Marco Del Negro is the director of the Federal Reserve Bank of New York’s new research center, AMEC, which stands for the Applied Macroeconomics and Econometrics Center. Ahead of hosting its first symposium, “Heterogeneity in Macroeconomics: Implications for Policy,” Liberty Street Economics caught up with Del Negro to learn more about his vision for AMEC.
Q: Why are you creating the Center and what is its purpose?
The New York Fed has decided to create the Applied Macroeconomics and Econometrics Center (AMEC) with one goal in mind: to promote and disseminate research in the fields of macroeconomics and econometrics—fields in which several New York Fed economists (including New York Fed President John Williams) are actively working. People know about this work of course—we publish it in academic journals, staff reports, and Liberty Street Economics posts; we issue various products such as the Weekly Economic Index, the Treasury Term Premia, the New York Fed DSGE model—but they may not have a full grasp of the breadth and diversity of this effort. Among many other subjects, we are particularly interested in studying the implications of inequality for monetary and fiscal policy (see for instance this Symposium that will take place in a few days). AMEC will facilitate the dissemination of this research and the engagement with academia and the public on these important themes.
Q: What kind of topics are you expecting AMEC to address?
All the core topics related to monetary policy. That is, monetary economics—both theory and empirics, forecasting, the labor market, the housing market, financial stability, the international economy, climate change, understanding expectations formations of both households and firms, term structure models, and finally studying important gauges for monetary policy such as the natural rates of interest r* and unemployment u*.
And as I mentioned, we will delve into inequality and its implications for policy and macroeconomic dynamics, the topics covered in the Symposium. In terms of tools, we will promote a diversity of approaches. AMEC researchers use both models and data, both macro (called “time series”), and micro, and, as much as we can, the two (models and data) together.
Q: How has COVID-19 affected your macro analysis and scope of work?
COVID-19 changed everything, for us as well as for everyone else. We came up with new products such as the Weekly Economic Index, to track the economy in real time during those terrible months in early 2020. We also had to adapt old products, such as the New York Fed DSGE Model (see this post on how we changed the model), to cope with the implications of this gigantic shock to the economy. And for some other products, such as r* and the Nowcast, we are still working on them.
Q: What content is housed within the Center and are there any plans to launch new products?
You can see a description of AMEC’s existing products (see list that follows this Q&A). And, as I mentioned, we will soon add r* and the Nowcast, which are under construction. But most important, panta rhei: we continuously work on new ideas, new questions, and new research projects, and we will not hesitate to ditch old products whenever we feel they have outlived their purpose. Models and tools have to evolve to keep up with the frontier in academia, and most important with the times and the new issues that we as researchers need to confront.
Q: How does AMEC relate to the Center for Microeconomic Data (CMD), and are you planning to collaborate on any major topics?
We do not have any firm plans yet—but I can see a lot of scope for collaboration between the economists in the two centers (in fact, there is much of that going on already, see this Staff Report). The micro data collected by the Center for Microeconomic Data, both the household balance sheet and survey expectation data, can shed light on important macro questions.
Q: What is unique about AMEC?
Some centers within the Federal Reserve System are focused on specific data sets, like the CMD, and others on specific topics, inflation, for example. AMEC is different from all of these, in that it is devoted to studying and promoting tools for macroeconomic and econometric analysis, and applying them to an ever-changing set of questions and topics. Our product is not a data set, nor expertise in a specific subject, but is research in developing approaches and ideas for answering a variety of queries, bearing in mind that tomorrow’s key questions may be very different from today’s.
Q: What is the purpose of the Advisory Board, and who is on it?
The members of the AMEC Advisory Board are leaders in the field of economics. Chris Sims and Mike Woodford are beacons of the profession in econometrics and macroeconomics. Serena Ng is a prominent econometrician with expertise in both time series and machine learning techniques. Hélène Rey and Stephanie Schmitt-Grohé are renowned macroeconomists with pathbreaking works in both international finance and macro. Gianluca Violante is a leading scholar in the field of macroeconomics and inequality and has pioneered the models we use to investigate this subject. We will count on these people to help provide us guidance in terms of developing new tools and approaches and staying abreast of the latest development in academia. We are very honored they have accepted our invitation to be part of AMEC’s board.
Q: What is your vision for AMEC? What are its short- and long-term goals?
The short- and long-term goals of the Center are the same: producing high quality research and engaging with academia, other central banks, and the public, on the most important questions of the day. This is what we aim to do with the Symposium on the implications of inequality for macroeconomics in general and monetary policy in particular. And we’ll keep at it.
Products of the Applied Microeconomics and Econometrics Center
- Weekly Economic Index The WEI is an index of real economic activity using timely and relevant high-frequency data. It represents the common component of ten different daily and weekly series covering consumer behavior, the labor market, and production. The WEI is scaled to the four-quarter GDP growth rate; for example, if the WEI reads -2 percent and the current level of the WEI persists for an entire quarter, we would expect, on average, GDP that quarter to be 2 percent lower than a year previously.
- The New York Fed DSGE Model The New York Fed dynamic stochastic general equilibrium (DSGE) model has been used to forecast the economy since 2011 (see this FOMC memo) and is one of the few examples of a central bank model whose forecasts are made available in real time to the public.
- The Treasury Term Premia Economists Tobias Adrian, Richard Crump, and Emanuel Moench (or “ACM”) present Treasury term premia estimates for maturities from one to ten years from 1961 to the present. Data are available at daily and monthly frequencies, the latter being end-of-month observations. ACM further estimate fitted yields and the expected average short-term rates for the same set of maturities. The analysis is based on a five-factor, no-arbitrage term structure model.
- Underlying Inflation Gauge The UIG provides a measure of underlying inflation and is defined as the persistent part of the common component of monthly inflation. It captures sustained movements in inflation from information contained in a broad set of price, real activity, and financial data.
- Yield Curve as a Leading Indicator This model uses the slope of the yield curve, or “term spread,” to calculate the probability of a recession in the United States twelve months ahead. The term spread is defined as the difference between ten-year and three-month Treasury rates.
Marco Del Negro is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.
The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.