Federal Reserve

FEDS Paper: Missing Data Substitution for Enhanced Robust Filtering and Forecasting in Linear State-Space Models

01/03/2025 Federal Reserve Central banks

Dobrislav Dobrev and Paweł J. SzerszeńReplacing faulty measurements with missing values can suppress outlier-induced distortions in state-space inference. We therefore put forward two complementary methods for enhanced outlier-robust filtering and forecasting: supervised missing data substitution (MD) upon exceeding a Huber threshold, and unsupervised missing data substitution via exogenous randomization (RMDX).

FEDS Paper: Trend-Cycle Decomposition and Forecasting Using Bayesian Multivariate Unobserved Components

12/30/2024 Federal Reserve Central banks

Mohammad R. Jahan-Parvar, Charles Knipp, and Paweł J. SzerszeńWe propose a generalized multivariate unobserved components model to decompose macroeconomic data into trend and cyclical components. We then forecast the series using Bayesian methods.

FEDS Paper: Measuring the Euro Area Output Gap

12/20/2024 Federal Reserve Central banks

Matteo Barigozzi, Claudio Lissona, and Matteo LucianiWe measure the Euro Area (EA) output gap and potential output using a non-stationary dynamic factor model estimated on a large dataset of macroeconomic and financial variables. From 2012 to 2023, we estimate that the EA economy was tighter than the European Commission and the International Monetary Fund estimate, suggesting that the slow EA growth is the result of a potential output issue, not a business cycle issue.

FEDS Paper: Hidden Risk

12/20/2024 Federal Reserve Central banks

Daniel Barth, Phillip J. Monin, Emil Siriwardane, and Adi SunderamSince 2013, large U.S. hedge fund advisers have been required to report risk exposures in their regulatory filings. Using these data, we first establish that managers’ perceptions of risk contain useful information that is not embedded in fund returns.

FEDS Paper: Life-Cycle Portfolio Choices and Heterogeneous Stock Market Expectations

12/20/2024 Federal Reserve Central banks

Mateo Velásquez-GiraldoSurvey measurements of households' expectations about U.S. equity returns show substantial heterogeneity and large departures from the historical distribution of actual returns. The average household perceives a lower probability of positive returns and a greater probability of extreme returns than history has exhibited. I build a life-cycle model of saving and portfolio choices that incorporates beliefs estimated to match these survey measurements of expectations.

FEDS Paper: A Market Interpretation of Treatment Effects

12/20/2024 Federal Reserve Central banks

Robert Minton and Casey B. MulliganMarkets, likened to an invisible hand, often appear to contradict econometric assumptions that rule out spillovers of one person’s treatment on another’s outcomes. This paper provides a simple statistical framework highlighting that controls are indirectly affected by the treatment through the market. Further, the effect of the treatment on the treated reveals only part of the consequence for the treated of treating the entire market.

FEDS Paper: Measured Inflation and the New-Keynesian Model

12/20/2024 Federal Reserve Central banks

Lawrence J. Christiano, Martin Eichenbaum, and Benjamin K. JohannsenResearchers typically compare inflation in the new Keynesian (NK) model to published inflation measures constructed from indices like the CPI. Inflation in the standard NK model without price indexation is bounded above. The model analogue of fixed-weight inflation measures, like the CPI, is not.

FEDS Paper: The Fed's Discount Window in "Normal" Times (Revised)

12/20/2024 Federal Reserve Central banks

Huberto M. Ennis and Elizabeth KleeWe study transaction-level data of bank borrowings at the Federal Reserve’s discount window from 2010 to 2019. We merge these data with quarterly information on bank balance sheets and income statements. To aid in the interpretation of our empirical analysis, we also develop a detailed model of the decision of banks to borrow from various sources, including the discount window.

IFDP Paper: Corporate Debt Maturity Matters for Monetary Policy

12/06/2024 Federal Reserve Central banks

Joachim Jungherr, Matthias Meier, Timo Reinelt, and Immo SchottWe provide novel empirical evidence that firms’ investment is more responsive to monetary policy when a higher fraction of their debt matures. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt have larger roll-over needs and are therefore more exposed to fluctuations in the real interest rate (roll-over risk).

FEDS Paper: Inflation Disagreement Weakens the Power of Monetary Policy

12/06/2024 Federal Reserve Central banks

Ding Dong, Zheng Liu, Pengfei Wang, and Min WeiWe present empirical evidence that household inflation disagreement weakens the power of forward guidance and conventional monetary policy shocks. The attenuation effect is stronger when inflation forecasts are positively skewed and it is not driven by endogenous responses of inflation disagreement to contemporaneous shocks. These empirical observations can be rationalized by a model featuring heterogeneous beliefs about the central banks' inflation target.

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