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Inattention and the impact of monetary policy
with Salem Abo-Zaid and Xuguang Sheng, Journal of Applied Econometrics, 2023
We measure aggregate inattention as the common component in agents' inattentiveness to many economic variables. Applying this measure to the U.S. Survey of Professional Forecasters enables us to establish the following empirical evidence.
Professional forecasters update their information sets every five months on average, but do so more frequently in response to high inflation and unemployment, as well as rising market volatility and policy uncertainty.
Monetary policy shocks have larger real effects when the degree of inattention is higher.
To explain our empirical findings, we propose a general equilibrium model with state-dependent information rigidity in both the production and household sectors.
What is the role of perceived oil price shocks in inflation expectations
with Xuguang Sheng and Xinye Zheng, Energy Economics, 2023
We identify three perceived global shocks using sign restrictions in a FAVAR model.
Perceived oil price shock explains 10% of dynamics in global inflation expectations.
It accounts for an even smaller fraction during the COVID-19 pandemic.
Perceived global supply and demand shocks dominate, especially since the pandemic.
Professionals switch views on the pandemic from demand to supply shock in early 2021.
Diligent forecasters can make accurate predictions despite disagreeing with the consensus
with Xinye Zheng, Economic Modelling, 2023
When forecasters disagree, whom should we trust? and why? We follow the sticky information framework and derive two novel model implications that both ex-ante forecast disagreement and ex-post forecast accuracy are associated with the degree of information stickiness at an individual level.
Forecast accuracy is negatively associated with information stickiness.
Disagreement increases at a slowing rate as information stickiness increases.
Disagreement also depends on average stickiness and macroeconomic persistence.
Gas price expectations of Chinese households
with Carola Binder and Xuguang Sheng, Energy Economics, 2023
Conducted the first survey of Chinese households’ gas price expectations in April 2022.
Established the causal evidence on expectation formation from randomized information experiments.
Elicited households’ first-order concerns regarding the Ukraine war using open-ended survey questions.
Financial reforms and capital accumulation in developing economies: New data and evidence
China Economic Review, 2022
This study uses newly constructed data on structural reforms and private and public capital stock to assess the effects of financial reforms on capital formation in developing economies.
We find that while both domestic and external financial reforms are important determinants of capital formation, the former is more influential in middle-income countries (MICs) and the latter in low-income countries (LICs).
For LICs, external financial reforms work mostly through attracting FDI.
For MICs, within domestic financial reforms, what matters most are measures related to strengthening banking supervision and reducing credit controls. These results are driven by capital formation in the private sector.
In addition, these effects are nonlinear, and it is important for a country's policy when it comes to the sequence of implementing domestic and external financial reforms.
Given the importance of public investment in decarbonization, this study further discusses the potential impacts of financial reforms on climate change and carbon inequality.
On the substitution of private and public capital in production
with Alvar Kangur and Chris Papageorgiou, European Economic Review, 2019
Most macroeconomic models assume that aggregate output is generated by a specification for the production function with total physical capital as a key input. Implicitly this assumes that private and public capital stocks are perfect substitutes. In this paper, we test this assumption by estimating a nested-CES production function whereas the two types of capital are considered separately along with labor as inputs.
The estimation is based on our newly developed dataset on public and private capital stocks for 151 countries over a period of 1960–2014 consistent with Penn World Table version 9. We find evidence against perfect substitutability between public and private capital, especially for emerging and LIDCs, with the point estimate of the elasticity of substitution estimated closely around 3.
Do IMF forecasts respect Okun’s Law?
with Laurence Ball, Joao Jalles, and Prakash Loungani, International Journal of Forecasting, 2019
This paper provides an assessment of the IMF’s unemployment forecasts, which have not received much scrutiny to date. The focus is on the internal consistency of the IMF’s growth and unemployment forecasts, and specifically on seeing whether the relationship between the two is consistent with the relationship in the data, i.e., with Okun’s Law.
We find that the average performance is good, in the sense that the relationship between growth and unemployment forecasts is fairly comparable to that which prevails in the data: on average, the Okun coefficient in the forecasts mirrors the Okun coefficient in the data.
Nevertheless, there is room for improvement, particularly in the year-ahead forecasts and for the group of middle-income countries.
We show that a linear combination of Okun-based unemployment forecasts and WEO unemployment forecasts can deliver significant gains in forecast accuracy for developing economies.
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