real gross domestic product (GDP).
Chicago Fed Letter , Issue 447 , Pages 5

Working Paper
Endogenous Uncertainty
Clark, Todd E.; Carriero, Andrea; Marcellino, Massimiliano (2018-03-29)
We show that macroeconomic uncertainty can be considered as exogenous when assessing its effects on the U.S. economy. Instead, financial uncertainty can at least in part arise as an endogenous response to some macroeconomic developments, and overlooking this channel leads to distortions in the estimated effects of financial uncertainty shocks on the economy. We obtain these empirical findings with an econometric model that simultaneously allows for contemporaneous effects of both uncertainty shocks on economic variables and of economic shocks on uncertainty. While the traditional econometric ...
Working Papers (Old Series) , Paper 1805

Working Paper
Finite-Order VAR Representation of Linear Rational Expectations Models: With Some Lessons for Monetary Policy
Martinez-Garcia, Enrique (2016-09-01)
This paper considers the characterization via finite-order VARs of the solution of a large class of linear rational expectations (LRE) models. I propose a unified approach that uses a companion Sylvester equation to check the existence and uniqueness of a solution to the canonical (first-order) LRE model in finite-order VAR form and a quadratic matrix equation to characterize it decoupling the backward- and forward-looking aspects of the model. I also investigate the fundamentalness of the shocks recovered. Solving LRE models by this procedure is straightforward to implement, general in its ...
Globalization Institute Working Papers , Paper 285

Working Paper
Uniform Priors for Impulse Responses
Arias, Jonas E.; Rubio-Ramirez, Juan F.; Waggoner, Daniel F. (2020-09-09)
There has been a call for caution when using the conventional method for Bayesian inference in set-identified structural vector autoregressions on the grounds that the uniform prior over the set of orthogonal matrices could be nonuniform for key objects of interest. This paper challenges this call. Although the prior distributions of individual impulse responses induced by the conventional method may be nonuniform, they typically do not drive the posteriors if one does not condition on the reduced-form parameters. Importantly, when the focus is on joint inference, the uniform prior over the ...
Working Papers , Paper 22-30

Report
Online Estimation of DSGE Models
Herbst, Edward; Schorfheide, Frank; Cai, Michael; Matlin, Ethan; Del Negro, Marco; Sarfati, Reca (2019-08-01)
This paper illustrates the usefulness of sequential Monte Carlo (SMC) methods in approximating DSGE model posterior distributions. We show how the tempering schedule can be chosen adaptively, explore the benefits of an SMC variant we call generalized tempering for ?online? estimation, and provide examples of multimodal posteriors that are well captured by SMC methods. We then use the online estimation of the DSGE model to compute pseudo-out-of-sample density forecasts of DSGE models with and without financial frictions and document the benefits of conditioning DSGE model forecasts on nowcasts ...
Staff Reports , Paper 893

Working Paper
The Intermittent Phillips Curve: Finding a Stable (But Persistence-Dependent) Phillips Curve Model Specification
Verbrugge, Randal; Ashley, Richard (2023-02-14)
We establish that the Phillips curve is persistence-dependent: inflation responds differently to persistent versus moderately persistent (or versus transient) fluctuations in the unemployment rate gap. This persistence-dependent relationship appears to align with business-cycle stages and is thus consistent with existing theory. Previous work fails to model this dependence, thereby finding numerous "inflation puzzles" – e.g., missing inflation/disinflation – noted in the literature. Our specification eliminates these puzzles; for example, the Phillips curve has not weakened, nor was ...
Working Papers , Paper 19-09R2

Working Paper
(Re-)Connecting Inflation and the Labor Market: A Tale of Two Curves
Ahn, Hie Joo; Rudd, Jeremy B. (2024-07-11)
We propose an empirical framework in which shocks to worker reallocation, aggregate activity, and labor supply drive the joint dynamics of labor market outcomes and inflation, and where reallocation shocks take two forms depending on whether they result from quits or from job loss. In order to link our approach with previous theoretical and empirical work, we extend the procedure for estimating a Bayesian sign-restricted VAR so that priors can be directly imposed on the VAR's impact matrix. We find that structural shocks that shift the Beveridge curve have different effects on inflation. ...
Finance and Economics Discussion Series , Paper 2024-050

Working Paper
A Gibbs Sampler for Efficient Bayesian Inference in Sign-Identified SVARs
Arias, Jonas E.; Rubio-Ramirez, Juan F.; Shin, Minchul (2025-05-30)
We develop a new algorithm for inference based on structural vector autoregressions (SVARs) identified with sign restrictions. The key insight of our algorithm is to break from the accept-reject tradition associated with sign-identified SVARs. We show that embedding an elliptical slice sampling within a Gibbs sampler approach can deliver dramatic gains in speed and turn previously infeasible applications into feasible ones. We provide a tractable example to illustrate the power of the elliptical slice sampling applied to sign-identified SVARs. We demonstrate the usefulness of our algorithm by ...
Working Papers , Paper 25-19

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