Welcome Research Experience Code CV
The Dynamic Effects of Forward Guidance Shocks (with A. Lee Smith)
We examine the macroeconomic effects of forward guidance shocks at the zero lower bound. In the data, forward guidance shocks that lower the expected path of policy stimulate economic activity and prices (blue line). A textbook framework of monetary policy (red line) can largely replicate the dynamic responses from the empirical evidence. Our results suggest no disconnect between the empirical effects of forward guidance shocks and the predictions from a standard model of monetary policy.
Endogenous Volatility at the Zero Lower Bound:
Implications for Stabilization Policy (with Susanto Basu)
At the zero lower bound, the central bank's inability to offset shocks endogenously generates volatility. In this setting, an increase in uncertainty about future shocks causes significant contractions in the economy and may lead to non-existence of an equilibrium. The form of the monetary policy rule is crucial for avoiding catastrophic outcomes. State-contingent optimal monetary and fiscal policies can attenuate this endogenous volatility by stabilizing the distribution of future outcomes. Fluctuations in uncertainty and the zero lower bound help our model match the unconditional and stochastic volatility in the recent macroeconomic data.
Also available as NBER Working Paper 21838
Real Fluctuations at the Zero Lower Bound
Aggregate demand becomes upward sloping when the economy is stuck at the zero lower bound. Thus, the economy may respond very differently to real shocks. A positive technology shock which shifts aggregate supply downward can cause a large contraction in output. However, these differential responses to shocks emerge when the central bank follows a standard Taylor rule (TR) subject to the zero lower bound. This rule implies that the central bank stops responding to the state of the economy at the zero lower bound. This assumption is inconsistent with the recent behavior by monetary policymakers. The responses to shocks may not be so different if the central bank follows a history-dependent (HD) rule, which continues to respond the economy using expectations about future policy.
Uncertainty Shocks in a Model of Effective Demand (with Susanto Basu)
An uncertainty shock in the data causes a contraction in output and its components. A standard model of nominal price rigidity is fully consistent with this empirical evidence. We calibrate changes in uncertainty using implied stock market volatility and find that increased uncertainty about the future may have played a significant role in worsening the Great Recession.
Econometrica, Volume 85, Number 3, May 2017, Pages 937-958.
Press and Blog Coverage: Reuters.com, Econbrowser
Also available as NBER Working Paper 18420
Additional Material: Technical Appendix & Slides
How Do FOMC Projections Affect Policy Uncertainty?
(with Trenton Herriford)
Uncertainty about future interest rates fell after the FOMC began releasing its participants’ projections for the appropriate federal funds rate. In addition, changes in the participant disagreement help explain movements in uncertainty around FOMC meetings.
Federal Reserve Bank of Kansas City Economic Review, 2017.
Estimating the Monetary Policy Rule Perceived by Forecasters
I examine whether the FOMC’s implicit monetary policy rule, as perceived by professional forecasters, changed when the federal funds rate reached its effective lower bound. While unconventional policy may have changed aspects of the FOMC’s communication and conduct, the policy rule perceived by forecasters is similar before and during the zero lower bound period.
Federal Reserve Bank of Kansas City Economic Review, 2015, 100(4): 33-49.
Summary: Macro Bulletin
Discussion of Oil Volatility Risk
By Lin Gao, Steffen Hitzemann, Ivan Shaliastovich, & Lai Xu
American Finance Association Meeting January 2017
Discussion of Global Dynamics at the Zero Lower Bound
By William T. Gavin, Benjamin D. Keen, Alexander Richter, & Nathaniel Throckmorton
Federal Reserve System Macroeconomics Meeting April 2014
Shorter Policy-Related Work
Are Longer-Term Inflation Expectations Stable? (with Craig Hakkio)
Throughout 2014, survey-based expectations of inflation were relatively stable and consistent with the FOMC’s longer-term inflation objective of 2 percent. However, individual participants’ longer-term forecasts can vary considerably and are not always aligned with this target.