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.

Bayesian VARs : specification choices and forecast accuracy

Abstract: In this paper we examine how the forecasting performance of Bayesian VARs is affected by a number of specification choices. In the baseline case, we use a Normal-Inverted Wishart prior that, when combined with a (pseudo-) iterated approach, makes the analytical computation of multi-step forecasts feasible and simple, in particular when using standard and fixed values for the tightness and the lag length. We then assess the role of the optimal choice of the tightness, of the lag length and of both; compare alternative approaches to multi-step forecasting (direct, iterated, and pseudo-iterated); discuss the treatment of the error variance and of cross-variable shrinkage; and address a set of additional issues, including the size of the VAR, modeling in levels or growth rates, and the extent of forecast bias induced by shrinkage. We obtain a large set of empirical results, but we can summarize them by saying that we find very small losses (and sometimes even gains) from the adoption of specification choices that make BVAR modeling quick and easy. This finding could therefore further enhance the diffusion of the BVAR as an econometric tool for a vast range of applications.

Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?†

Abstract: Uncertainty about the future rises in recessions. But is uncertainty a source of business cycle fluctuations or an endogenous response to them, and does the type of uncertainty matter? Answer: we find that sharply higher uncertainty about real economic activity in recessions is fully an endogenous response to other shocks that cause business cycle fluctuations, while uncertainty about financial markets is a likely source of the fluctuations. Financial market uncertainty has quantitatively large negative consequences for several measures of real activity including employment, production, and orders. Such are the main conclusions drawn from estimation of three-variable structural vector autoregressions. To establish causal effects, we propose an iterative projection IV (IPIV) approach to construct external instruments that are valid under credible interpretations of the structural shocks.

Changing Business Dynamism and Productivity: Shocks vs. Responsiveness

Abstract: The pace of job reallocation has declined in all U.S. sectors since 2000. In standard models, aggregate job reallocation depends on (a) the dispersion of idiosyncratic productivity shocks faced by businesses and (b) the marginal responsiveness of businesses to those shocks. Using several novel empirical facts from business microdata, we infer that the pervasive post-2000 decline in reallocation reflects weaker responsiveness in a manner consistent with rising adjustment frictions and not lower dispersion of shocks. The within-industry dispersion of TFP and output per worker has risen, while the marginal responsiveness of employment growth to business-level productivity has weakened. The responsiveness in the post-2000 period for young firms in the high-tech sector is only about half (in manufacturing) to two thirds (economy wide) of the peak in the 1990s. Counterfactuals show that weakening productivity responsiveness since 2000 accounts for a significant drag on a ggregate productivity.

Securitization with recourse: An instrument that offers uninsured bank depositors sequential claims

Abstract: This paper expands on the observation that securitization with recourse offers a lender the protections of an uninsured bank deposit with an additional senior claim if the bank fails The senior claim derives from the commitment of the revenues from a group of securitized assets that pay off the securitized lender first Thus, securitization with recourse provides sequential claims for bank liability holders, which improves the allocation of risk sharing among them Securitization with recourse may also improve the selection of loans granted by partially offsetting the moral hazard incentives toward risk-taking created by fixed-rate deposit insurance Empirical results are given which are consistent with the theoretical model