250 posts on "Macroeconomics"
September 8, 2023
Reintroducing the New York Fed Staff Nowcast
“Nowcasts” of GDP growth are designed to track the economy in real time by incorporating information from an array of indicators as they are released. In April 2016, the New York Fed’s Research Group launched the New York Fed Staff Nowcast, a dynamic factor model that generated estimates of current quarter GDP growth at a weekly frequency. The onset of the COVID-19 pandemic sparked widespread economic disruptions—and unprecedented fluctuations in the economic data that flow into the Staff Nowcast. This posed significant challenges to the model, leading to the suspension of publication in September 2021. Taking advantage of recent developments in time-series econometrics, we have since developed a more robust version of the Staff Nowcast model, one that better handles data volatility. In this post, we discuss the model’s new features, present estimates of current quarter GDP growth, and evaluate how the Staff Nowcast would have performed during the pandemic period. Today’s post marks the resumption of regular New York Fed Staff Nowcast releases, to be published each Friday.
September 7, 2023
How Large Are Inflation Revisions? The Difficulty of Monitoring Prices in Real Time
With prices quickly going up after the COVID-19 pandemic, inflation releases have rarely been as present in the public debate as in recent years. However, since inflation estimates are frequently revised, how precise are the real-time data releases? In this Liberty Street Economics post, we investigate the size and nature of revisions to inflation. We find that inflation estimates for a given month can change substantially as subsequent data vintages are released. As an example, consider March 2009. With the economy contracting amid the Global Financial Crisis, the twelve-month inflation rate for personal consumption expenditures (PCE) excluding food and energy dropped from an initial estimate of 1.8 percent to 0.8 percent in the current series. The difference is dramatic and points to the difficulty of monitoring inflation in real time. Our results suggest that there is significant uncertainty in measuring inflation, and the key features of the recent spike and subsequent moderation of inflation may look quite different in hindsight once further revisions have taken place.
August 10, 2023
The Evolution of Short‑Run r* after the Pandemic
This post discusses the evolution of the short-run natural rate of interest, or short-run r*, over the past year and a half according to the New York Fed DSGE model, and the implications of this evolution for inflation and output projections. We show that, from the model’s perspective, short-run r* has increased notably over the past year, to some extent outpacing the large increase in the policy rate. One implication of these findings is that the drag on the economy from recent monetary policy tightening may have been limited, rationalizing why economic conditions have remained relatively buoyant so far despite the elevated level of interest rates.
July 13, 2023
Inflating Away the Debt: The Debt‑Inflation Channel of German Hyperinflation
The recent rise in price pressures around the world has reignited interest in understanding how inflation transmits to the real economy. Economists have long recognized that unexpected surges of inflation can redistribute wealth from creditors to debtors when debt contracts are written in nominal terms (see, for example, Fisher 1933). If debtors are financially constrained, this redistribution can affect real economic activity by relaxing financing constraints. This mechanism, which we call the debt-inflation channel, is well understood theoretically (for example, Gomes, Jermann, and Schmid 2016), but there is limited empirical evidence to substantiate it. In this post, we discuss new insights from one of the key events in monetary history: the Great German Inflation of 1919-23. Because this case of inflation was both surprising and extremely high, Germany’s experience helps shed light on how high inflation impacts firms’ economic activity through the erosion of their nominal debt burdens. These insights are based on a recently released research paper.
July 6, 2023
Where Is Inflation Persistence Coming From?
Elevated inflation continues to be a top-of-mind preoccupation for households, businesses, and policymakers. Why has the post-pandemic inflation proved so persistent? In a Liberty Street Economics post early in 2022, we introduced a measure designed to dissect the buildup of the inflationary pressures that emerged in mid-2021 and to understand where the sources of its persistence are. This measure, that we labeled Multivariate Core Trend (MCT) inflation analyzes whether inflation is short-lived or persistent, and whether it is concentrated in particular economic sectors or broad-based.
June 23, 2023
The Credibility of Government Policies: Conference in Honor of Guillermo Calvo
Guillermo Calvo is a leading member of a group of economists who revolutionized macroeconomics by modeling how incentives and the anticipation of future policies affect aggregate outcomes. In celebration of his work, a conference was held in his honor at the Federal Reserve Bank of New York and at Columbia University on February 22-24, 2023. The conference program can be found on the event website. A longer version of this post with additional detail on the proceedings can be found here.
June 16, 2023
The New York Fed DSGE Model Forecast— June 2023
Editor's note: We have updated the "date of forecast" row in the forecast comparison table to display the correct year (2023, not 2024). (September 25, 2023, 5:04 p.m.)
This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since March 2023.
June 2, 2023
MCT Update: Inflation Persistence Declined Significantly in April
This post presents an updated estimate of inflation persistence, following the release of personal consumption expenditure (PCE) price data for April 2023. The estimates are obtained by the Multivariate Core Trend (MCT), a model we introduced on Liberty Street Economics last year and covered most recently in a May post. The MCT is a dynamic factor model estimated on monthly data for the seventeen major sectors of the PCE price index. It decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory shock. The trend in PCE inflation is constructed as the sum of the common and the sector-specific trends weighted by the expenditure shares.
May 31, 2023
Do Economic Crises in Europe Affect the U.S.? Some Lessons from the Past Three Decades
In this post we summarize the main results of our contribution to a recent e-book, “The Making of the European Monetary Union: 30 years since the ERM crisis,” on the economic and financial crises in Europe since 1992-93, and focus on the spillovers of those crises onto the United States and the global economy. We find that the answer to the question in the title of this post is a (moderate) yes.
Posted at 7:00 am in Credit, Crisis, DSGE, Euro Area, Exchange Rates, Exports, International Economics, Macroeconomics | Permalink
May 23, 2023
Financial Stability and Interest Rates
In a recent research paper we argue that interest rates have very different consequences for current versus future financial stability. In the short run, lower real rates mean higher asset prices and hence higher net worth for financial institutions. In the long run, lower real rates lead intermediaries to shift their portfolios toward risky assets, making them more vulnerable over time. In this post, we use a model to highlight the challenging trade-offs faced by policymakers in setting interest rates.
RSS Feed
Follow Liberty Street Economics
