Search Results
Working Paper
News and Uncertainty about COVID-19: Survey Evidence and Short-Run Economic Impact
A tailor-made survey documents consumer perceptions of the U.S. economy’s response to a large shock: the advent of the COVID-19 pandemic. The survey ran at a daily frequency between March 2020 and July 2021. Consumer perceptions regarding output and inflation react rapidly. Uncertainty is pervasive. A business-cycle model calibrated to the consumer views provides an interpretation. The rise in household uncertainty amplifies the pandemic recession by a factor of three. Different perceptions about monetary policy can explain why consumers and professional forecasters agree on the ...
Working Paper
Trade Uncertainty and U.S. Bank Lending
This paper uses U.S. credit register data and the 2018–19 Trade War to study the effects of uncertainty on domestic credit supply. Exploiting differences in banks' ex-ante exposure to trade uncertainty, we find that increased uncertainty is associated with a broad lending contraction across their customer firms. This result is consistent with banks responding to uncertainty with wait-and-see behaviors, where more exposed banks curtail risky exposures, reduce loan maturities, and adjust loan supply along both intensive and extensive margins. The lending contraction is larger for more ...
Working Paper
The Nonlinear Effects of Uncertainty Shocks
We consider the effects of uncertainty shocks in a nonlinear VAR that allows uncertainty to have amplification effects. When uncertainty is relatively low, fluctuations in uncertainty have small, linear effects. In periods of high uncertainty, the effect of a further increase in uncertainty is magnified. We find that uncertainty shocks in this environment have a more pronounced effect on real economic variables. We also conduct counterfactual experiments to determine the channels through which uncertainty acts. Uncertainty propagates through both the household consumption channel and through ...
Working Paper
News-driven uncertainty fluctuations
We embed a news shock, a noisy indicator of the future state, in a two-state Markov-switching growth model. Our framework, combined with parameter learning, features rich history-dependent uncertainty dynamics. We show that bad news that arrives during a prolonged economic boom can trigger a ?Minsky moment??a sudden collapse in asset values. The effect is greatly amplified when agents have a preference for early resolution of uncertainty. We leverage survey recession probability forecasts to solve a sequential learning problem and estimate the full posterior distribution of model primitives. ...
Journal Article
Getting It Right: Meeting Uncertainty with Conditionality
We’ve made a lot of progress in bringing down inflation, but there is more to do. We need to exhibit care and be ready to respond to however the economy evolves, balancing policy to protect full employment while restoring price stability. That is the economy we are striving for and working to deliver. The following is adapted from remarks presented by the president of the Federal Reserve Bank of San Francisco at the Commonwealth Club World Affairs of California, in partnership with the San Francisco Press Club, on June 24.
Working Paper
The Price of Macroeconomic Uncertainty: Evidence from Daily Options
Using recently available daily S&P 500 index option expirations, we examine the ex ante pricing of uncertainty surrounding key economic releases and the determinants of risk premia associated with these releases. The cost of insurance against price, variance, and downside risk is higher for options that span U.S. CPI, FOMC, Nonfarm Payroll, and GDP releases compared to neighboring expirations. We calculate release-driven forward equity and variance risk premia and find that premia vary considerably across economic releases and increase with risk aversion as well as with monetary policy and ...
Speech
Thrive in Any Environment: Strengthening Resilience Through Risk Management
Remarks at the Risk USA Conference, New York City.
Working Paper
When are the Effects of Fiscal Policy Uncertainty Large?
Using a new-Keynesian model with endogenous capital accumulation, I show that uncertainty about fiscal policy can cause large declines in consumption, investment, and output when the zero lower bound (ZLB) binds, but has modest effects when the monetary authority is not constrained by the ZLB. I study uncertainty about the level of government spending and uncertainty about tax rates on consumption, wages, capital income, and investment. In my model, uncertainty about government spending and the wage tax rate has particularly large effects. I show that the effects of fiscal policy uncertainty ...
Report
Uncertainty about Trade Policy Uncertainty
We revisit in this note the macroeconomic impact of the recent rise in trade policy uncertainty. As in the literature, we do find that high trade policy uncertainty can adversely impact domestic and foreign economic activity. In addition, we identify an alternative business sentiment channel that is separate and distinct from the impact of trade policy uncertainty, which provides a complementary explanation of the recent developments in the U.S. and global economic activities. This sentiment channel also implies that subsiding trade policy uncertainty does not necessarily result in a recovery ...
Journal Article
Digging into the Downward Trend in Consumer Inflation Expectations
Since mid-2014, the long-run inflation expectations of consumers have been declining. Many commentators blame the decline on gasoline prices, which have also been falling since that time, but we argue that this explanation is incomplete. We analyze University of Michigan Surveys of Consumers microdata and find that a decline in uncertainty about future inflation is a modest part of the story over this period?but it represents the entire story when considering changes in expectations since 2012.