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Working Paper
Stock Market Cross-Sectional Skewness and Business Cycle Fluctuations
Using U.S. data from 1926 to 2015, I show that financial skewness?a measure comparing cross-sectional upside and downside risks of the distribution of stock market returns of financial firms?is a powerful predictor of business cycle fluctuations. I then show that shocks to financial skewness are important drivers of business cycles, identifying these shocks using both vector autoregressions and a dynamic stochastic general equilibrium model. Financial skewness appears to reflect the exposure of financial firms to the economic performance of their borrowers.
Report
The term structure of expectations and bond yields
Bond yields can be decomposed into expected short rates and term premiums. We directly measure the former using all available U.S. professional forecasts and obtain the latter as the difference between bond yields and survey-based expected short rates. While the behavior of nominal and real short rate expectations is consistent with standard macroeconomic theory, term premiums account for the bulk of the cross-sectional and time series variation in yields. They also largely explain the yield curve's reaction to a host of structural economic shocks. This dramatic failure of the expectations ...
Newsletter
Past and Future Effects of the Recent Monetary Policy Tightening
The Federal Open Market Committee (FOMC) has raised short-term interest rates over 500 basis points since early last year, but it recently slowed the pace of policy tightening and some participants have signaled that the current tightening cycle might be nearing its end. In making the decision to stop raising rates, an important consideration will be the extent to which the actions already taken by the Committee have yet to feed through to the economy. On the one hand, if substantial effects of past policy tightening are yet to come, that would argue for an earlier end to rate increases, all ...
Working Paper
Identifying News Shocks with Forecast Data
The empirical importance of news shocks?anticipated future shocks?in business cycle fluctuations has been explored by using only actual data when estimating models augmented with news shocks. This paper additionally exploits forecast data to identify news shocks in a canonical dynamic stochastic general equilibrium model. The estimated model shows new empirical evidence that technology news shocks are a major source of fluctuations in U.S. output growth. Exploiting the forecast data not only generates more precise estimates of news shocks and other parameters in the model, but also increases ...
Working Paper
The ups and downs of the gig economy, 2015–2017
A variety of researchers and public entities have estimated the prevalence of nontraditional work arrangements ? using diverse definitions ? in recent decades, and the topic has received increasing attention in the past five years. Despite numerous media reports that the prevalence of nonstandard work has increased since the Great Recession, not all sources agree on this point, and very little evidence exists relating to hours or earnings from such arrangements and their changes over time. Using unique data from the Survey of Informal Work Participation (SIWP), we describe changes in informal ...
Report
RBC Methodology and the Development of Aggregate Economic Theory
This essay reviews the development of neoclassical growth theory, a unified theory of aggregate economic phenomena that was first used to study business cycles and aggregate labor supply. Subsequently, the theory has been used to understand asset pricing, growth miracles and disasters, monetary economics, capital accounts, aggregate public finance, economic development, and foreign direct investment. {{p}} The focus of this essay is on real business cycle (RBC) methodology. Those who employ the discipline behind the methodology to address various quantitative questions come up with ...