Structural Interpretation of Vector Autoregressions with Incomplete Identification: Setting the Record Straight, coauthored with Christiane Baumeister. A recent paper by Kilian and Zhou (2019) mischaracterizes our 2019 paper in American Economic Review and much of the related literature. They misstate our contribution to the literature on identification, mischaracterize the role of prior information about supply elasticity in our analysis, inaccurately describe the relation between structural elasticities and the impacts of shocks, and mischaracterize the literature on supply elasticity. Our purpose in this paper is to set the record straight. Download data and code to replicate.
Perspectives on U.S. Monetary Policy Tools and Instruments. The Federal Reserve characterizes its current policy decisions in terms of targets for the fed funds rate and the size of its balance sheet. The fed funds rate today is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. The size of the Fedís balance sheet is at best a very blunt instrument for influencing interest rates. In this paper I compare the current operating system with the historical U.S. system and the procedures of other central banks. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve better tools with which to achieve its strategic objective of influencing inflation and output. Click here for a video of my presentation of the paper.
Measuring Labor-Force Participation and the Incidence and Duration of Unemployment, coauthored with Hie Joo Ahn. The underlying data from which the U.S. unemployment rate, labor-force participation rate, and duration of unemployment are calculated contain numerous internal contradictions. This paper catalogs these inconsistencies and proposes a reconciliation. We find that the usual statistics understate the unemployment rate and the labor-force participation rate by about two percentage points on average and that the bias in the latter has increased since the Great Recession. The BLS estimate of the average duration of unemployment overstates by 50% the true duration of uninterrupted spells of unemployment and misrepresents what happened to average durations during the Great Recession and its recovery. Online appendix here. Revised data series developed in the paper available here. Also available are data and code for complete replication.
The Efficacy of Large-Scale Asset Purchases When the Short-term Interest Rate is at its Effective Lower Bound, Brookings Papers on Economic Activity, Fall 2018. The Federal Reserve on net purchased almost $4 trillion in additional securities between March 2009 and December 2014. Although initial announcements of these policies were associated with dramatic market reactions, these responses were soon reversed. The overall market reaction to news surprises from the Federal Reserve over this period was increases, not decreases, in interest rates. It is hard to disentangle the effects of the purchases themselves from new information about economic fundamentals. My conclusion is that it is difficult to estimate accurately what LSAP accomplished, but the magnitude of the effect is likely smaller than commonly believed.
Measuring Global Economic Activity. A number of economic studies have used a proxy for world real economic activity derived from shipping costs. This measure turns out to depend on a normalization that has substantive consequences of which users of the index had been unaware prior to this paper. This paper further evaluates this and alternative measures in terms of treatment of trends, coherence with world output, and ability to predict commodity prices. I conclude that measures derived from world industrial production offer a better indicator of global real economic activity. Nontechnical summary. Replication data and code. Presentation slides. Updated data on world industrial production index.
A Skeptical View of the Impact of the Fed's Balance Sheet, prepared for the 2018 U.S. Monetary Policy Forum, coauthored with David Greenlaw, Ethan Harris, and Kenneth West. We review the recent U.S. monetary policy experience with large scale asset purchases (LSAPs) and draw lessons for monetary policy going forward. Most previous studies have found that quantitative easing (QE) lowered long term yields, with a rough consensus that LSAP purchases reduced yields on 10-year Treasuries by about 100 basis points. We argue that the consensus overstates the effect of LSAPs on 10-year yields. We use a larger than usual population of possible events and exploit interpretations provided by the business press. We find that Fed actions and announcements were not a dominant determinant of 10-year yields and that whatever the initial impact of some Fed actions or announcements, the effects tended not to persist. In addition, although the Fed began the transition to a smaller balance sheet sooner than the market had expected, the announcements and implementation of the balance-sheet reduction do not seem to have affected rates much. These observations lead us to conclude that the effects of LSAP are likely more modest than generally claimed. Going forward, we expect the Federal Reserveís balance sheet to stay large. This calls for careful consideration of the maturity distribution of assets on the Fedís balance sheet. Our conclusion is that the most important and reliable instrument of monetary policy is the short term interest rate, and we discuss the implications of this finding for Fed policy going forward.
Heterogeneity and Unemployment Dynamics (forthcoming, Journal of Business and Economic Statistics), coauthored with Hie Joo Ahn. This paper develops new estimates of flows into and out of unemployment that allow for unobserved heterogeneity across workers as well as direct effects of unemployment duration on unemployment-exit probabilities. Unlike any previous paper in this literature, we develop a complete dynamic statistical model that allows us to measure the contribution of different shocks to the short-run, medium-run, and long-run variance of unemployment as well as to specific historical episodes. We find that changes in the inflows of newly unemployed are the key driver of economic recessions and identify an increase in permanent job loss as the most important factor. NBER working paper version. A summary of the paper for general-interest readers is available on Econbrowser. See data and code to replicate (figure and table numbers in code files refer to NBER working paper version).
Comments on "Foreign Effects of Higher U.S. Interest Rates" by Matteo Iacoviello and Gaston Navarro, Journal of International Money and Finance 95 (July 2019): 290-293.
Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks, American Economic Review 109 (May 2019): 1873-1910. Coauthored with Christiane Baumeister. See Econbrowser for a short summary of the paper. Working paper version here. Data and code to replicate: results from baseline model, results from Kilian (AER, 2009), and results from Kilian and Murphy (2012). Updated data on world industrial production index. Updated series for oil supply shocks.
Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed: Re-evaluating the Role of Monetary Policy in Economic Fluctuations, Journal of Monetary Economics 100 (December 2018): 48-65. Coauthored with Christiane Baumeister. Working paper version here. Online appendix here and data and code to implement here.
Discussion of "Lower Bound Beliefs and Long-Term Interest Rates", International Journal of Central Banking 13 (September 2017): 203-212.
The Equilibrium Real Funds Rate: Past, Present and Future, IMF Economic Review 64 (November 2016): 660-707. Coauthored with Ethan Harris, Jan Hatzius and Kenneth West. Working paper version here. See Econbrowser for a short summary of the paper.
Comment on "Lower Oil Prices and the U.S. Economy: Is This Time Different?", Brookings Paper on Economic Activity, Fall 2016, 337-343.
Macroeconomic Regimes and Regime Shifts, Handbook of Macroeconomics, Volume 2A, pp. 163-201, edited by Harald Uhlig and John Taylor, Amsterdam: Elsevier, 2016. Working paper version here.
Off-Balance-Sheet Federal Liabilities, Cato Papers on Public Policy, 3 (2013-2014): 1-40. Working paper version here.
Crunch Time: Fiscal Crises and the Role of Monetary Policy, in Proceedings of the U.S. Monetary Policy Forum 2013, pp. 3-58. Initiative on Global Markets, Chicago Booth. Coauthored with David Greenlaw, Peter Hooper, and Frederic Mishkin. Working paper version here, executive summary here.
"Oil Prices, Exhaustible Resources, and Economic Growth," in Handbook of Energy and Climate Change, pp. 29-57, edited by Roger Fouquet. Cheltenham, United Kingdom: Edward Elgar Publishing, 2013. Working paper version here.
"Historical Oil Shocks," in Routledge Handbook of Major Events in Economic History, pp. 239-265, edited by Randall E. Parker and Robert Whaples, New York: Routledge Taylor and Francis Group, 2013. Working paper version here.
Comment on 'The French Gold Sink and the Great Deflation of 1929-32', Cato Papers on Public Policy, Volume 2, 2012-2013, pp. 49-56. Edited by Jeffrey Miron. Washington, DC: Cato Institute. Working paper version here.
The Propagation of Regional Recessions Review of Economics and Statistics, 94, no. 4 (November 2012): 935-947. Coauthored with Michael T. Owyang. Working paper version here. Click here for software and data.
Commentary: Import Prices and Inflation, International Journal of Central Banking, March 2012, vol. 8, no. 1, pp. 271-279.
The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment, Journal of Money, Credit, and Banking, 44, no. 1 (Supplement, February 2012): 3-46. Coauthored with Jing Cynthia Wu. Working paper version here. Click here to access the database developed for this paper.
"Nonlinearities and the Macroeconomic Effects of Oil Prices," Macroeconomic Dynamics, 2011, vol. 15, Supplement 3, pp. 364-378. Working paper version here.
"Calling Recessions in Real Time," International Journal of Forecasting October-December 2011, vol. 27, no. 4, pp. 1006-1026. Winner of International Journal of Forecasting Best Paper Award for 2010-2011. Working paper version here. Click here for software to implement these procedures
"Estimating the market-perceived monetary policy rule", American Economic Journal: Macroeconomics, July 2011, vol. 3, pp. 1-28. Co-authored with Seth Pruitt and Scott Borger. Working paper version here and a description of the paper written for a general audience can be found here.
"Sources of Variation in Holding Returns for Fed Funds Futures Contracts", Journal of Futures Markets, 2011, vol. 31, No. 3, pp. 205-229. Co-authored with Tatsuyoshi Okimoto. Working paper version here.
Macroeconomics and ARCH, in Festschrift in Honor of Robert F. Engle, pp. 79-96, edited by Tim Bollerslev, Jeffry R. Russell and Mark Watson, Oxford University Press, 2010. Description of the paper for a general audience here.
Causes and Consequences of the Oil Shock of 2007-08, Brookings Papers on Economic Activity, Spring 2009: 215-259. Articles summarizing this paper for a more general audience:  (causes);  (consequences). Working paper version here. Also available are data and software to reproduce any of the results in this paper.
Concerns about the Fed's New Balance Sheet, in The Road Ahead for the Fed, edited by John D. Ciorciari and John B. Taylor, Stanford: Hoover Institution Press, 2009. Working paper draft available here. Book can be ordered from Amazon here.
Oil Prices and the Economic Downturn, testimony before the Joint Economic Committee of the United States Congress, May 20, 2009.
Daily Changes in Fed Funds Futures Prices, Journal of Money, Credit, and Banking June 2009, vol. 41, no. 4, pp. 567-582. Working paper version here. An article summarizing this paper for a general audience is available at Econbrowser.
Daily Monetary Policy Shocks and New Home Sales, Journal of Monetary Economics 55 (2008), pp. 1171-1190. Articles summarizing this paper for a more general audience: , . For an illustration of how these estimates relate to developments in January 2008, see this analysis.
Oil and the Macroeconomy, in New Palgrave Dictionary of Economics, 2nd edition, edited by Steven Durlauf and Lawrence Blume, Palgrave McMillan Ltd., 2008.
Assessing Monetary Policy Effects Using Daily Federal Funds Futures Contracts, Federal Reserve Bank of St. Louis Review, July/August 2008, pp. 377-393.
Inside the Economist's Mind: A Book Review, Macroeconomic Dynamics, 2008, vol. 12, pp. 112-116.
Commentary: Housing and the Monetary Transmission Mechanism, in Housing, Housing Finance, and Monetary Policy, 2007, Federal Reserve Bank of Kansas City, pp. 415-422.
Dating Business Cycle Turning Points, co-authored with Marcelle Chauvet. In Nonlinear Time Series Analysis of Business Cycles, edited by Costas Milas, Philip Rothman, and Dick van Dijk, Elsevier, North Holland, 2006.
"What's Real About the Business Cycle?" Federal Reserve Bank of St. Louis Review, July/August 2005, 87(4), pp. 435-452. Click here to download computer code and data sets used in the analysis.
"Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," Journal of Money, Credit, and Banking, April 2004, vol. 36, pp. 265-286. Co-authored with Anna Maria Herrera. Click here to see a copy of the paper or to download data and programs.
"Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, February 2004, vol. 36, pp. 17-37. Co-authored with Michael Davis. Paper can be downloaded as can the data and software used in the study.
"A Model for the Federal Funds Rate Target," Journal of Political Economy, October 2002, vol. 110, pp. 1135-1167. Co-authored with Oscar Jorda. A working paper version can be downloaded as can the data and software used in the study.
"A Re-Examination of the Predictability of the Yield Spread for Real Economic Activity," Journal of Money, Credit, and Banking, May 2002, vol. 34, pp. 340-360. Co-authored with Dong Heon Kim Working paper version can be downloaded as can the data and software used in the study.
"The Supply and Demand for Federal Reserve Deposits," Carnegie-Rochester Conference Series on Public Policy, December 1998, vol. 49. Working paper version (missing figures and some mathematical symbols) can be downloaded, as can the data and software used in the study.
"The Augmented Solow Model and the Productivity Slowdown," Journal of Monetary Economics, Dec. 1998, vol. 42 (coauthored with Josefina Monteagudo).
"Measuring the Liquidity Effect," American Economic Review, March 1997. Click here to download data and software
"Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, Sept.-Oct. 1996, vol. 11, no. 5, (coauthored with Gang Lin). Click here to download data and software
"This Is What Happened to the Oil Price/Macroeconomy Relation," Journal of Monetary Economics, , Oct. 1996
"The Daily Market for Federal Funds," Journal of Political Economy, Feb. 1996. Click here to download data and software
"What Do the Leading Indicators Lead?", Journal of Business, Jan. 1996 (coauthored with Gabriel Perez-Quiros). Click here to download data and software.
"Was the Deflation During the Great Depression Anticipated? Evidence from the Commodity Futures Market," American Economic Review, March 1992. Click here to download data and software.
"Long Swings in the Dollar: Are They in the Data and Do Markets Know It?", American Economic Review, Sept. 1990 (coauthored with Charles Engel). Click here to download data and software.
"A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, June 1988
"The Role of the International Gold Standard in Propagating the Great Depression," Contemporary Policy Issues, April 1988
"Monetary Factors in the Great Depression," Journal of Monetary Economics, March 1987
"On the Limitations of Government Borrowing: A Framework for Empirical Testing," American Economic Review, September 1986, pp. 808-819, (coauthored with Marjorie A. Flavin).
"Kalman Filter Estimation of Unobserved Monthly Expectations of Inflation," Journal of Business and Economic Statistics, April 1986, pp. 147-160, (coauthored with Edwin Burmeister and Kent D. Wall).
"Uncovering Financial Market Expectations of Inflation," Journal of Political Economy, December, 1985, pp. 1224-1241.
"The Observable Implications of Self-Fulfilling Expectations," Journal of Monetary Economics, November 1985, pp. 353-373, (coauthored with Charles H. Whiteman).
"Historical Causes of Postwar Oil Shocks and Recessions," Energy Journal, January 1985, pp. 97-116.
"Oil and the Macroeconomy Since World War II," Journal of Political Economy, April 1983, pp. 228-248.