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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

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
House Price Growth Interdependencies and Comovement
Cohen, Jeffrey P.; Soques, Daniel; Coughlin, Cletus C. (2019-09-25)
This paper examines house price diffusion across metropolitan areas in the United States. We develop a generalization of the Hamilton and Owyang (2012) Markov-switching model, where we incorporate direct regional spillovers using a spatial weighting matrix. The Markov-switching framework allows consideration for house price movements that occur due to similar timing of downturns across MSAs. The inclusion of the spatial weighting matrix improves fit compared to a standard endogenous clustering model. We find seven clusters of MSAs that experience idiosyncratic recessions plus one distinct ...
Working Papers , Paper 2019-28

Working Paper
Assessing Regulatory Responses to Banking Crises
Sharma, Padma (2022-05-10)
During banking crises, regulators must decide between bailouts or liquidations, neither of which are publicly popular. However, making a comprehensive assessment of regulators requires examining all their decisions against their dual objectives of preserving financial stability and discouraging moral hazard. I develop a Bayesian latent class model to assess regulators on these competing objectives and evaluate banking and savings and loan (S&L) regulators during the 1980s crises. I find that the banking authority (FDIC) conformed to these objectives whereas the S&L regulator (FSLIC), which ...
Research Working Paper , Paper RWP 22-04

Working Paper
Metro Business Cycles
Rapach, David E.; Arias, Maria A.; Gascon, Charles S. (2014-11-11)
We construct monthly economic activity indices for the 50 largest U.S. metropolitan statistical areas (MSAs) beginning in 1990. Each index is derived from a dynamic factor model based on twelve underlying variables capturing various aspects of metro area economic activity. To accommodate mixed-frequency data and differences in data-publication lags, we estimate the dynamic factor model using a maximum- likelihood approach that allows for arbitrary patterns of missing data. Our indices highlight important similarities and differences in business cycles across MSAs. While a number of MSAs ...
Working Papers , Paper 2014-46

Working Paper
Tests of Equal Accuracy for Nested Models with Estimated Factors
McCracken, Michael W.; Perron, Benoit; Goncalves, Silvia (2015-09-14)
In this paper we develop asymptotics for tests of equal predictive ability between nested models when factor-augmented regression models are used to forecast. We provide conditions under which the estimation of the factors does not affect the asymptotic distributions developed in Clark and McCracken (2001) and McCracken (2007). This enables researchers to use the existing tabulated critical values when conducting inference. As an intermediate result, we derive the asymptotic properties of the principal components estimator over recursive windows. We provide simulation evidence on the finite ...
Working Papers , Paper 2015-25

Report
Micro Responses to Macro Shocks
Sancibrián, Víctor; Almuzara, Martín (2024-03-01)
We study panel data regression models when the shocks of interest are aggregate and possibly small relative to idiosyncratic noise. This speaks to a large empirical literature that targets impulse responses via panel local projections. We show how to interpret the estimated coefficients when units have heterogeneous responses and how to obtain valid standard errors and confidence intervals. A simple recipe leads to robust inference: including lags as controls and then clustering at the time level. This strategy is valid under general error dynamics and uniformly over the degree of ...
Staff Reports , Paper 1090

Journal Article
The New York Fed Staff Underlying Inflation Gauge (UIG)
Amstad, Marlene; Potter, Simon M.; Rich, Robert W. (2017-23-02)
A measure of underlying inflation that uses all relevant information, is available in real time, and forecasts inflation better than traditional underlying inflation measures?such as core inflation measures?would greatly benefit monetary policymakers, market participants, and the public. This article presents the New York Fed Staff Underlying Inflation Gauge (UIG) for the consumer price index and the personal consumption expenditures deflator. Using a dynamic factor model approach, the UIG is derived from a broad data set that extends beyond price series to include a wide range of nominal, ...
Economic Policy Review , Issue 23-2 , Pages 1-32

What Does the NFCI Tell Us About Future Economic Growth?
Gillet, Max; Brave, Scott A. (2024-06)
The Federal Reserve’s policy tools rely on financial markets to transmit changes in monetary policy to the real economy. For instance, changes in short-term interest rates set by the Fed and faced by financial institutions—e.g., the federal funds rate—affect longer-term rates paid by firms and households. These rate changes in turn impact borrowing and spending decisions. Understanding the current state of financial conditions is, thus, both critical to central bankers and of interest to the wider public.
Chicago Fed Insights

Working Paper
International Stock Comovements with Endogenous Clusters
Owyang, Michael T.; Coroneo, Laura; Jackson, Laura E. (2020-03-27)
We examine international stock return comovements of country-industry portfolios. Our model allows comovements to be driven by a global and a cluster component, with the cluster membership endogenously determined. Results indicate that country-industry portfolios tend to cluster mainly within geographical areas that can include one or more countries. The cluster compositions substantially changed over time, with the emergence of clusters among European countries from the early 2000s. The cluster component was the main driver of country-industry portfolio returns for most of the sample, except ...
Working Papers , Paper 2018-038

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