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.
[Latest Working Paper] [Working Paper Appendix]
Abstract: Market participants and policymakers are concerned about major oil production shortfalls driven by geopolitical events. Even when such events never materialize, unanticipated increases in the probability of a production shortfall may generate a surge in the price of oil and oil price uncertainty. We provide the first systematic account of the quantitative importance of time-varying geopolitical risk to oil production for the global economy. We show that a 20 percentage point increase in the probability of a 5% shortfall in oil production causes a 0.12% reduction in global output. When considering a 20% shortfall, the drop in output quadruples.
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.