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Working Paper
The boy who cried bubble: public warnings against riding bubbles
Asako, Yasushi; Ueda, Kozo (2014-01-16)
Attempts by governments to stop bubbles by issuing warnings seem unsuccessful. This paper examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it if investors believe that a warning is issued in a definite range of periods commencing around the starting period of the bubble. If a warning involves the possibility of being issued too early, regardless of the starting period of the bubble, it cannot stop the bubble immediately. Bubble duration can be shortened by a premature public warning, but lengthened if it is ...
Globalization Institute Working Papers , Paper 167

Working Paper
Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach
Gelain, Paolo; Lansing, Kevin J.; Natvik, Gisele J. (2015-01)
We use a simple quantitative asset pricing model to ?reverse-engineer? the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage ...
Working Paper Series , Paper 2015-2

Journal Article
Model Averaging and Persistent Disagreement
Kasa, Kenneth; Cho, In-Koo (2017)
The authors consider the following scenario: Two agents construct models of an endogenous price process. One agent thinks the data are stationary, the other thinks the data are nonstationary. A policymaker combines forecasts from the two models using a recursive Bayesian model averaging procedure. The actual (but unknown) price process depends on the policymaker?s forecasts. The authors find that if the policymaker has complete faith in the stationary model, then beliefs and outcomes converge to the stationary rational expectations equilibrium. However, even a grain of doubt about ...
Review , Volume 99 , Issue 3 , Pages 279-294

Report
Should Mothers Work? How Perceptions of the Social Norm Affect Individual Attitudes Toward Work in the U.S.
Cortes, Patricia; Koşar, Gizem; Pan, Jessica; Zafar, Basit (2022-11-01)
We study how peer beliefs shape individual attitudes toward maternal labor supply using realistic hypothetical scenarios that elicit recommendations on the labor supply choices of a mother with a young child and an information treatment embedded within representative surveys. Across the scenarios, we find that individuals systematically overestimate the extent of gender conservativeness among the people around them. Exposure to information on peer beliefs leads to a shift in recommendations, driven largely by information-based belief updating. The information treatment also increases ...
Staff Reports , Paper 1038

Working Paper
The Financial Origins of Non-Fundamental Risk
Acharya, Sushant; Dogra, Keshav; Singh, Sanjay R. (2023-05-01)
We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes the economy to self-fulfilling fire sales. Policy can eliminate nonfundamental risk by (i) increasing the supply of publicly backed safe assets, through issuing government debt or bailing out intermediaries, or (ii) reducing the ...
Working Paper Series , Paper 2023-20

Working Paper
COVID-19 Is a Persistent Reallocation Shock
Barrero, Jose Maria; Bloom, Nicholas; Davis, Steven J.; Meyer, Brent (2021-01-15)
Drawing on data from the firm-level Survey of Business Uncertainty, we present three pieces of evidence that COVID-19 is a persistent reallocation shock. First, rates of excess job and sales reallocation over 24-month periods have risen sharply since the pandemic struck, especially for sales. We compute these rates by aggregating over monthly firm-level observations that look back 12 months and ahead 12 months. Second, as of December 2020, firm-level forecasts of sales revenue growth over the next year imply a continuation of recent changes, not a reversal. Third, COVID-19 shifted relative ...
FRB Atlanta Working Paper , Paper 2021-3

Discussion Paper
Have Consumers’ Long-Run Inflation Expectations Become Un-Anchored?
Boumahdi, Fatima; Lu, Jessica; Topa, Giorgio; Armantier, Olivier; Koşar, Gizem; Van der Klaauw, Wilbert; Goldman, Leo (2021-09-24)
With the recent surge in inflation since the spring there has been an increase in consumers’ short-run (one-year ahead) and, to a lesser extent, medium-run (three-year ahead) inflation expectations (see Survey of Consumer Expectations). Although this rise in short- and medium-run inflation expectations is relevant for policymakers, it does not provide direct evidence about “un-anchoring” of long-run inflation expectations. Roughly speaking, inflation expectations are considered un-anchored when long-run inflation expectations change significantly in response to developments in inflation ...
Liberty Street Economics , Paper 20210924a

Newsletter
Are Long-run Inflation Expectations Well Anchored?
Barlevy, Gadi; Fisher, Jonas D. M.; Tysinger, May (2021-07-15)
Many observers anticipate that the recent run-up in inflation in the United States will prove to be temporary, and annual inflation will be near the Fed’s target of 2% in 2022 and 2023. An important consideration for policymakers, however, is whether the private sector will similarly read the rise in inflation as temporary. That is, are long-run inflation expectations likely to remain anchored, or might the sharp rise in inflation cause long-run expectations to increase substantially as well?
Chicago Fed Letter , Issue 458 , Pages 7

Working Paper
Fireside Chats: Communication and Consumers’ Expectations in the Great Depression
Pedemonte, Mathieu (2020-10-06)
This paper shows how policy announcements can be used to manage expectations and have a role as a policy tool. Using regional variation in radio exposure, I evaluate the impact of President Franklin D. Roosevelt’s 1935 Fireside Chat, in which he showcased the introduction of important social policies, establishing a new cycle of the New Deal. I document that cities with higher exposure to the announcement exhibited a significant increase in spending on durable goods. I provide evidence that this result is not driven by wealth or other potentially confounding variables. The estimated effect ...
Working Papers , Paper 20-30

Report
Learning the fiscal theory of the price level: some consequences of debt management policy
Eusepi, Stefano; Preston, Bruce (2011-09-01)
This paper examines how the scale and composition of public debt can affect economies that implement a combination of ?passive? monetary policy and ?active? fiscal policy. This policy configuration is argued to be of both historical and contemporary interest in the cases of the U.S. and Japanese economies. It is shown that higher average levels and moderate average maturities of debt can induce macroeconomic instability under a range of policies specified as simple rules. However, interest rate pegs in combination with active fiscal policies almost always ensure macroeconomic stability. This ...
Staff Reports , Paper 515

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