The Variance of Non-Parametric Treatment Effect Estimators in the Presence of Clustering

Nonparametric estimators of treatment effects are often applied in settings where clustering may be important. We provide a general methodology for consistently estimating the variance of a large class of nonparametric estimators, including the simple matching estimator, in the presence of clustering. Software for implementing our variance estimator is available in Stata

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

The covariance between US Treasury bond returns and stock returns has moved considerably over time. While it was slightly positive on average in the period 1953-2009, it was unusually high in the early 1980's and negative in the 2000's, particularly in the downturns of 2000-02 and 2007-09. This paper specifies and estimates a model in which the nominal term structure of interest rates is driven by four state variables: the real interest rate, temporary and permanent components of expected inflation, and the "nominal-real covariance" of inflation and the real interest rate with the real economy. The last of these state variables enables the model to …fit the changing covariance of bond and stock returns. Log bond yields and term premia are quadratic in these state variables, with term premia determined by the nominal-real covariance. The concavity of the yield curve - the level of intermediate-term bond yields, relative to the average of short- and long-term bond yields - is a good proxy for the level of term premia. The nominal-real covariance has declined since the early 1980's, driving down term premia.

Rebuilding the Post-Pandemic Economy

After suffering the worst economic shock since the Great Depression, the American economy is recovering in fits and starts. While many businesses are reopening their doors and thriving, continued uncertainty about the course of the virus, the inflation outlook, labor shortages, and many other factors are hampering a full return to normal activity. The COVID-19 pandemic reinforced and exacerbated many of the biggest structural economic challenges in our society. It precipitated the largest economic relief and stimulus spending in US history and transformed the way that millions of Americans live and work, with automation, e-commerce, and telework all playing a bigger role.The policy volume Rebuilding the Post Pandemic Economy examines important questions about how the post-pandemic economy will take shape. What are some initial lessons we can take away from the novel government programs that were deployed to provide economic relief and stimulus? How can we implement new infrastructure investments to maximize efficiency and equity, and best respond to the climate crisis? After a year of widespread school closures, what have we learned about the role of K-12 education in perpetuating or reducing social and economic inequities? And how should American trade policies evolve to promote economic recovery and strengthen America's role in the global economy

A comparative-advantage approach to government debt maturity’,

Abstract We study optimal government debt maturity in a model where investors derive monetary services from holding riskless short-term securities. In a setting where the government is the only issuer of such riskless paper, it trades off the monetary premium associated with short-term debt against the refinancing risk implied by the need to roll over its debt more often. We then extend the model to allow private financial intermediaries to compete with the government in the provision of short-term, money-like claims. We argue that if there are negative externalities associated with private money creation, the government should tilt its issuance more towards short maturities. The idea is that the government may have a comparative advantage relative to the private sector in bearing refinancing risk, and hence should aim to partially crowd out the private sector's use of short-term debt

Monetary Policy and Long-Term Real Rates

Abstract Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis-point increase in the 2-year nominal yield on an FOMC announcement day is associated with a 42 basis-point increase in the 10-year forward real rate. This finding is at odds with standard macro models based on sticky nominal prices, which imply that monetary policy cannot move real rates over a horizon longer than that over which all prices in the economy can readjust. Rather, the responsiveness of long-term real rates to monetary shocks appears to reflect changes in term premia. One mechanism that may generate such variation in term premia is based on demand effects coming from "yield-oriented" investors. We find some evidence supportive of this channel. * We thank John Campbell, Gene Fama, Emmanuel Farhi, Robin Greenwood, Anil Kashyap, David Scharfstein, Larry Summers, Adi Sunderam, Paul Tucker, Luis Viceira, and seminar participants at Harvard University for helpful comments. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the Board of Governors.

Monetary Policy and Long-Term Real Rates

Abstract Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis point increase in the two-year nominal yield on a Federal Open Markets Committee announcement day is associated with a 42 basis point increase in the ten-year forward real rate. This finding is at odds with standard macro models based on sticky nominal prices, which imply that monetary policy cannot move real rates over a horizon longer than that over which all prices in the economy can readjust. Instead, the responsiveness of long-term real rates to monetary shocks appears to reflect changes in term premia. One mechanism that could generate such variation in term premia is based on demand effects due to the existence of what we call yield-oriented investors. We find some evidence supportive of this channel. JEL classification: E43, E52, G12, G1