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  • "Indeterminacy and Imperfect Information" with Thomas Lubik and Christian Matthes This is ongoing work with Thomas A. Lubik (FRB Richmond), Christian Matthes (FRB Richmond):We study equilibrium determination in an environment where two kinds of agents have different information sets ...
    Posted Nov 20, 2017, 5:32 AM by Elmar Mertens
  • REVISED: Paper on Time-varying Uncertainty in Survey Forecasts (w/Todd Clark and Michael McCracken) We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee’s Summary of Economic Projections. At ...
    Posted Aug 28, 2017, 7:20 AM by Elmar Mertens
  • FEDS Note on Shadow Rates and the Long-run Level of the Real Rate Together with my Board colleague Ben Johannsen, we just finished a FEDS note describing the latest version of our work on estimating shadow rates from time-series models. Part of ...
    Posted May 9, 2016, 7:43 PM by Elmar Mertens
  • New publications in JMCB, REStat, and IJCB A few of my papers recently got accepted for journal publication. Notably, "Managing Beliefs about Monetary Policy under Discretion" has just been published online in the Journal of Money, Credit ...
    Posted May 19, 2016, 5:22 AM by Elmar Mertens
  • Time-varying Stickiness in Professional Inflation Forecasts In a new paper, co-authored with Jim Nason, we estimate a version of the Stock-Watson (SW) unobserved components (UC) model of inflation jointly with the Mankiw-Reis sticky ...
    Posted Sep 5, 2017, 2:09 PM by Elmar Mertens
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"Indeterminacy and Imperfect Information" with Thomas Lubik and Christian Matthes

posted Jun 5, 2017, 11:53 AM by Elmar Mertens   [ updated Nov 20, 2017, 5:32 AM ]

This is ongoing work with Thomas A. Lubik (FRB Richmond), Christian Matthes (FRB Richmond):

We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less in- formed agents observe only a strict subset of the full information set. All types of agents form expectations rationally, but agents with limited information need to solve a dynamic signal extraction problem to gather information about the variables they do not observe. We show that for parameters values that imply a unique equilibrium under full information, the limited information rational expectations equilibrium can be indeterminate. In a simple application of our framework to a monetary policy problem we show that limited information on part of the central bank implies indeterminate outcomes even when the Taylor Principle holds. 



  • slides for a shorter talk: pdf

REVISED: Paper on Time-varying Uncertainty in Survey Forecasts (w/Todd Clark and Michael McCracken)

posted Oct 13, 2016, 9:02 AM by Elmar Mertens   [ updated Aug 28, 2017, 7:20 AM ]

We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee’s Summary of Economic Projections. At a given point of time, these surveys typically provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to existing constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts. 




This is joint work with Todd Clark (FRB Cleveland) and Michael McCracken (FRB St. Louis)


Here is a link to our current draft (Aug 2017): pdf 
And some slides for a talk (NBER SI 2017): pdf

FEDS Note on Shadow Rates and the Long-run Level of the Real Rate

posted Feb 10, 2016, 6:27 PM by Elmar Mertens   [ updated May 9, 2016, 7:43 PM ]

Together with my Board colleague Ben Johannsen, we just finished a FEDS note describing the latest version of our work on estimating shadow rates from time-series models. 


Part of this work is also featured in the Board’s Monetary Policy Report to the Congress that has just been released on Feb 10, 2016, see pages 32-33 of the report.

   


 

Since last summer we have made the model dynamics more general and are conditioning our estimates not only on macroeconomic aggregates and the federal funds rate, but also on a longer-term interest rate, which (unsurprisingly) provides a particularly useful signal about for inference about the path for short-term interest rates near the effective lower bound.

 

There is also a longer FEDS Working Paper, describing the underlying model, estimation method as well as additional results: pdf (FEDS), pdf (this site).

Slides for a talk are here: pdf

New publications in JMCB, REStat, and IJCB

posted Aug 24, 2015, 9:49 AM by Elmar Mertens   [ updated May 19, 2016, 5:22 AM ]

A few of my papers recently got accepted for journal publication. Notably, "Managing Beliefs about Monetary Policy under Discretion" has just been published online in the Journal of Money, Credit, and Banking, "Measuring the Level and Uncertainty of Trend Inflation" has been accepted by the Review of Economics and Statistics, and "Trend Inflation in Advanced Economies" (joint with Christine Garnier and Edward Nelson) has recently been published in the September issue of the International Journal of Central Banking



Working paper versions of all papers can be found here: Working Papers

Time-varying Stickiness in Professional Inflation Forecasts

posted Mar 8, 2015, 7:20 PM by Elmar Mertens   [ updated Sep 5, 2017, 2:09 PM ]

In a new paper, co-authored with Jim Nason, we estimate a version of the Stock-Watson (SW) unobserved components (UC) model of inflation jointly with the Mankiw-Reis sticky information (SI) law of motion.


Jim  and I innovate on these models by adding time-varying persistence to the inflation gap of the SW-UC model in the form of a time-varying parameter AR(1). In the SI model we let the frequency of forecast updating be time-varying. These time-varying parameters (TVPs) are assumed to follow independent random walks. As is standard in the SW-UC model, the innovations to trend and gap inflation are afflicted with stochastic volatility (SV) that follow log random walks. 

The joint model is estimated on real time U.S. GNP/GDP inflation and the associated average inflation predictions of the Survey of Professional Forecasters (SPF) on a sample running from 1968Q4 to 2017Q2. We estimate the joint model using a particle filter algorithm. 


The joint model with time-varying inflation gap persistence also produces less sticky average SPF inflation predictions than with a fixed coefficient AR(1) inflation gap. We also find the SV of trend inflation exhibits negative comovement with the time-varying frequency of SI forecast updating while the SV and time-varying persistence of gap inflation often show positive comovement. Thus, the average SPF respondent is most sensitive to the impact of permanent shocks on the conditional mean of inflation.


Finally, here are the estimates of our stickiness parameter (filtered in black, smoothed in red), 



and confidence intervals about the change in stickiness since the beginning of our sample:







The paper is here:  pdf

Slides are here: pdf (This is an updated version of our talk at the NBER SI) 


On the Reliability of Output Gap Revisions

posted Feb 22, 2014, 6:48 PM by Elmar Mertens   [ updated Nov 15, 2014, 5:14 AM ]


Over the last year I have been working on a new working paper, which considers revisions in output gap estimates derived from statistical trend-cycle decompositions, just as Orphanides and van Norden (2002, ReStat) did. However, I consider models with stochastic volatility, that can adapt to the changing patterns in aggregate volatility like before (and after) the Great Moderation period. The model with time-varying volatility generate credible sets for the output gap that are tighter than in the constant-paramter case. Also, when comparing realtime estimates against "final" estimates (derived from the latest available data vintage) revisions are quite a bit smaller. 

Slides for a talk can be found here (or here)

A draft of the paper is here.









Published in the AER: Comment on Beaudry and Portier (2006)

posted Feb 15, 2014, 4:53 PM by Elmar Mertens   [ updated Apr 6, 2014, 6:49 PM ]

Andre Kurmann's and my comment on the lack of identification in Beaudry and Portier's influential AER paper has just been published in this year's April issue of the American Economic Review





Notes on Linear Rational Expectations Models: Comparing Klein (2000) and Sims (2002)

posted Mar 17, 2013, 11:15 AM by Elmar Mertens   [ updated Apr 19, 2013, 8:02 AM ]

This note maps the solution method of Klein into Sim's approach. Sims can handle more general cases, but when using the same setup as in Klein, his method -- of course -- yields identical results. This should not be news, but comparing both methods using a cosistent notation, might be helpful. The note applies both methods to the following setup:



Here is the document: pdf

Beaudry and Portier's (2006 AER) identification of news shocks is not unique

posted Jan 15, 2013, 9:45 PM by Elmar Mertens   [ updated Apr 6, 2014, 6:50 PM ]

The identificaton of news shocks in Beaudry and Portier (2006) is only unique for their bivariate VECMs: Together with my colleague Andre Kurmann, I tried to replicate the influential AER paper by Beaudry and Portier, which finds that news shocks are an important source of business cylce fluctations. Their estimated impulse response have been regarded as a challenge to "standard" models of the business cycle

However, as Andre and I found, the empirical strategy has been flawed and the identfication scheme does not have a unique solution. The problem arises from using long-run restrictions in a VECM. As discussed by King, Plosser, Stock and Watson in their important AER (1991), the cointegration relationships embedded in a VECM already restrict long-run responses. In the case of Beaudry and Portier, this makes some of their restrictions redundant and leaves the system underidentified. Below is a picture comparing their point estimates with the set of all possible solutions. (please click to enlarge)

The full comment has just been published in the American Economic Review, please see here. 




Mertens on Mertens and Ravn: the slides

posted Oct 19, 2012, 10:46 PM by Elmar Mertens   [ updated Jan 15, 2013, 9:33 PM ]

At the JME-SNB-SCG conference, I discussed a paper by Karel Mertens (no relation) and Morten Ravn, estimating fiscal multipliers. Very neat! They embedd narrative data from the Romers in a SVAR. The point estimates suggest that tax multipliers are quite a bit higher than what has been found previously -- however, since there are only so few non-zero data points in the Romer data set, I raise some quibbles about the confidence intervals. My full slides are posted below.



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