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332
Monetary Policy Shocks: What Have we Learned and to What End
 Handbook of Macroeconomics,Vol. 1A
, 1999
"... This paper reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that c ..."
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Cited by 439 (14 self)
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This paper reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that can be used to think about systematic changes in monetary policy institutions and rules. The literature has not yet converged on a particular set of assumptions for identifying the e®ects of an exogenous shock to monetary policy. Nevertheless, there is considerable agreement about the qualitative e®ects of a monetary policy shock in the sense that inference is robust across a large subset of the identi¯cation schemes that have been considered in the literature. We document the nature of this agreement as
Stochastic Trends and Economic Fluctuations
 American Economic Review
, 1991
"... Are business cycles mainly the result of permanent shocks to productivity? This paper uses a longrun restriction implied by a large class of realbusinesscycle modelsidentifying permanent productivity shocks as shocks to the common stochastic trend in output, consumption, and investmentto provid ..."
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Cited by 130 (3 self)
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Are business cycles mainly the result of permanent shocks to productivity? This paper uses a longrun restriction implied by a large class of realbusinesscycle modelsidentifying permanent productivity shocks as shocks to the common stochastic trend in output, consumption, and investmentto provide new evidence on this question. Econometric tests indicate that this commonstochastictrend / cointegration implication is consistent with postwar U.S. data. However, in systems with nominal variables, the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the businesscycle variability in output, consumption, and investment. (JEL E32, C32) A central, surprising, and controversial result of some current research on real business cycles is the claim that a common stochastic trendthe cumulative effect of permanent shocks to productivityunderlies the bulk of economic fluctuations. If confirmed, this finding would imply that many other forces have been relatively unimportant over historical business cycles, including the monetary and fiscal policy shocks stressed in traditional macroeconomic analysis. This paper shows that the hypothesis of a common stochastic productivity trend has a set of econometric implications that allows us to test for its presence, measure its importance, and extract estimates of its realized value. Applying these procedures to consumption, investment, and output for the postwar United States, we find results that both support and contradict this claim in the realbusinesscycle literature. The U.S. data are consis
Some Impossibility Theorems In Econometrics With Applications To Instrumental Variables, Dynamic Models And Cointegration
 Econometrica
, 1995
"... General characterizations of valid confidence sets and tests in problems which involve locally almost unidentified (LAU) parameters are provided and applied to several econometric models. Two types of inference problems are studied: (1) inference about parameters which are not identifiable on certai ..."
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Cited by 121 (16 self)
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General characterizations of valid confidence sets and tests in problems which involve locally almost unidentified (LAU) parameters are provided and applied to several econometric models. Two types of inference problems are studied: (1) inference about parameters which are not identifiable on certain subsets of the parameter space, and (2) inference about parameter transformations with singularities (discontinuities). When a LAU parameter or parametric function has an unbounded range, it is shown under general regularity conditions that any valid confidence set with level 1 \Gamma ff for this parameter should be unbounded with probability close to 1 \Gamma ff in the neighborhood of nonidentification subsets and should as well have a nonzero probability of being unbounded under any distribution compatible with the model: no valid confidence set which is bounded with probability one does exist. These properties hold even if "identifying restrictions" are imposed. Similar results also ob...
Measuring Business Cycles: A Modern Perspective
 The Review of Economics and Statistics
, 1996
"... Abstract: In the first half of this century, special attention was given to two features of the business cycle: the comovement of many individual economic series and the different behavior of the economy during expansions and contractions. Recent theoretical and empirical research has revived intere ..."
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Cited by 90 (11 self)
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Abstract: In the first half of this century, special attention was given to two features of the business cycle: the comovement of many individual economic series and the different behavior of the economy during expansions and contractions. Recent theoretical and empirical research has revived interest in each attribute separately, and we survey this work. Notable empirical contributions are dynamic factor models that have a single common macroeconomic factor and nonlinear regimeswitching models of a macroeconomic aggregate. We conduct an empirical synthesis that incorporates both of these features. It is desirable to know the facts before attempting to explain them; hence, the attractiveness of organizing businesscycle regularities within a modelfree framework. During the first half of this century, much research was devoted to obtaining just such an empirical characterization of the business cycle. The most prominent example of this work
Nonlinear Dynamic Structures
 Econometrica
, 1993
"... We describe three methods for analyzing the dynamics of a nonlinear time series that is represented by a nonparametric estimate of its onestep ahead conditional density. These strategies are based on examination of conditional moment profiles corresponding to certain shocks; a conditional moment pr ..."
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Cited by 83 (10 self)
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We describe three methods for analyzing the dynamics of a nonlinear time series that is represented by a nonparametric estimate of its onestep ahead conditional density. These strategies are based on examination of conditional moment profiles corresponding to certain shocks; a conditional moment profile is the conditional expectation evaluated at time t of a time invariant function evaluated at time t + j regarded as a function of j. The first method, which compares conditional moment profiles to baseline profiles, is the nonlinear analog of conventional impulseresponse analysis. The second assesses the significance of a profile by comparing its supnorm confidence band to a null profile. The third examines profile bundles for evidence of damping or persistence. Experimental designs for choosing an appropriate set of shocks are discussed. These methods are applied to a bivariate series comprised of daily changes in the Standard and Poor's composite price index and daily NYSE transactions volume from 1928 to 1987. The findings from these data are: (i) The multistep ahead conditional volatility profile exhibits a symmetric response to both positive and negative price shocks. In contrast, the conditional volatility profile of the univariate price change process exhibits an asymmetric response. (ii) The onestep ahead response of volume to price shocks is different than the multistep ahead response. Price shocks produce an increase in volume onestep ahead but decrease it in subsequent steps. (iii) There is little evidence for longterm persistence in either the conditional mean or volatility of the bivariate process. o 1
Reprojecting Partially Observed Systems with Application to Interest Rate Diffusions from January 5, 1992, to March 31, 1995
, 1996
"... We introduce reprojection as a general purpose technique for characterizing the observable dynamics of a partially observed nonlinear system. System parameters are estimated by method of moments wherein moments implied by the system are matched to moments implied by the transition density for observ ..."
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Cited by 82 (13 self)
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We introduce reprojection as a general purpose technique for characterizing the observable dynamics of a partially observed nonlinear system. System parameters are estimated by method of moments wherein moments implied by the system are matched to moments implied by the transition density for observables that is determined by projecting the data onto its Hermite representation. Reprojection imposes the constraints implied by the system on the transition density and is accomplished by projecting a long simulation of the estimated system onto the Hermite representation. We utilize the technique to assess the dynamics of several diffusion models for the shortterm interest rate that have been proposed and compare them to a new model that has feedback from the interest rate into both the drift and diffusion coefficients of a volatility equation. This effort entails the development of new graphical diagnostics.
Priors from General Equilibrium Models for VARs
 International Economic Review
, 2004
"... Abstract: This paper uses a simple New Keynesian monetary DSGE model as a prior for a vector autoregression and shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis. JEL classification: C11, C32, C53 ..."
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Cited by 73 (9 self)
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Abstract: This paper uses a simple New Keynesian monetary DSGE model as a prior for a vector autoregression and shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis. JEL classification: C11, C32, C53
Does the Fed Act Gradually? A VAR Analysis
, 1998
"... The tendency for changes in the federal funds rate to be implemented gradually has been considered evidence of an interestrate smoothing objective for the Federal Reserve. This paper investigates whether gradual movements in the federal funds rate can be explained by the dynamic structure of the ec ..."
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Cited by 69 (2 self)
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The tendency for changes in the federal funds rate to be implemented gradually has been considered evidence of an interestrate smoothing objective for the Federal Reserve. This paper investigates whether gradual movements in the federal funds rate can be explained by the dynamic structure of the economy and the uncertainty that the Fed faces regarding this structure, without recourse to including an adhoc interest rate smoothing argument in the objective function of the Fed. The analysis calculates the optimal funds rate policy given the structural form of the economy estimated in a VAR. In the absence of parameter uncertainty, the calculated policy responds more aggressively to changes in the economy than the observed policy, resulting in a substantially higher volatility of the funds rate than observed. Parameter uncertainty, however, limits the willingness of the Fed to deviate from the policy rule that has been previously implemented. Because the Fed has historically smoothed interest rates, the calculated policy under parameter uncertainty can account for a considerable portion of the gradualism observed in funds rate movements.
Variable trends in economic time series
 J. Econom. Perspectives
, 1988
"... T he two most striking historical features of aggregate output are its sustained long run growth and its recurrent fluctuations around this growth path. Real per capita GNP, consumption and investment in the United States during the postwar era are plotted in Figure 1. Both growth and deviations fro ..."
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Cited by 51 (1 self)
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T he two most striking historical features of aggregate output are its sustained long run growth and its recurrent fluctuations around this growth path. Real per capita GNP, consumption and investment in the United States during the postwar era are plotted in Figure 1. Both growth and deviations from the growth trendoften referred to as "business cycles"are apparent in each series. Over horizons of a few years, these shorter cyclical swings can be pronounced; for example, the 1953, 1957 and 1974 recessions are evident as substantial temporary declines in aggregate activity. These cyclical fluctuations are, however, dwarfed in magnitude by the secular expansion of output. But just as there are cyclical swings in output, so too are there variations in the growth trend: growth in GNP in the 1960s was much stronger than it was in the 1950s. Thus, changes in long run patterns of growth are an important feature of postwar aggregate economic activity. In this article we discuss the implications of changing trends in macroeconomic data from two perspectives. The first perspective is that of a macroeconomist reassessing the conventional dichotomy between growth and stabilization policies. As an
On the Mechanics of Forming and Estimating Dynamic Linear Economies
"... This paper catalogues formulas that are useful for estimating dynamic linear economic models. We describe algorithms for computing equilibria of an economic model and for recursively computing a Gaussian likelihood function and its gradient with respect to parameters. We apply these methods to sever ..."
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Cited by 51 (14 self)
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This paper catalogues formulas that are useful for estimating dynamic linear economic models. We describe algorithms for computing equilibria of an economic model and for recursively computing a Gaussian likelihood function and its gradient with respect to parameters. We apply these methods to several example economies.