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87 posts on "Macroecon"

March 25, 2015

Choosing the Right Policy in Real Time (Why That’s Not Easy)

Marco Del Negro, Raiden Hasegawa, and Frank Schorfheide

LSE_2015_combining-forecasting-models-iStock_000016830894_450

Second in a two-part series

As an economist, you make policy recommendations at any point in time that depend on what model of the economy you have in mind and on your assessment of the state of the economy. One can see these points play out in the current discussion about the timing of interest rate liftoff and the speed of the subsequent renormalization. If you think nominal rigidities are not all that important, you are likely to conclude that accommodative policies won’t do much for growth but will generate inflation. Similarly, if you are convinced that the economy is already firing on all cylinders, you may see little need for prolonged accommodation. The problem is, you are not quite sure about the state of the economy or what the right model is. If you are a Bayesian, you may want to try to put probabilities on different models/states of the world and take it from there. The first post in this series, “Combining Models for Forecasting and Policy Analysis,” introduced a procedure called dynamic pools that shows how to do just that. In this post, we apply that procedure to a policy exercise. We can’t publicly discuss current policies, so we will instead apply our method to consider alternative monetary policies at the onset of the Great Recession.

Continue reading "Choosing the Right Policy in Real Time (Why That’s Not Easy)" »

Posted by Blog Author at 7:00 AM in Macroecon, Monetary Policy | Permalink | Comments (1)

March 23, 2015

Combining Models for Forecasting and Policy Analysis

Marco Del Negro, Raiden Hasegawa, and Frank Schorfheide

First in a two-part series

Model uncertainty is pervasive. Economists, bloggers, policymakers all have different views of how the world works and what economic policies would make it better. These views are, like it or not, models. Some people spell them out in their entirety, equations and all. Others refuse to use the word altogether, possibly out of fear of being falsified. No model is “right,” of course, but some models are worse than others, and we can have an idea of which is which by comparing their predictions with what actually happened. If you are open-minded, you may actually want to combine models in making forecasts or policy analysis. This post discusses one way to do this, based on a recent paper of ours (Del Negro, Hasegawa, and Schorfheide 2014).

Continue reading "Combining Models for Forecasting and Policy Analysis" »

Posted by Blog Author at 7:00 AM in Macroecon, Monetary Policy | Permalink | Comments (1)

March 02, 2015

Euro Area Inflation Expectations–Anchors Away?



Euro-inflation

Euro area inflation expectations have been falling at both short- and long-term horizons, with the latter development suggesting the current low inflation environment is perceived as likely to persist. Because long-term inflation expectations play a key role in the decisions of households and firms, economists have stressed the importance of long-term inflation expectations being anchored at a central bank’s target. In this post, we use survey data on inflation forecasts to document evidence of recent “unanchoring” of euro area long-term inflation expectations, and note the difference in comparison to the 2008-09 period, when current inflation and short-term inflation expectations also declined but long-term inflation expectations remained steady.

Continue reading "Euro Area Inflation Expectations–Anchors Away? " »

Posted by Blog Author at 7:00 AM in Macroecon, Monetary Policy | Permalink | Comments (0)

February 25, 2015

The 2005 Bankruptcy Reform and the Foreclosure Crisis



LSE-bankruptcy-reform2-103583108-450
Second in a two-part series

Our previous post showed that the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was associated with a sizable rise in foreclosure, in addition to a decline in bankruptcy filings and a rise in insolvency. In this post, we examine one possible explanation for the rise in foreclosure: the substitution hypothesis. Prior to the 2005 reform, individuals facing insolvency could discharge their unsecured debt via bankruptcy, thus retaining the ability to remain current on their home debts. After the reform, since bankruptcy became too expensive for many, default on home loans was the most effective way for these individuals to reduce outstanding debt. The idea that BAPCPA caused a shift from bankruptcy to foreclosure is not new; see Morgan et al. (2012) and Li, White, and Zhu (2011). In this post, we use the Federal Reserve Bank of New York’s Consumer Credit Panel (based on Equifax data, described here) to provide evidence on the mechanism through which this substitution occurred, and to precisely quantify the magnitude of its impact on foreclosures.

Continue reading "The 2005 Bankruptcy Reform and the Foreclosure Crisis" »

Posted by Blog Author at 7:00 AM in Macroecon | Permalink | Comments (1)

February 23, 2015

Insolvency after the 2005 Bankruptcy Reform



Correction: The source notes for the charts in this post were incomplete and have been corrected. We regret the error.

LSE-bankruptcy-reform1-103583108-450
First in a two-part series
Personal bankruptcy was introduced in the United States through the Bankruptcy Act of 1978. After passage of the act, bankruptcy rates rose steadily until 2005, when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). BAPCPA was signed by President George W. Bush on April 20, 2005, and applied to bankruptcy cases filed on or after October 17, 2005. The reform caused a large and permanent reduction in bankruptcy filings. In this post, we study the mechanism behind this drop and the consequences for households.

Continue reading "Insolvency after the 2005 Bankruptcy Reform" »

Posted by Blog Author at 7:00 AM in Macroecon | Permalink | Comments (0)

January 07, 2015

What Does Disagreement Tell Us about Uncertainty?



Blog-Disagreement-iStock_000017906875Large_450

Uncertainty is of considerable interest for understanding the behavior of individuals as well as the movements in key macroeconomic and financial variables. Despite its importance, direct measures of uncertainty aren’t widely available. Because of this data limitation, a common practice is to use survey-based measures of forecast dispersion—reflecting disagreement among respondents—to proxy for uncertainty. Is this a reliable practice? Here, we review the distinction between disagreement and uncertainty as concepts, and show that this conceptual distinction carries over to their empirical counterparts, suggesting that disagreement is not generally a good proxy for uncertainty.

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Posted by Blog Author at 7:00 AM in Education, Macroecon | Permalink | Comments (3)

December 29, 2014

Data Insight: Which Growth Rate? It’s a Weighty Subject



The growth rate in real gross domestic product (GDP) is a conventional indicator of the economy’s health. But the two ways of measuring annual GDP growth can give very different answers. In 2013, GDP grew 2.2 percent on a year-over-year basis, but at a faster 3.1 percent rate on a Q4-over-Q4 basis. So, which measure is more meaningful? We show in this post that the Q4/Q4 metric is better since it only considers quarterly growth rates during the current year, while the Year/Year measure depends on quarterly growth rates in both the current and previous year and puts considerable weight on growth around the turn of the year.

Continue reading "Data Insight: Which Growth Rate? It’s a Weighty Subject" »

Posted by Blog Author at 7:00 AM in Macroecon | Permalink | Comments (3)

November 19, 2014

The Long-Term Unemployed and the Wages of New Hires



Third in a three-part series
This is the third in a series of blog posts on the topic of measuring labor market slack. In this post, we assess the relationships between short- and long-term unemployment and wages by comparing the differences in states’ experiences over the business cycle. While all states felt the impact of the Great Recession, some fared better than others. Consequently, it is possible to use differences in the composition and shifts of short- and long-term unemployment to determine whether short-term unemployment exerts a greater influence on wage determination. The results suggest that there is little difference in how long-term and short-term unemployment affect wages, and as a consequence, the long-term unemployed shouldn’t be dismissed when evaluating labor market slack.

Continue reading "The Long-Term Unemployed and the Wages of New Hires" »

Posted by Blog Author at 7:00 AM in Labor Economics, Macroecon | Permalink | Comments (3)

November 18, 2014

How Attached to the Labor Market Are the Long-Term Unemployed?



Second in a three-part series
In this second post in our series on measuring labor market slack, we analyze the labor market outcomes of long-term unemployed workers to assess their employability and labor force attachment. If long-term unemployed workers are essentially nonparticipants, their job-finding prospects and attachment to the labor force should resemble those of nonparticipants who are not looking for a job and should differ considerably from those of short-term unemployed workers. Using data that allow us to follow workers over longer time periods, we find that differences in labor market outcomes between short- and long-term unemployed workers exist, but these differences narrow at longer horizons. In contrast, labor market outcomes for the long-term unemployed are substantially different from those of nonparticipants who do not want a job.

Continue reading "How Attached to the Labor Market Are the Long-Term Unemployed?" »

Posted by Blog Author at 7:00 AM in Labor Economics, Macroecon | Permalink | Comments (1)

November 17, 2014

Measuring Labor Market Slack: Are the Long-Term Unemployed Different?



Istock-longterm-unemployed-450_caption
First in a three-part series
There has been some debate in the Liberty Street Economics blog and in other outlets, such as Krueger, Cramer, and Cho (2014) and Gordon (2013), about whether the short-term unemployment rate is a better measure of slack than the overall unemployment rate. As the chart below shows, the two measures are sending different signals, with the short-term unemployment rate back to its pre-recession level while the overall rate is still elevated because of a high long-term unemployment rate. One can argue that the unemployment rate is exaggerating the extent of underutilization in the labor market, based on the premise that the long-term unemployed are, in practice, out of the labor force and likely to exert little pressure on earnings. If this is indeed the case, inflationary pressures might start building up sooner than suggested by the overall unemployment rate. In a three-part series, we study the available evidence on the long-term unemployed and argue against this premise. The long-term unemployed should not be excluded from measures of labor market slack.

Continue reading "Measuring Labor Market Slack: Are the Long-Term Unemployed Different?" »

Posted by Blog Author at 7:00 AM in Labor Economics, Macroecon | Permalink | Comments (3)
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