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160
Estimating macroeconomic models: a likelihood approach
, 2006
"... This paper shows how particle filtering facilitates likelihood-based inference in dynamic macroeconomic models. The economies can be nonlinear and/or nonnormal. We describe how to use the output from the particle filter to estimate the structural parameters of the model, those characterizing prefer ..."
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Cited by 102 (27 self)
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This paper shows how particle filtering facilitates likelihood-based inference in dynamic macroeconomic models. The economies can be nonlinear and/or nonnormal. We describe how to use the output from the particle filter to estimate the structural parameters of the model, those characterizing preferences and technology, and to compare different economies. Both tasks can be implemented from either a classical or a Bayesian perspective. We illustrate the technique by estimating a business cycle model with investment-specific technological change, preference shocks, and stochastic volatility.
2009): “On the Sources of the Great Moderation
- American Economic Journal: Macroeconomics
"... The Great Moderation in the US economy has been accompanied by large changes in the comovements among output, hours, and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. Among other changes, ..."
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Cited by 75 (1 self)
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The Great Moderation in the US economy has been accompanied by large changes in the comovements among output, hours, and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. Among other changes, our findings point to an increase in the volatility of hours relative to output, a shrinking contribution of nontechnology shocks to output volatility, and a change in the cyclical response of labor productivity to those shocks. That evidence suggests a more complex picture than that associated with “good luck ” explanations of the Great Moderation. (JEL: E23, E24, J22, J24) large body of empirical research has provided evidence of a substantial decline A in the volatility of most US macroeconomic time series over the postwar period. That phenomenon, which has also been experienced by other industrialized economies, has come to be known as the “Great Moderation. ” 1
Risk Matters: The Real Effects of Volatility Shocks
, 2009
"... This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence of ti ..."
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Cited by 70 (6 self)
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This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence of time-varying volatility in the real interest rates faced by a sample of four emerging small open
Can News About the Future Drive the Business Cycle? ∗
, 2006
"... We propose a model that generates an economic expansion following good news about future total factor productivity (TFP) or investmentspecific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that exhibit a weak short-r ..."
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Cited by 56 (1 self)
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We propose a model that generates an economic expansion following good news about future total factor productivity (TFP) or investmentspecific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that exhibit a weak short-run wealth effect on the labor supply. These preferences nest, as special cases, the two classes of utility functions most widely used in the business cycle literature. Our model generates recessions that resemble those of the post-war U.S. economy without relying on negative productivity shocks. Recessions are caused not by contemporaneous negative shocks but by lackluster news about future TFP or investment-specific technical change. J.E.L. Classification: E3.
Monetary Policy, Trend Inflation and the Great Moderation: An Alternative Interpretation.” National Bureau of Economic Research Working Paper 14621
, 2008
"... Abstract: With positive trend inflation, the Taylor principle does not guarantee a determinate equilibrium. We provide new theoretical results on determinacy in New Keynesian models with positive trend inflation and new empirical findings on the Federal Reserve’s reaction function before and after t ..."
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Cited by 44 (11 self)
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Abstract: With positive trend inflation, the Taylor principle does not guarantee a determinate equilibrium. We provide new theoretical results on determinacy in New Keynesian models with positive trend inflation and new empirical findings on the Federal Reserve’s reaction function before and after the Volcker disinflation to find that 1) while the Fed likely satisfied the Taylor principle before Volcker, the US economy was still subject to self-fulfilling fluctuations in the 1970s, 2) the US economy switched to determinacy during the Volcker disinflation, and 3) the switch reflected changes in the Fed’s response to macroeconomic variables and the decline in trend inflation.
Labor market dynamics and the business cycle: structural evidence for the United States, forthcoming Scandinavian Journal of Economics
, 2008
"... We use a 12-dimensional VAR to examine the aggregate effects of two structural technology shocks and two policy shocks. For each shock, we examine the dynamic effects on the labor market, the importance of the shock for labor market volatility, and the comovement between labor market variables and o ..."
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Cited by 36 (2 self)
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We use a 12-dimensional VAR to examine the aggregate effects of two structural technology shocks and two policy shocks. For each shock, we examine the dynamic effects on the labor market, the importance of the shock for labor market volatility, and the comovement between labor market variables and other key aggregate variables in response to the shock. We docu-ment that labor market indicators display “hump-shaped ” responses to the identified shocks. Technology shocks and monetary policy shocks are important for labor market volatility but the ranking of their importance is sensitive to the VAR specification. The conditional corre-lations at business cycle frequencies are similar in response to the four shocks, apart from the correlations between hours worked, labor productivity and real wages. To account for the unconditional correlations between these variables, a mixture of shocks is required.
The optimal inflation rate in New Keynesian models: Should central banks raise their inflation targets in light of the ZLB? The Review of Economic Studies 79
, 2012
"... Abstract: We study the effects of positive steady-state inflation in New Keynesian models subject to the zero bound on interest rates. We derive the utility-based welfare loss function taking into account the effects of positive steady-state inflation and solve for the optimal level of inflation in ..."
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Cited by 33 (9 self)
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Abstract: We study the effects of positive steady-state inflation in New Keynesian models subject to the zero bound on interest rates. We derive the utility-based welfare loss function taking into account the effects of positive steady-state inflation and solve for the optimal level of inflation in the model. For plausible calibrations with costly but infrequent episodes at the zero-lower bound, the optimal inflation rate is low, less than two percent, even after considering a variety of extensions, including optimal stabilization policy, price indexation, endogenous and state-dependent price stickiness, capital formation, model-uncertainty, and downward nominal wage rigidities. On the normative side, price level targeting delivers large welfare gains and a very low optimal inflation rate consistent with price stability. These results suggest that raising the inflation target is too blunt an instrument to efficiently reduce the severe costs of zero-bound episodes.
The Econometrics of DSGE Models
, 2009
"... In this paper, I review the literature on the formulation and estimation of dynamic stochastic general equilibrium (DSGE) models with a special emphasis on Bayesian methods. First, I discuss the evolution of DSGE models over the last couple of decades. Second, I explain why the profession has decide ..."
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Cited by 31 (1 self)
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In this paper, I review the literature on the formulation and estimation of dynamic stochastic general equilibrium (DSGE) models with a special emphasis on Bayesian methods. First, I discuss the evolution of DSGE models over the last couple of decades. Second, I explain why the profession has decided to estimate these models using Bayesian methods. Third, I brie‡y introduce some of the techniques required to compute and estimate these models. Fourth, I illustrate the techniques under consideration by estimating a benchmark DSGE model with real and nominal rigidities. I conclude by o¤ering some pointers for future research.
Investment shocks and asset prices
- Journal of Political Economy, forthcoming
, 2011
"... I explore the implications for asset prices and macroeconomic dynamics of shocks that improve real investment opportunities and thus affect the representative household’s marginal utility. These investment shocks generate differences in risk premia due to their heterogenous impact on firms: they ben ..."
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Cited by 31 (8 self)
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I explore the implications for asset prices and macroeconomic dynamics of shocks that improve real investment opportunities and thus affect the representative household’s marginal utility. These investment shocks generate differences in risk premia due to their heterogenous impact on firms: they benefit firms producing investment relative to firms producing consumption goods, and increase the value of growth opportunities relative to the value of existing assets. Using data on asset returns, I find that a positive investment shock leads to high marginal utility states. A general equilibrium model with investment shocks matches key features of macroeconomic quantities and asset prices. 1
Explaining the Great Moderation: It is Not the Shocks
- Issue 2/3 (April/May 2008
"... Abstract This paper shows that the explanation of the decline in the volatility of GDP growth since the mid-eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism. JEL Classification: E32, E37, C32, C53 ..."
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Cited by 31 (3 self)
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Abstract This paper shows that the explanation of the decline in the volatility of GDP growth since the mid-eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism. JEL Classification: E32, E37, C32, C53
