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Working Paper
Short-term Planning, Monetary Policy, and Macroeconomic Persistence
López-Salido, J. David; Gust, Christopher J.; Herbst, Edward (2020-01-08)
This paper uses aggregate data to estimate and evaluate a behavioral New Keynesian (NK) model in which households and firms plan over a finite horizon. The finite-horizon (FH) model outperforms rational expectations versions of the NK model commonly used in empirical applications as well as other behavioral NK models. The better fit of the FH model reflects that it can induce slow-moving trends in key endogenous variables which deliver substantial persistence in output and inflation dynamics. In the FH model, households and firms are forward-looking in thinking about events over their ...
Finance and Economics Discussion Series , Paper 2020-003

Report
Unconventional Monetary Policies and Inequality
Lee, Donggyu (2024-07-01)
This paper examines the effects of unconventional monetary policies on household welfare across the wealth distribution following the Great Recession. Using a heterogeneous agent New Keynesian model, estimated with Bayesian methods, I analyze how forward guidance and quantitative easing affected inequality during this period. The findings show that while these policies boosted economic activity and benefited all households, they had non-linear distributional effects. Unconventional monetary policies reduced inequality within the bottom 90 percent by lowering unemployment but widened the ...
Staff Reports , Paper 1108

Report
Dynamic prediction pools: an investigation of financial frictions and forecasting performance
Del Negro, Marco; Schorfheide, Frank; Hasegawa, Raiden B. (2014-10-01)
We provide a novel methodology for estimating time-varying weights in linear prediction pools, which we call dynamic pools, and use it to investigate the relative forecasting performance of dynamic stochastic general equilibrium (DSGE) models, with and without financial frictions, for output growth and inflation in the period 1992 to 2011. We find strong evidence of time variation in the pool?s weights, reflecting the fact that the DSGE model with financial frictions produces superior forecasts in periods of financial distress but doesn?t perform as well in tranquil periods. The dynamic ...
Staff Reports , Paper 695

Working Paper
Optimal Monetary and Macroprudential Policies: Gains and Pitfalls in a Model of Financial Intermediation
Kiley, Michael T.; Sim, Jae W. (2015-09-04)
We estimate a quantitative general equilibrium model with nominal rigidities and financial intermediation to examine the interaction of monetary and macroprudential stabilization policies. The estimation procedure uses credit spreads to help identify the role of financial shocks amenable to stabilization via monetary or macroprudential instruments. The estimated model implies that monetary policy should not respond strongly to the credit cycle and can only partially insulate the economy from the distortionary effects of financial frictions/shocks. A counter-cyclical macroprudential instrument ...
Finance and Economics Discussion Series , Paper 2015-78

Working Paper
Capital-Task Complementarity and the Decline of the U.S. Labor Share of Income
Orak, Musa (2017-03)
This paper provides evidence that shifts in the occupational composition of the U.S. workforce are the most important factor explaining the trend decline in the labor share over the past four decades. Estimates suggest that while there is unitary elasticity between equipment capital and non-routine tasks, equipment capital and routine tasks are highly substitutable. Through the lenses of a general equilibrium model with occupational choice and the estimated production technology, I document that the fall in relative price of equipment capital alone can explain 72 percent of the observed ...
International Finance Discussion Papers , Paper 1200

Working Paper
A Statistical Learning Approach to Land Valuation: Optimizing the Use of External Information
Albouy, David; Shin, Minchul (2022-11-14)
We develop a statistical learning model to estimate the value of vacant land for any parcel, regardless of improvements. Rooted in economic theory, the model optimizes how to combine common improved property sales with rare, but more informative, vacant land sales. It estimates how land values change with geography and other features and determines how much information either vacant or improved sales provide to nearby areas through spatial correlation. For most census tracts, incorporating improved sales often doubles the certainty of land value estimates.
Working Papers , Paper 22-38

Working Paper
Financial Business Cycles
Iacoviello, Matteo (2014-08-28)
Using Bayesian methods, I estimate a DSGE model where a recession is initiated by losses suffered by banks and exacerbated by their inability to extend credit to the real sector. The event triggering the recession has the workings of a redistribution shock: a small sector of the economy -- borrowers who use their home as collateral -- defaults on their loans. When banks hold little equity in excess of regulatory requirements, the losses require them to react immediately, either by recapitalizing or by deleveraging. By deleveraging, banks transform the initial shock into a credit crunch, and, ...
International Finance Discussion Papers , Paper 1116

Working Paper
Bayesian Estimation of Time-Changed Default Intensity Models
Gordy, Michael B.; Szerszen, Pawel J. (2015-01-06)
We estimate a reduced-form model of credit risk that incorporates stochastic volatility in default intensity via stochastic time-change. Our Bayesian MCMC estimation method overcomes nonlinearity in the measurement equation and state-dependent volatility in the state equation. We implement on firm-level time-series of CDS spreads, and find strong in-sample evidence of stochastic volatility in this market. Relative to the widely-used CIR model for the default intensity, we find that stochastic time-change offers modest benefit in fitting the cross-section of CDS spreads at each point in time, ...
Finance and Economics Discussion Series , Paper 2015-2

Working Paper
Does Smooth Ambiguity Matter for Asset Pricing?
Gallant, A. Ronald; Jahan-Parvar, Mohammad; Liu, Hening (2018-01)
We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate consumption data, our estimation provides statistical support for asset pricing models with smooth ambiguity. Statistical model comparison shows that models with ambiguity, learning and time-varying volatility are preferred to the long-run risk model. We analyze asset pricing implications of the ...
International Finance Discussion Papers , Paper 1221

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