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Report
DSGE forecasts of the lost recovery
Cai, Michael; Giannoni, Marc; Del Negro, Marco; Gupta, Abhi; Moszkowski, Erica; Li, Pearl (2018-03-01)
The years following the Great Recession were challenging for forecasters. Unlike other deep downturns, this recession was not followed by a swift recovery, but generated a sizable and persistent output gap that was not accompanied by deflation as a traditional Phillips curve relationship would have predicted. Moreover, the zero lower bound and unconventional monetary policy generated an unprecedented policy environment. We document the real real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model during this period and explain the results using ...
Staff Reports , Paper 844

Working Paper
Measuring Interest Rate Risk in the Life Insurance Sector: The U.S. and the U.K.
Rosen, Richard J.; Hartley, Daniel; Paulson, Anna L. (2016-01-03)
We use a two factor model of life insurer stock returns to measure interest rate risk at U.S. and U.K. insurers. Our estimates show that interest rate risk among U.S. life insurers increased as interest rates decreased to historically low levels in recent years. For life insurers in the U.K., in contrast, interest rate risk remained low during this time, roughly unchanged from what it was in the period prior to the financial crisis when long-term interest rates were in their usual historical ranges. We attribute these differences to the heavier use of products that combine guarantees with ...
Working Paper Series , Paper WP-2016-2

Journal Article
Bond Premiums and the Natural Real Rate of Interest
Smith, Andrew Lee; Hakkio, Craig S. (2017-01)
Economic Review , Issue Q I , Pages 5-39

Working Paper
Unexpected Supply Effects of Quantitative Easing and Tightening
Seida, Tim; D'Amico, Stefania (2020-07-31)
To analyze the evolution of quantitative easing’s (QE) and tightening’s (QT) effects across consecutive announcements, we focus on their unexpected component. Treasury yield sensitivities to QE and QT supply surprises do not fall monotonically over time, thus later announcements seemed to remain powerful; yield sensitivities to QT surprises are on average larger than sensitivities to QE surprises, implying supply effects did not diminish during periods of market calm amid economic expansion; finally, yield sensitivities are amplified by the amount of interest-rate uncertainty prevailing ...
Working Paper Series , Paper WP-2020-17

Working Paper
Optimal Time-Consistent Taxation with Default
Karantounias, Anastasios G. (2017-11-01)
We study optimal time-consistent distortionary taxation when the repayment of government debt is not enforceable. The government taxes labor income or issues noncontingent debt in order to finance an exogenous stream of stochastic government expenditures. The government can repudiate its debt subject to some default costs, thereby introducing some state-contingency to debt. We are motivated by the fact that domestic sovereign default is an empirically relevant phenomenon, as Reinhart and Rogoff (2011) demonstrated. Optimal policy is characterized by two opposing incentives: an incentive to ...
FRB Atlanta Working Paper , Paper 2017-12

Working Paper
A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow
Afonso, Gara M.; Lester, Benjamin; Armenter, Roc (2018-02-21)
The landscape of the federal funds market changed drastically in the wake of the Great Recession as large-scale asset purchase programs left depository institutions awash with reserves, and new regulations made it more costly for these institutions to lend. As traditional levers for implementing monetary policy became less effective, the Federal Reserve introduced new tools to implement the target range for the federal funds rate, changing this landscape even more. In this paper, we develop a model that is capable of reproducing the main features of the federal funds market, as observed ...
Working Papers , Paper 18-10

Working Paper
Aging and the Real Interest Rate in Japan: A Labor Market Channel
Fujiwara, Ippei; Fujita, Shigeru (2021-06-08)
This paper explores a causal link between aging of the labor force and declining trends in the real interest rate in Japan. We develop a search/matching model that features heterogeneous workers with respect to their ages and firm-specific skills. Using the model, we examine the long-run implications of the sharp drop in labor force entry in the 1970s. We show that the changes in the demographic structure induce significant low-frequency movements in per capita consumption growth and the real interest rate. The model suggests that aging of the labor force accounts for 40 percent or more of ...
Working Papers , Paper 21-23

Working Paper
Quantitative Easing and Direct Lending in Response to the COVID-19 Crisis
Occhino, Filippo (2020-10-05)
When the COVID-19 crisis hit the economy in 2020, the Federal Reserve responded with numerous programs designed to prevent a collapse in bank credit and firms’ available funds. I develop a dynamic general equilibrium model to study how these programs work and to evaluate their effectiveness. In the model, quantitative easing works through three channels: the expansion of bank reserves lowers a liquidity premium, the purchase of assets lowers a volatility risk premium, and the economic stimulus lowers a credit risk premium. Since bank reserves are currently larger than in the past, the ...
Working Papers , Paper 202029

Report
Robust inference in models identified via heteroskedasticity
Lewis, Daniel J. (2018-12-01)
Identification via heteroskedasticity exploits differences in variances across regimes to identify parameters in simultaneous equations. I study weak identification in such models, which arises when variances change very little or the variances of multiple shocks change close to proportionally. I show that this causes standard inference to become unreliable, outline two tests to detect weak identification, and establish conditions for the validity of nonconservative methods for robust inference on an empirically relevant subset of the parameter vector. I apply these tools to monetary policy ...
Staff Reports , Paper 876

Journal Article
Measuring the Stance of Monetary Policy on and off the Zero Lower Bound
Choi, Jason; Doh, Taeyoung (2016-07)
Taeyoung Doh and Jason Choi propose a new ?shadow? short-term interest rate to measure the stance of policy when the federal funds rate was constrained by the zero lower bound.
Economic Review , Issue Q III , Pages 5-24

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