Pushing on a string

Monetary policy

Does inflation targeting make a difference?

Inflation (Finance)

Are inflation expectations rising from the ashes?

Inflation (Finance) ; Rational expectations (Economic theory)

Getting “real” about monetary policy

Monetary policy ; Federal funds rate

Is all that talk just noise?

Monetary policy

Is the business cycle still an inventory cycle?

Business cycles

Identifying business cycle turning points in real time

This paper evaluates the ability of a statistical regime-switching model to identify turning points in U.S. economic activity in real time. The authors work with Markov-switching models of real GDP and employment that, when estimated on the entire post-war sample, provide a chronology of business cycle peak and trough dates very close to that produced by the National Bureau of Economic Research (NBER). Next, they investigate how accurately and quickly the models would have identified turning points had they been used in real-time for the past forty years. In general, the models identify turning point dates in real-time that are close to the NBER dates. For both business cycle peaks and troughs, the models provide systematic improvement over the NBER in the speed at which turning points are identified. Importantly, the models achieve this with few instances of "false positives." Overall, the evidence suggests that the regime-switching model could be a useful supplement to the NBER Business Cycle Dating Committee for establishing turning point dates. The model appears to capture the features of the NBER chronology in an accurate, timely way, and does so in a transparent and consistent fashion.Forecasting ; Economic conditions ; Business cycles

Employment and the business cycle

The Great Recession of 2007-2009 has not only caused a large wealth loss, it was also followed by a sluggish subsequent recovery. Two years after officially emerging from the recession, the economy was still growing at a low pace and payroll employment was far from reaching its previous peak. However, assessment of the employment situation was markedly different across different series. The two most important employment series, payroll employment (ENAP) and civilian employment (TCE), have recently been displaying divergent patterns. This has been a source of great uncertainty regarding labor market conditions. This paper investigates the differences in the cyclical dynamics of these series and the implications for monitoring business cycle on a current basis. Univariate and multivariate Markov switching models are applied to revised and real time unrevised data. We find that the main differences across these series occur around recessions. The employment measures have diverged considerably around the last three recessions in 1990-1991, in 2001, and in 2007-2009, but especially during their subsequent recoveries. In particular, while the probabilities of recession for models that include ENAP depict jobless recoveries, the probabilities of recessions from models with TCE fall right around the trough of the last three recessions, as determined by the NBER. This significantly impacts the identification of turning points in multivariate models in sample and in recursive real time analysis, with models that use TCE being more accurate compared to the NBER dating, and delivering faster call of troughs in real time. Models that include ENAP series, on the other hand, yield delays in signaling business cycle troughs, especially the most recent ones.Employment, Business Cycle, Turning Point, Real Time, Markov-Switching, Dynamic Factor Model, Jobless Recovery

Common Stochastic Trends, Common Cycles, and Asymmetry in Economic Fluctuations

We investigate the nature of asymmetries in U.S. business cycle dynamics using a dynamic two-factor model of output, investment, and consumption that incorporates both the common stochastic trend implied by neoclassical growth theory and a common transitory component. This framework allows for identification of both types of asymmetry commonly identified in the literature: 1. Shifts in the growth rate of the trend component and 2. Transitory deviations below trend, or "plucking". The model also lends itself easily to tests of the marginal significance of each type of asymmetry when the other is allowed to be present. Such tests suggest that both types of asymmetries have played a significant role in post-war recessions, although the nature of shifts in the growth rate of trend is different than the received literature suggests. We also allow for a one-time structural break in the long run growth rate of the common stochastic trend (a productivity slowdown) and in the magnitude of the asymmetry parameters. We find evidence of a productivity slowdown and an increase in the relative importance of shifts in the common stochastic trend vs. the "plucking" type of asymmetry. The evidence suggests a gradual structural break which begins in the mid 1960's and is complete by the end of 1973.