Federal Reserve System

About: Federal Reserve System is a other organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 2373 authors who have published 10301 publications receiving 511979 citations.

Inflation Expectations and the Transmission of Monetary Policy

Abstract: New Keynesian models with sticky prices and rational expectations have a difficult time explaining why reducing inflation usually requires a recession. An explanation for the costliness of reducing inflation is that inflation expectations are less than perfectly rational. To explore this possibility, I estimate the degree of non-rationality implicit in two survey measures of inflation expectations. I find that the surveys reflect an intermediate degree of rationality: Expectations are neither perfectly rational nor as unsophisticated as simple autoregressive models would suggest. I also find that a structural New Keynesian model with expectations formation based on the survey results is able to match closely the empirical costs of reducing inflation.

Keynesian government spending multipliers and spillovers in the euro area

Abstract: The global financial crisis has led to a renewed interest in discretionary fiscal stimulus. Advocates of discretionary measures emphasize that government spending can stimulate additional private spending – the Keynesian multiplier effect. Thus, we investigate whether the spending package announced by euro area governments for 2009 and 2010 is likely to boost GDP by more than one for one. Because of modelling uncertainty, it is essential that such policy evaluations be robust to alternative modelling assumptions and parameterizations. We use five different empirical macroeconomic models with Keynesian features such as price and wage rigidities to evaluate the impact of the fiscal stimulus. Four of them suggest that the planned increase in government spending will reduce private consumption and investment significantly. Only a model that largely ignores the forward-looking behavioural response of consumers and firms implies crowding-in of private spending. We review a range of issues that may play a role in the recession of 2008–2009. Implementation lags are found to reinforce crowding-out and may even cause an initial contraction. Zero-bound effects may lead the central bank to abstain from interest rate hikes and increase the GDP impact of government spending. Crowding-in, however, requires an immediate anticipation of at least two years at the zero bound. Using a multi-country model, we find that spillovers between euro area countries are negligible or even negative, because direct demand effects are offset by the indirect effect of a euro appreciation. New-Keynesian dynamic stochastic general equilibrium (DSGE) models provide a strong case for government savings packages. Announced with sufficient lead time, spending cuts induce a significant short-run stimulus and crowding-in of private spending. — Tobias Cwik and Volker Wieland

Downsizing and productivity growth: Myth or reality?

Abstract: The conventional wisdom is that the rising productivity in the U.S. manufacturing sector in the 1980s has been driven by the apparently pervasive downsizing over this period. Aggregate evidence clearly shows falling employment accompanying the rise in productivity. In this paper, we examine the microeconomic evidence using the plant level data from the Longitudinal Research Database (LRD). In contrast to the conventional wisdom, we find that plants that increased employment as well as productivity contribute almost as much to overall productivity growth in the 1980s as the plants that increased productivity at the expense of employment. Further, there are striking differences by sector (defined by industry, size, region, wages, and ownership type) in the allocation of plants in terms of whether they upsize or downsize and whether they increase or decrease productivity. Nevertheless, in spite of the striking differences across sectors defined in a variety of ways, most of the variance of productivity and employment growth is accounted for by idiosyncratic factors.

Modeling Spatial and Temporal House Price Patterns: A Comparison of Four Models

Abstract: This research reports results from a competition on modeling spatial and temporal components of house prices. A large, well-documented database was prepared and made available to anyone wishing to join the competition. To prevent data snooping, out-of-sample observations were withheld; they were deposited with one individual who did not enter the competition, but had the responsibility of calculating out-of-sample statistics for results submitted by the others. The competition turned into a cooperative effort, resulting in enhancements to previous methods including: a localized version of Dubin’s kriging model, a kriging version of Clapp’s local regression model, and a local application of Case’s earlier work on dividing a geographic housing market into districts. The results indicate the importance of nearest neighbor transactions for out-of-sample predictions: spatial trend analysis and census tract variables do not perform nearly as well as neighboring residuals.