Research
Working papers
Macroeconomic Disagreement in Treasury Yields Updated 4/18/2020
I estimate a term structure model of Treasury yields in which traders’ information about macroeconomic conditions is dispersed. Bond yields and inflation forecasts identify properties of traders’ information. I find that prices are moderately informative about economic fundamentals, but more informative about policy and others’ beliefs. Nevertheless, beliefs about the macroeconomy are estimated to be quite heterogeneous. Over the sample period, dispersed beliefs directly added an average of 60 basis points to ten year yields, mostly attribute to disagreement about the Federal Reserve’s inflation target. Accounting for learning and belief heterogeneity dramatically reduces the magnitude and volatility of risk premia relative to estimates that assume full information.
Shadow Rate Models and Monetary Policy (with Michael F. Connolly )
Revision Requested, Journal of Financial Econometrics
Previously Circulated as "Subjective Shadow Rates at the Zero Lower Bound"
We examine the channels and efficacy of monetary policy at the zero lower bound (ZLB) through the lens of shadow rate models. We compare estimates across models with various factor structures and different assumptions about interest rate forecasts. We confirm that calendar-based forward guidance discretely shifted the implied duration of the ZLB and that large scale asset purchases (LSAPs) primarily lowered term premia. However, we find that the real effects of monetary policy are more muted relative to prior estimates: a 1 standard deviation fall in the shadow rate causes a peak decline in the unemployment rate of 0.003-0.01%.
Treasury Buybacks, the Federal Reserve’s Portfolio, and Changes in Local Supply (with Michael F. Connolly )
Resubmitted, Journal of Banking and Finance
We document spillover effects of the 2000-2002 Treasury Buyback program on Treasury returns and the composition of the Federal Reserve’s System Open Market Account (SOMA) portfolio. The reduction in bond supply due to the buybacks contributed an average of 95 basis points to the yields of bonds bought back and bonds of similar maturity over the course of the program. Each $10 billion of purchases corresponded with an average yield increase of 7.8 basis points. At a higher frequency, prices of purchased and near substitute bonds increased on settlement dates. Changes to the SOMA portfolio were smaller for securities exposed to the buybacks and tended to occur outside of auction weeks, consistent with the Federal Reserve attempting to avoid exacerbating Treasury supply shortages. We relate our findings to the theoretical literature on asset supply in preferred habitats models of the term structure. Our results suggest that the proposed reintroduction of the Treasury buyback program will have limited effects due to its size and proposed composition.
Inflation Expectations and Political Polarization: Evidence from the Cooperative Election Survey (with Christina E. Farhart)
Submitted
Using a unique, nationally representative survey from the 2022 midterm elections, we investigate the partisan divide in beliefs about inflation and monetary policy. We find that party identity is predictive of inflation forecasts even after conditioning on beliefs about both past inflation and the Federal Reserve’s long-run inflation target. Partisan forecast differences are driven by respondents who express low generalized trust in others and have a high degree of political knowledge; high-trust and low- knowledge partisans make similar forecasts all else equal. This finding is consistent with the literature in political psychology that examines the endorsement of conspiracy theories and political misinformation. We argue that the partisan divide in consumer inflation surveys is consistent with strategic responses by partisans.
Work In Progress
Your Guess is as Good as Mine: Central Bank Information and the Signaling Channel of Monetary Policy
Information Investment in a Coordination Game
Belief driven business cycles: evidence from a sign restricted VAR
Other scholarly activity
"Would Active Labor Market Policies Help Combat High U.S. Unemployment?" (With Jun Nie, Federal Reserve Bank of Kansas City). Economic Review, Federal Reserve Bank of Kansas City, 2011 Q3.
Cited in Council of Economic Advisors issue brief, December 2016
"News Shocks under Financial Frictions: A Comment on Görtz et al. (2022)" (With Thomas Ash and Giorgi Nikolaishvili). Institute for Replication Discussion Paper #51. The comment was a contribution to the meta-replication study "Mass Reproducability and Replicability: A New Hope" (Institute for Replication Discussion Paper #107).