Research
Publications
with Michael Cai, Marco Del Negro, Marc Giannoni, Pearl Li, and Erica Moszkowski. (2019, International Journal of Forecasting)
The years following the Great Recession were challenging for forecasters. Unlike other deep downturns, this recession was not followed by a swift recovery, but generated a sizable and persistent output gap that was not accompanied by deflation as a traditional Phillips curve relationship would have predicted. Moreover, the zero lower bound and unconventional monetary policy generated a policy environment without precedents. We document the real real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model during this period and explain the results using the pseudo real-time forecasting performance results from a battery of DSGE models. We find the New York Fed DSGE model’s forecasting accuracy to be comparable to that of private forecasters—and notably better, for output growth, than the median forecasts from the FOMC’s Summary of Economic Projections. The model’s financial frictions were key in obtaining these results, as they implied a slow recovery following the financial crisis.
Working Papers
with Tomas Breach
The absence of a long-running, official measure of U.S. state-level consumption impedes the study of many important questions. To address this key constraint, we estimate a new, annual, state-level panel of retail consumption for 1970-2015 using official measures of retail spending and newly-digitized state sales tax records. We combine the information of these varied series via a state-space model that accommodates missing data, measurement error and temporally or regionally aggregated observations. We apply our estimates to two questions whose study has been hampered by lack of data. First, we examine the role of cross-state banking integration in interstate risk sharing, here measured by the relative comovement of output and consumption across state pairs. Exogenous increases in integration raise output and consumption comovement similarly, indicating that banking integration only smooths consumption insofar as it smooths output. Second, we estimate consumption fiscal multipliers using state-level military spending shocks. Our estimated relative multipliers are positive, grow over time, and are notably larger than recent ones based on private-sector consumption data from the Great Recession.
with Jianlin Wang
Correctly estimating fiscal multipliers depends on correctly recording when news of future spending breaks. The leading approach from Ramey (2011) deals with this issue by constructing fiscal shocks using news articles on defense spending. As an alternative, we construct a new measure of excess returns on military contractors for the period 1936-1947. Excess returns systematically lead the defense news series and produce more persistent dynamic responses of output and government spending. We estimate a long-run fiscal multiplier of 0.7. We consider two explanations for these discrepancies in the context of WWII: slow-moving changes in public expectations and private, pre-war coordination between defense-related firms and the government. For the first, we show that controlling for pre-war expectations of future spending renders both the news series and excess returns poor predictors of government spending. For the second, lagging (leading) the excess returns (defense news) series can approximately reproduce the impulse responses generated by the other, suggesting that firms' returns are measuring the same eventual spending as the defense news series but are responding earlier in time.
Works in Progress
Money Market Reform and Intermediary Demand (materials available pending data agreement)
with Collin Jones
We evaluate the impact of the 2015-2016 money market reforms on the behavior of this market’s main intermediaries: money market funds (MMFs). These reforms were enacted to stabilize money markets in the event of adverse shocks; given the emergency interventions needed in money markets in early 2020 it is unclear if they succeeded. We begin by writing down a novel dynamic portfolio choice model for money market funds, inspired by the tractable framework of Garleanu and Pedersen (2013). This model features several institutional details that are likely critical for money market funds such as transaction costs and partially predictable investor redemptions. We derive from the model an asset demand system along the lines of Koijen and Yogo (2019) that we then estimate at the fund-by-year-level using detailed monthly holdings data reported by the funds to the SEC. The primary outputs of this estimation are investor-level demand curve parameters, which characterize funds’ demand for assets as a function of their yields and characteristics. Characterizing the cross-section of demand parameters tells us how observable fund-level characteristics correlate with asset demand. Characterizing the time-series of demand parameters shows us how these reforms changed how MMFs and money markets as a whole respond to adverse shocks.