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Working Paper
How To Go Viral: A COVID-19 Model with Endogenously Time-Varying Parameters
Matthes, Christian; Ho, Paul; Lubik, Thomas A. (2020-08-21)
This paper estimates a panel model with endogenously time-varying parameters for COVID-19 cases and deaths in U.S. states. The functional form for infections incorporates important features of epidemiological models but is flexibly parameterized to capture different trajectories of the pandemic. Daily deaths are modeled as a spike-and-slab regression on lagged cases. The paper's Bayesian estimation reveals that social distancing and testing have significant effects on the parameters. For example, a 10 percentage point increase in the positive test rate is associated with a 2 percentage point ...
Working Paper , Paper 20-10

Report
Measuring Real Activity Using a Weekly Economic Index
Mertens, Karel; Trivedi, Mihir; Lewis, Daniel J.; Stock, James H. (2020-04-01)
This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the onset of and policy response to the novel coronavirus in the United States. The WEI is a weekly composite index of real economic activity, with eight of ten series available the Thursday after the end of the reference week. In addition to being a weekly real activity index, the WEI has strong predictive power for output measures and provided an accurate nowcast of current-quarter GDP growth in the first half of 2020. We document how the WEI responded to key events and data ...
Staff Reports , Paper 920

Working Paper
When Do State-Dependent Local Projections Work?
Kilian, Lutz; Pesavento, Elena; Herrera, Ana María; Goncalves, Silvia (2022-05-06)
Many empirical studies estimate impulse response functions that depend on the state of the economy. Most of these studies rely on a variant of the local projection (LP) approach to estimate the state-dependent impulse response functions. Despite its widespread application, the asymptotic validity of the LP approach to estimating state-dependent impulse responses has not been established to date. We formally derive this result for a structural state-dependent vector autoregressive process. The model only requires the structural shock of interest to be identified. A sufficient condition for the ...
Working Papers , Paper 2205

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
Multivariate return decomposition: theory and implications
Gospodinov, Nikolay; Anatolyev, Stanislav (2015-08-01)
In this paper, we propose a model based on multivariate decomposition of multiplicative?absolute values and signs?components of several returns. In the m-variate case, the marginals for the m absolute values and the binary marginals for the m directions are linked through a 2m-dimensional copula. The approach is detailed in the case of a bivariate decomposition. We outline the construction of the likelihood function and the computation of different conditional measures. The finite-sample properties of the maximum likelihood estimator are assessed by simulation. An application to predicting ...
FRB Atlanta Working Paper , Paper 2015-7

Working Paper
Measuring Real Activity Using a Weekly Economic Index
Mertens, Karel; Trivedi, Mihir; Lewis, Daniel J.; Stock, James H. (2021-03-02)
This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the onset of and policy response to the novel coronavirus in the United States. The WEI is a weekly composite index of real economic activity, with eight of 10 series available the Thursday after the end of the reference week. In addition to being a weekly real activity index, the WEI has strong predictive power for output measures and provided an accurate nowcast of current-quarter GDP growth in the first half of 2020, with weaker performance in the second half. We document ...
Working Papers , Paper 2011

Working Paper
Jointly Estimating Macroeconomic News and Surprise Shocks
Kilian, Lutz; Plante, Michael D.; Richter, Alexander W. (2023-04-20)
This paper clarifies the conditions under which the state-of-the-art approach to identifying TFP news shocks in Kurmann and Sims (2021, KS) identifies not only news shocks but also surprise shocks. We examine the ability of the KS procedure to recover responses to these shocks from data generated by a conventional New Keynesian DSGE model. Our analysis shows that the KS response estimator tends to be strongly biased even in the absence of measurement error. This bias worsens in realistically small samples, and the estimator becomes highly variable. Incorporating a direct measure of TFP news ...
Working Papers , Paper 2304

Working Paper
Inference Based On Time-Varying SVARs Identified with Time Restrictions
Arias, Jonas E.; Rubio-Ramirez, Juan F.; Shin, Minchul; Waggoner, Daniel F. (2024-03-25)
We propose an approach for Bayesian inference in time-varying structural vector autoregressions (SVARs) identified with sign restrictions. The linchpin of our approach is a class of rotation-invariant time-varying SVARs in which the prior and posterior densities of any sequence of structural parameters belonging to the class are invariant to orthogonal transformations of the sequence. Our methodology is new to the literature. In contrast to existing algorithms for inference based on sign restrictions, our algorithm is the first to draw from a uniform distribution over the sequences of ...
FRB Atlanta Working Paper , Paper 2024-4

Working Paper
A Generalized Approach to Indeterminacy in Linear Rational Expectations Models
Bianchi, Francesco; Nicolo, Giovanni (2019-05)
We propose a novel approach to deal with the problem of indeterminacy in Linear Rational Expectations models. The method consists of augmenting the original state space with a set of auxiliary exogenous equations to provide the adequate number of explosive roots in presence of indeterminacy. The solution in this expanded state space, if it exists, is always determinate, and is identical to the indeterminate solution of the original model. The proposed approach accommodates determinacy and any degree of indeterminacy, and it can be implemented even when the boundaries of the determinacy region ...
Finance and Economics Discussion Series , Paper 2019-033

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