"Real-time Hurricane Damage Nowcasts" (submitted)
Abstract: This paper uses an empirical model that incorporates multiple hazards and vulnerabilities to nowcast direct hurricane damages immediately following landfall on the continental United States over the last quarter century using real-time information. I evaluate the performance of the model by constructing a novel database of real-time damage predictions from commercial catastrophe models. I also analyze how official estimates of damage are revised. I find that my empirical model is substantially more accurate than simpler models that only incorporate wind speed and income. While commercial nowcasts are generally accurate, especially when averaging across multiple models, my empirical model is most accurate immediately after landfall and when there is a large proportion of uninsured and flood losses. The improved nowcasts are beneficial to many stakeholders including policymakers, insurers, and financial markets.
"House Prices, Debt Burdens, and the Heterogeneous Effects of Mortgage Rate Shocks," with William D. Larson
(Available as H.O. Stekler Research Program on Forecasting Working Paper No. 2024-002 and Treasury Economic Policy Working Paper 2024-04 and Treasury Office of Financial Research Working Paper 25-02)
Supplemental Material: OFR Blog post
Abstract: We examine the heterogeneous effects of mortgage interest rate shocks on house prices in a monthly panel of U.S. cities. Mortgage interest rate shocks, identified using Blue Chip forecast errors and monetary policy surprises, affect house prices more in cities where more borrowers have high debt burdens, consistent with a model with both price frictions and credit constraints. Responsiveness to interest rate shocks thus varies by location and time period, and is related to both borrower characteristics and underwriting rules. This has important implications for understanding monetary policy transmission, systemic risk, and the role of household finances in the macroeconomy.
"How do Macroeconomic Expectations React to Extreme Weather Shocks?" H.O. Stekler Research Program on Forecasting Working Paper No. 2025-001, January 2025
Abstract: I study how extreme weather events affect macroeconomic expectations to better understand the propagation of climate shocks. I identify the immediate and dynamic effects of a Hurricane Katrina-sized shock on business economists’ expectations of GDP growth, inflation, and interest rates over the past two decades. My results highlight the importance of forecast revision dynamics. A shock reduces expected growth, but the total dynamic effect is more than double the immediate effect. It is also perceived as a negative supply shock as inflation expectations rise and interest rate expectations fall. The persistence of the response supports models of delayed overshooting.
"What Explains the Differences between Alternative Measures of Long-Term Inflation Expectations?"
(A previous version titled "Extracting Information from Different Expectations" is available as an H.O. Stekler Research Program on Forecasting Working Paper No. 2020-008, October 2020 (here) and as an Office of Economic Policy Working paper No. 2021-01, January 2021 (here))
Abstract: Long-term inflation expectations are believed to be a key driver of inflation. However, measures from different sources present a wide range of values. To explain these differences, I develop a method to dynamically decompose expectations differentials into two channels: anchoring and information. The anchoring differential captures how quickly long-term expectations update to the same information while the information differential captures differences in information sets between measures. I show that the information differential plays a dominant role for most measures. However, it is still important to account for dynamic differences in anchoring. Using machine learning methods I find that up to two-thirds of the information differential is explained by data releases and macro news surprises. The relevant information is measure-specific: consumers respond to commodity prices and housing conditions while financial markets respond to changes in liquidity. I use these findings to evaluate forecasts of U.S. CPI inflation and show that the information differential explains differences in forecast accuracy.
"Testing for Differences in Path Forecast Accuracy", (January 2022)
(Earlier version available as a Federal Reserve Bank of Cleveland Working Paper)
Supplemental Material: Poster
Media Coverage: No Hesitations (blog post)
Abstract: Long-range forecasts are crucial for understanding and addressing long-term socioeconomic challenges such as climate change. The accuracy of these forecasts depends on how well they capture the trend. However, typical measures of point forecast accuracy can be misleading when forecasts suffer from multiple sources of error, particularly when the trend is mis-specified. To address this, we consider the joint forecast-error density as a generalized loss function and show that it is robust to multiple sources of forecast error at multiple horizons. Next, we formulate a test of path forecast accuracy using this joint loss. Simulations highlight the benefits and trade-offs and illustrate the power gains when there are multiple sources of forecast error. We apply the methods to evaluate forecast performance of two alternative model path forecasts since 2008 and find that up to a quarter of the rankings differ when using the joint loss. Focusing on Hurricane Sandy in 2012, we find that the rankings differ when using the joint loss, but these differences are not significant at the longest forecast path.
"The Expectations Gap: An Alternative Measure of Economic Slack", with Alex Schibuola, Mercatus Center Working Paper, September 2021
(An earlier version was available as an Office of Economic Policy Working Paper No. 2021-02, January 2021 here)
Abstract: The output gap hinges on estimates of potential GDP that can vary widely and are ultimately unobservable. To circumvent these issues, historical surveys of professional forecasters’ nominal GDP projections can be used to construct an “expectations gap,” which shifts the benchmark for economic performance to what GDP was expected to be. We (1) extend the expectations gap to a higher-frequency survey and assess its sensitivity to alternative forecast horizons; (2) capture its range using forecaster disagreement; (3) compare nominal and real measures of the expectations gap against conventional output gap measures; and (4) produce real-time forward-looking estimates and assess their performance near business-cycle turning points. Although the expectations gap is highly correlated with existing output gap measures, unlike other measures it detects overheating during the housing boom and bust cycle of the mid-2000s and increasing slack during the “invisible recession” of 2015–2016.
"On the Accuracy and Efficiency of IMF Forecasts: A Survey and Some Extensions" with Hans Genberg, IMF IEO Background Paper No. BP/14/04, February 2014
Abstract: This paper presents new perspectives on IMF forecast accuracy and efficiency by combining established analytical approaches with up-to-date data on forecasts and outturns and by developing new methodologies to help draw practical lessons for IMF forecasting. We find that the IMF forecasts developed for the World Economic Outlook are not consistently biased in one direction or the other, nor do they consistently perform better or worse than those of comparators. Even so, they have tended to be consistently over-optimistic in times of country-specific, regional, and global recessions. Second, while the Fund’s forecasts incorporate interdependence among economies to a significant degree, the data show that they may need to take better account of the international repercussions of developments in the Chinese, German, and US economies. Third, experience matters: staff with longer experience, whether country-specific or general, make smaller forecast errors, especially in the case of low-income countries.
"The IMF-WEO Forecast Process" with Hans Genberg and Michael Salemi, IMF IEO Background Paper No. BP/14/03, February 2014
Abstract: This paper describes and assesses how the IMF produces forecasts for use in the World Economic Outlook (WEO) and Article IV consultations. We draw on surveys and interviews of producers and users of the forecasts, and on comparisons with the practices of other organizations. We conclude that the IMF’s process is generally appropriate: through well structured coordination arrangements it reconciles forecasts made independently by economists covering each of a large numbers of contrasting economies with the need to produce a coherent view of world economic prospects, achieved in part by relying on a global projection model. Member country authorities by and large place substantial confidence in the integrity of the IMF forecast process. For the most part they believe that the forecasts provide an accurate picture of their country’s economy, and that they are free of political influence.
"IMF Bilateral Surveillance on International Reserves" with Angana Banerji, IMF IEO Background Paper No. BP/12/02, August 2012
Abstract: This paper examines the quality of the IMF’s policy advice on reserves in its bilateral surveillance during 2000–11. In light of country experiences in the aftermath of the global crisis, it finds that the IMF’s advice was somewhat complacent. Although the IMF was supportive of the precautionary need for reserves in emerging market economies, its focus on the benefits of a flexible exchange rate regime sometimes preempted its advice on reserve adequacy. Moreover, policy judgments were largely based on a pro forma reliance on a few traditional indicators and analytical approaches that were insufficiently embedded with country-specific information. The global crisis has shown the need to reframe the discussion of reserves in terms of the availability of foreign currency liquidity for the economy as a whole. Policy advice on reserve adequacy needs to include deeper analyses of the potential vulnerabilities built into the structure of balance sheets of the private sector (including the financial sector). Assessing the nature and complexities of capital inflows would be crucial for understanding a country’s need for reserves. The potential need for reserve buffers in some advanced countries cannot be ignored.
"Comparing Government Forecasts of the Gross Federal Debt", GWU Research Program on Forecasting Working Paper No. 2011-02, February 2011
Supplemental Material: Proceedings of the 18th Federal Forecasters Conference
Abstract: This paper compares annual one-step-ahead forecasts from the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) of the United States' gross federal debt from 1984 to 2010. While comparisons of these agencies' forecasts have been done before, they have not focused on the debt. The paper finds that both agencies do a good job forecasting the debt except during recessions. Each agency's forecast lacks something that the other accounts for and an average of both out performs either individually. However, the Analysis of the President‟s Budget (APB), which includes information from both agencies, performs best.
"The CoRe NTMs Database: A Compilation of Reported Non-Tariff Measures" with Jesse Mora and Jose Signoret, USITC Office of Economics Working Paper No. 2009-12A, December 2009
"'Die meisten Menschen wollen nicht eher schwimmen, als bis sie es können.' Ist das nicht wichtig? Natürlich wollen sie nicht schwimmen! Sie sind ja für den Boden geboren, nicht fürs Wasser. Und natürlich wollen sie nicht denken; sie sind ja fürs Leben geschaffen, nicht fürs Denken! Ja, und wer denkt, wer das Denken zur Hauptsache macht, der kann es darin zwar weit bringen, aber er hat doch eben den Boden mit dem Wasser vertauscht, und einmal wird er ersaufen." -- Heinrich Haller