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.

Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events

Abstract: Prior to the financial crisis, most economists probably did not view the zero lower bound (ZLB) as a major problem for central banks. Using a range of structural and statistical models, we find that previous research understated the ZLB threat by ignoring uncertainty about model parameters and latent variables, focusing too much on the Great Moderation experience, and relying on structural models whose dynamics cannot generate sustained ZLB episodes. Our analysis also suggests that the Federal Reserve's asset purchases, while materially improving macroeconomic conditions, did not prevent the ZLB constraint from having first-order adverse effects on real activity and inflation.

Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production

Abstract: Using factor methods, we decompose industrial production (IP) into components arising from aggregate and sector-specific shocks. An approximate factor model finds that nearly all of IP variability is associated with common factors. We then use a multisector growth model to adjust for the effects of input-output linkages in the factor analysis. Thus, a structural factor analysis indicates that the Great Moderation was characterized by a fall in the importance of aggregate shocks while the volatility of sectoral shocks was essentially unchanged. Consequently, the role of idiosyncratic shocks increased considerably after the mid-1980s, explaining half of the quarterly variation in IP.

Generalizing the Taylor Principle

Abstract: Recurring change in a monetary policy function that maps endogenous variables into policy choices alters both the nature and the efficacy of the Taylor principle---the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation. A monetary policy process is a set of policy rules and a probability distribution over the rules. We derive restrictions on that process that satisfy a long-run Taylor principle and deliver unique equilibria in two standard models. A process can satisfy the Taylor principle in the long run, but deviate from it in the short run. The paper examines three empirically plausible processes to show that predictions of conventional models are sensitive to even small deviations from the assumption of constant-parameter policy rules.

The Long‐Run Relationship between House Prices and Income: Evidence from Local Housing Markets

Abstract: Many in the housing literature argue that house prices and income are cointegrated. I show that the data do not support this view. Standard tests using 27 years of national-level data do not find evidence of cointegration. However, standard tests for cointegration have low power, especially in small samples. I use panel-data tests for cointegration that are more powerful than their time-series counterparts to test for cointegration in a panel of 95 metro areas over 23 years. Using a bootstrap approach to allow for cross-correlations in city-level house-price shocks, I show that even these more powerful tests do not reject the hypothesis of no cointegration. Thus the error-correction specification for house prices and income commonly found in the literature may be inappropriate.