Current Working Papers
Revisiting the Interest Rate Effects of Federal Debt
Joint with Alexander Richter and Sarah Zubairy.
Abstract: This paper revisits the relationship between federal debt and interest rates. A common approach is to regress long-term forward interest rates on long-term projections of federal debt. We show that issues regarding nonstationarity have become more pronounced over the last 20 years, significantly biasing the estimates. Estimating the model in first differences addresses these concerns. We find that a 1 percentage point increase in the debt-to-GDP ratio raises the 5-year-ahead, 5-year Treasury rate by about 3 basis points. Roughly three-quarters of the interest rate increase is driven by term premia rather than expected short-term real rates.
Geopolitical Oil Price Risk and Economic Fluctuations
Joint with Lutz Kilian and Alexander Richter.
Abstract: This paper studies the general equilibrium effects of time-varying geopolitical risk in the oil market by simultaneously modeling downside risk from disasters, oil storage, and the endogenous determination of oil price and macroeconomic uncertainty in the global economy. Notwithstanding the attention geopolitical events in oil markets have attracted, we find that geopolitical oil price risk is not a major driver of global macroeconomic fluctuations. Even when allowing for the possibility of an unprecedented 20% drop in global oil production, it takes a large increase in the probability of such a disaster to cause a sizable recessionary impact.
Estimating Macroeconomic News and Surprise Shocks
Joint with Lutz Kilian and Alexander Richter.
Abstract: The importance of understanding the economic effects of news and surprise shocks to TFP is widely recognized in the literature. A common VAR approach is to identify responses to TFP news shocks by maximizing the variance share of TFP over a long horizon. We find that these TFP max share estimators tend to be strongly biased when applied to data generated from DSGE models with shock processes that match TFP moments in the data, both in the presence of TFP measurement error and in its absence. Incorporating a measure of TFP news into the VAR model and adapting the identification strategy substantially reduces the bias and RMSE of the impulse response estimates, even when there is sizable measurement error in the news variable. When applying this method to the data, we find that news shocks are slower to diffuse to TFP and have a smaller effect on real activity than implied by the TFP max share method.
Unpublished Manuscripts
"Time-varying Oil Price Volatility and Macroeconomic Aggregates.” Joint with Nora Traum.