Research‎ > ‎

Publications


Here is also my site at ideas: http://ideas.repec.org/f/pme274.html and SSRN: http://ssrn.com/author=327254



Measuring the Level and Uncertainty of Trend Inflation (2016, REStat)

  • earlier paper: pdf
  • web-appendix: pdf

Abstract: 
Firmly-anchored inflation expectations are widely viewed as playing a central role for the conduct of monetary policy. This paper presents estimates of trend inflation, based on information contained in monthly data on realized inflation, survey expectations, and the term structure of interest rates. In order to assess whether inflation expectations are anchored, a time-varying volatility of trend shocks is estimated as well. There is quite some commonality in inflation- and survey-based estimates of trend inflation, but yield-based trend estimates embed a highly persistent component orthogonal to trend inflation. Trimmed-mean inflation rates and survey forecasts are most indicative of trend inflation.


Managing Beliefs about Monetary Policy under Discretion (2016, JMCB)

Journal of Money, Credit, and Banking, Vol 48 (4).

    In models of monetary policy, discretionary policymaking is typically constrained in its ability to manage public beliefs. However, when a policymaker possesses private information, policy actions serve as signals to the public about unobserved economic conditions and belief management becomes an integral part of optimal discretion policies. My paper derives the optimal time-consistent policy for a general linear-quadratic setting.

    The optimal policy is illustrated in a simple New Keynesian model, where analytical so- lutions can be derived as well. In this model, imperfect information about the policymaker’s output target leads to lower policy losses.



    Trend Inflation in Advanced Economies (2015, IJCB)

    with Christine Garnier and Edward Nelson

    International Journal of Central Banking, Vol 11, Supplement 1, September 2015


    Abstract: 


    We derive estimates of trend inflation for fourteen advanced economies from a framework in which trend shocks exhibit stochastic volatility. The estimated specification allows for time variation in the degree to which longer-term inflation expectations are well anchored in each economy. Our results bring out the effect of changes in monetary regime (such as the adoption of inflation targeting in several countries) on the behavior of trend inflation. Our estimates represent an expansion of those in the previous literature along several dimensions. For each country, we employ a multivariate approach that pools different inflation series in order to identify their common trend. In addition, our estimates of the inflation gap (that is, the difference between trend and observed inflation) are allowed to exhibit considerable persistence—a treatment that affects the trend estimates to some extent. A forecast evaluation based on quasi-real-time estimates registers sizable improvements in inflation forecasts at different horizons for almost all countries considered. It remains the case, however, that simple random-walk forecasts of inflation are difficult to outperform by a statistically significant amount.




    Stock Prices, News, and Economic Fluctuations: Comment (2014, AER)

    with Andre KurmannAbstract: 
    Beaudry and Portier (2006) propose an identification scheme to study the effects of news shocks about future productivity in Vector Error Correction Models (VECM). This comment shows that their methodology does not have a unique solution, when applied to their VECMs with more than two variables. The problem arises from the interplay of cointegration assumptions and long-run restrictions imposed by Beaudry and Portier (2006).


    Are Spectral Estimators Useful for Long-Run Restrictions in SVARs? (2012, JEDC)

    • published version on sciencedirect: html
    • preprint: pdf
    • online appendix: pdf
    • FEDS Working Paper: html

    Abstract: 
    No, not really. In response to concerns about the reliability of SVARs, one proposal has been to combine OLS estimates of a VAR with non-parametric estimates of the spectral density. But as shown here, spectral estimators are no panacea for implementing long-run restrictions. They can suffer from small sample and misspecification biases just as VARs do. As a novelty, this paper uses a spectral factorization to ensure a correct representation of the data's variance. But this cannot overcome the basic small sample issues, which arise when trying to estimate long-run properties from relatively short samples of time-series data.




    Structural Shocks and the Comovements between Output and Interest Rates (2010, JEDC)


    Journal of Economic Dynamics and Control 34 (2010), pp. 1171-1186.

    Abstract: 

    Stylized facts on U.S. output and interest rates have so far proved hard to match with DSGE models. But model predictions hinge on the joint specification of economic structure and a set of driving processes. In a model, different shocks often induce different comovements, such that the overall pattern depends as much on the specified transmission mechanisms from shocks to outcomes, as well as on the composition of these driving processes. I estimate covariances between output, nominal and real interest rate conditional on several shocks, since such evidence has largely been lacking in previous discussions of the output-interest rate puzzle.

    Conditional on shocks to neutral technology and monetary policy, the results square with simple models, like the standard RBC model or a textbook version of the New Keynesian model. In addition, news about future productivity help to explain the overall counter-cyclical behavior of the real rate.

    A sub-sample analysis documents also interesting changes in these pattern. During the Great Inflation (1959--1979), permanent shocks to inflation accounted for the counter-cyclical behavior of the real rate and its inverted leading indicator property. Over the Great Moderation (1982--2006), neutral technology shocks were more dominant in explaining comovements between output and interest rates, and the real rate has been pro-cyclical.




    (click picture to enlarge)

    Predictability in Financial Markets: What do Survey Expectations Tell Us? (2009, JIMF)


    with Philippe Bacchetta and Eric van Wincoop.
    Journal of International Money and Finance, 2009, Vol 28 (3), 406 - 426


    Abstract: 
    There is widespread evidence of excess return predictability in financial markets. For the foreign exchange market a number of studies have documented that the predictability of excess returns is closely related to the predictability of expectational errors of excess returns. In this paper we investigate the link between the predictability of excess returns and expectational errors in a much broader set of financial markets, using data on survey expectations of market participants in the stock market, the foreign exchange market, the bond market and money markets in various countries. The results are striking. First, in markets where there is significant excess return predictability, expectational errors of excess returns are predictable as well, with the same sign and often even with similar magnitude. This is the case for foreign exchange, stock and bond markets. Second, in the only market where excess returns are generally not predictable, the money market, expectational errors are not predictable either. These findings suggest that an explanation for the predictability of excess returns must be closely linked to an explanation for the predictability of expectational errors.


    (click picture to enlarge)