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Do Macro variables, asset markets, or surveys forecast ination better?Journal of Monetary
 Economics
, 2007
"... NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff ..."
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Cited by 159 (8 self)
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NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.
Macro factors in bond risk premia
 Review of Financial Studies
, 2009
"... Are there important cyclical fluctuations in bond market premiums and, if so, with what macroeconomic aggregates do these premiums vary? We use the methodology of dynamic factor analysis for large datasets to investigate possible empirical linkages between forecastable variation in excess bond retur ..."
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Cited by 60 (1 self)
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Are there important cyclical fluctuations in bond market premiums and, if so, with what macroeconomic aggregates do these premiums vary? We use the methodology of dynamic factor analysis for large datasets to investigate possible empirical linkages between forecastable variation in excess bond returns and macroeconomic fundamentals. We find that “real ” and “inflation ” factors have important forecasting power for future excess returns on U.S. government bonds, above and beyond the predictive power contained in forward rates and yield spreads. This behavior is ruled out by commonly employed affine term structure models where the forecastability of bond returns and bond yields is completely summarized by the crosssection of yields or forward rates. An important implication of these findings is that the cyclical behavior of estimated risk premia in both returns and longterm yields depends importantly on whether the information in macroeconomic factors is included in forecasts of excess bond returns. Without the macro factors, risk premia appear virtually acyclical, whereas with the estimated factors risk premia have a marked countercyclical component, consistent with theories that imply investors must be compensated for risks associated with macroeconomic activity. ( JEL E0, E4, G10, G12) 1.
Sticky information and sticky prices
 Journal of Monetary Economics
, 2007
"... In the U.S. and Europe, prices change somewhere between every six months and once a year. Yet nominal macro shocks seem to have real effects lasting well beyond a year. “Sticky information ” models, as posited by Sims (2003), Woodford (2003) and Mankiw and Reis (2002), can reconcile micro flexibilit ..."
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Cited by 52 (7 self)
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In the U.S. and Europe, prices change somewhere between every six months and once a year. Yet nominal macro shocks seem to have real effects lasting well beyond a year. “Sticky information ” models, as posited by Sims (2003), Woodford (2003) and Mankiw and Reis (2002), can reconcile micro flexibility with macro rigidity. We simulate a sticky information model in which price setters do not update their information on macro shocks as often as they update their information on micro shocks. Compared to a standard menu cost model, price changes in this model reflect older macro shocks. We then examine price changes in the micro data underlying the U.S. CPI. These price changes do not reflect older information, thereby exhibiting a similar response to that of the standard menu cost model. However, the empirical test hinges on staggered information updating across firms; it cannot distinguish between a full information model and a model where firms have equally old information.
99 Luftballons: Monetary Policy and the House Price Boom Across U.S
 States’, Journal of Monetary Economics
, 2007
"... We use a dynamic factor model estimated via Bayesian methods to disentangle the relative importance of the common component in OFHEO house price movements from state or regionspecific shocks, estimated on quarterly statelevel data from 1986 to 2005. We find that historically movements in house pr ..."
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Cited by 51 (2 self)
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We use a dynamic factor model estimated via Bayesian methods to disentangle the relative importance of the common component in OFHEO house price movements from state or regionspecific shocks, estimated on quarterly statelevel data from 1986 to 2005. We find that historically movements in house prices have mainly been driven by the local (state or regionspecific) component. The recent period (20012005) has been different, however: “Local bubbles ” have been important in some states, but overall the increase in house prices is a national phenomenon. We then use a VAR to investigate the extent to which expansionary monetary policy is responsible for the common component in house price movements. We find the impact of policy shocks on house prices to be small in comparison with the magnitude of fluctuations in the recent period.
Likelihoodbased analysis for dynamic factor models
, 2008
"... We present new results for the likelihoodbased analysis of the dynamic factor model that possibly includes intercepts and explanatory variables. The latent factors are modeled by stochastic processes. The idiosyncratic disturbances are specified as autoregressive processes with mutually correlated ..."
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Cited by 38 (7 self)
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We present new results for the likelihoodbased analysis of the dynamic factor model that possibly includes intercepts and explanatory variables. The latent factors are modeled by stochastic processes. The idiosyncratic disturbances are specified as autoregressive processes with mutually correlated innovations. The new results lead to computationally efficient procedures for the estimation of the factors and parameter estimation by (quasi)maximum likelihood. An illustration is provided for the analysis of a large panel of macroeconomic time series
2009 Asymptotics of the principal components estimator of large factor models with weak factors. Working Paper
"... We consider large factor models where factors’explanatory power does not strongly dominate the explanatory power of the idiosyncratic terms in …nite samples, which is the situation often observed in the empirical applications. To study the principal components (PC) estimator of such a weak factors, ..."
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Cited by 35 (3 self)
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We consider large factor models where factors’explanatory power does not strongly dominate the explanatory power of the idiosyncratic terms in …nite samples, which is the situation often observed in the empirical applications. To study the principal components (PC) estimator of such a weak factors, we introduce a Pitmandriftlike asymptotic device, which we call weak factors asymptotics. We …nd the probability limits of the PC estimator under weak factors asymptotics when the idiosyncratic terms can be both crosssectionally and temporally correlated. We show that the probability limits may be drastically di¤erent from the true factors and factor loadings even for factors with substantial explanatory power. For a special case of no crosssectional and temporal correlation of the idiosyncratic terms, we establish the second order weak factors asymptotics of the PC estimator. The estimator is asymptotically normal with the covariance matrix depending on the strength of the factors and on the ratio of the crosssectional and the temporal dimensions of the data. JEL code: C13, C33. Key words: approximate factor models, principal components, weak factors, inconsistency, bias, asymptotic distribution, MarµcenkoPastur law.
TimeVarying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical
 Applications.” IMES Discussion Paper Series, Institute for Monetary and Economic Studies, Bank of Japan NUNES, R
, 2011
"... You can download this and other papers at the IMES Web site: ..."
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Cited by 18 (5 self)
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You can download this and other papers at the IMES Web site:
Financial Conditions Index: Putting Credit Where Credit is Due,” IMF Working Paper No. 08/161
 International Monetary Fund) Temin, P., 1976, Did Monetary Forces Cause the Great Depression
"... 2008 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published t ..."
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Cited by 16 (0 self)
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2008 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper uses vector autoregressions and impulseresponse functions to construct a U.S. financial conditions index (FCI). Credit availability—proxied by survey results on lending standards—is an important driver of the business cycle, accounting for over 20 percent of the typical contribution of financial factors to growth. A net tightening in lending standards of 20 percentage points reduces economic activity by percent after one year and 1 percent after two years. Much of the impact of monetary policy on the economy also works through its effects on credit supply, which is evidence supporting the existence of a credit channel of monetary policy. Shocks to corporate bond yields, equity prices, and real exchange rates also contribute to fluctuations in the FCI. This FCI is an accurate predictor of real GDP growth, anticipating turning points in activity with a lead time of six to nine months.
INFLATION FORECASTS, MONETARY POLICY AND UNEMPLOYMENT DYNAMICS EVIDENCE FROM THE US AND THE EURO AREA 1
, 2007
"... In 2007 all ECB publications feature a motif taken from the €20 banknote. ..."
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Cited by 14 (3 self)
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In 2007 all ECB publications feature a motif taken from the €20 banknote.
Global Business Cycles: Convergence or Decoupling? ♣
, 2008
"... Abstract: This paper analyzes the evolution of the extent of cyclical interdependence among a large number of countries over the period 19602005. We categorize the 106 countries in our sample into three groups—industrial countries, emerging markets, and other developing economies. Using a dynamic f ..."
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Cited by 12 (0 self)
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Abstract: This paper analyzes the evolution of the extent of cyclical interdependence among a large number of countries over the period 19602005. We categorize the 106 countries in our sample into three groups—industrial countries, emerging markets, and other developing economies. Using a dynamic factor model, we then decompose macroeconomic fluctuations in key macroeconomic aggregates—output, consumption, and investment—into different factors. These are: (i) a global factor, which picks up fluctuations that are common across all variables and countries; (ii) three groupspecific factors, which capture fluctuations that are common to all variables and all countries in each group of countries; (iii) country factors, which are common across all aggregates in a given country; and (iv) idiosyncratic factors specific to each time series. Our main result is that, during the period of globalization (19852005), there has been a modest but noticeable increase in the convergence of business cycle fluctuations among the group of industrial economies and among the group of emerging market economies. Surprisingly, there has been a concomitant decline in the relative importance of the global factor. In other words, there is evidence of business cycle convergence within each of these two groups of countries but divergence (or decoupling) between them.