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Working Paper
What is Certain about Uncertainty?
Researchers, policymakers, and market participants have become increasingly focused on the effects of uncertainty and risk on financial market and economic outcomes. This paper provides a comprehensive survey of the many existing measures of risk, uncertainty, and volatility. It summarizes what these measures capture, how they are constructed, and their effects, paying particular attention to large uncertainty spikes, such as those appearing concurrently with the outbreak of COVID-19. The measures are divided into three types: (1) news-based, survey- based, and econometric; (2) asset market ...
Working Paper
Lessons from Nowcasting GDP across the World
In economics, we need to forecast the present because reliable and comprehensive measures of the state of the economy are released with a substantial delay and considerable measurement error. Nowcasting exploits timely data to obtain early estimates of the state of the economy and updates these estimates continuously as new macroeconomic data are released. In this chapter, we describe how the framework used to nowcast GDP has evolved and is applied worldwide.
Working Paper
Patent-Based News Shocks
We exploit firm-level data on patent grants and subsequent reactions of stocks to identify technological news shocks. Changes in stock market valuations due to announcements of individual patent grants represent expected future increases in the technology level, which we refer to as patent-based news shocks. Our patentbased news shocks resemble diffusion news, in that they do not affect total factor productivity in the short run but induce a strong permanent effect after five years. These shocks produce positive comovement between consumption, output, investment, and hours. Unlike the ...
Discussion Paper
Drivers of Post-pandemic Inflation in Selected Advanced Economies and Implications for the Outlook
With the reopening of economies from strict COVID-19 lockdowns and the war-induced sharp increases in food, energy, and other commodity prices, headline inflation has surged globally, as shown for a few selected advanced economies by the black line in the left panel of figure 1. Core inflation (the dashed red line) has also risen sharply and has become increasingly persistent across these economies.
Discussion Paper
International Measures of Common Inflation
A key challenge for monetary policymakers in achieving their inflation goals—particularly important at the current juncture—is to be able to distinguish between persistent inflationary changes and short-term idiosyncratic shocks. The most common approach for filtering out short-term price shocks from inflation is to focus on measures of "core" inflation, traditionally defined as the change in the consumer price index (CPI) excluding food and energy prices.
Working Paper
Pandemic Priors
The onset of the COVID-19 pandemic and the great lockdown caused macroeconomic variables to display complex patterns that hardly follow any historical behavior. In the context of Bayesian VARs, an off-the-shelf exercise demonstrates how a very low number of extreme pandemic observations bias the estimated persistence of the variables, affecting forecasts and giving a myopic view of the economic effects after a structural shock. I propose an easy and straightforward solution to deal with these extreme episodes, as an extension of the Minnesota Prior with dummy observations by allowing for time ...
Working Paper
Forecast Revisions as Instruments for News Shocks
Upon arrival of macroeconomic news, economic agents update their beliefs about the long-run fundamentals of the economy. I show that signals about the agents’ long-run expectations, proxied by the economic outlook revisions of professional forecasters, convey sufficient information to identify the effects of expected future technological changes, or news shocks. A major advantage of this approach from the existing news shock literature is that it does not depend on an empirical measure for technology, or on assumptions about common trends and timing of the technological change. I show that ...
Working Paper
Back to the Present: Learning about the Euro Area through a Now-casting Model
We build a model for simultaneously now-casting economic conditions in the euro area and its three largest member countries--Germany, France, and Italy. The model formalizes how market participants and policymakers monitor the euro area by incorporating all market moving indicators in real time. We find that area wide and country-specific data provide informative signals to now-cast the economic conditions in the euro area and member countries. The model provides accurate predictions of economic conditions in real time over a period that covers the past three recessions.
Working Paper
News and Uncertainty Shocks
We provide novel evidence that technological news and uncertainty shocks, identified one at a time using VAR models as in the literature, are correlated; that is, they are not truly structural. We then proceed by proposing an identification scheme to disentangle the effects of news and financial uncertainty shocks. We find that by removing uncertainty effects from news shocks, the positive responses of economic activity to news shocks are strengthened in the short term; and that the negative responses of activity to financial uncertainty shocks are deepened in the medium term as ?good ...
Discussion Paper
The SNB-FRB-BIS High-Level Conference on Inflation Risk and Uncertainty
Uncertainty about inflation has risen considerably across the globe since the start of the COVID-19 pandemic. Lack of clarity about how far inflation might fall during the depths of the pandemic gave way to concerns about inflationary pressures as demand surged and supply was constrained throughout 2021.