scholarly journals Time-varying Uncertainty of the Federal Reserve's Output Gap Estimate

2020 ◽  
Vol 2020 (012) ◽  
Author(s):  
◽  
Travis J. Berge ◽  
Keyword(s):  
Output Gap ◽  
Time Varying ◽  
Gap Estimate

Time-Varying Uncertainty of the Federal Reserve's Output Gap Estimate

2021 ◽  
pp. 1-38
Author(s):  
Travis J. Berge
Keyword(s):  
Aggregate Demand ◽  
Stochastic Volatility Model ◽  
Output Gap ◽  
Time Varying ◽  
Common Component ◽  
Macroeconomic Variables ◽  
Macroeconomic Uncertainty ◽  
Volatility Model ◽  
The Common ◽  
Gap Estimate

Abstract A factor stochastic volatility model estimates the common component to output gap estimates produced by the staff of the Federal Reserve, its time-varying volatility, and time-varying, horizon-specific forecast uncertainty. The output gap estimates are uncertain even well after the fact. Nevertheless, the common component is clearly procyclical, and positive innovations to the common component produce movements in macroeconomic variables consistent with an increase in aggregate demand. Heightened macroeconomic uncertainty, as measured by the common component's volatility, leads to persistently negative economic responses.

Can a Taylor rule better explain the Fed’s monetary policy through the 1920s and 1930s? A nonlinear cliometric analysis

2018 ◽  
Vol 22 (5) ◽  
Author(s):  
Olivier Damette ◽  
Fredj Jawadi ◽  
Antoine Parent
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Interwar Period ◽  
Taylor Rule ◽  
Structural Break ◽  
Output Gap ◽  
Time Varying ◽  
Working Paper ◽  
The Great Depression ◽  
Monetary Regimes

Abstract This paper investigates whether a variant of a Taylor rule applied to historical monetary data of the interwar period is useful to gain a better understanding of the Fed’s conduct of monetary policy over the period 1920–1940. To this end, we considered a standard Taylor rule (using two drivers: output gap and inflation gap) and proxied them differently for robustness. Further, we extended this Taylor rule to a nonlinear framework while enabling its coefficient to be time-varying and to change with regard to the phases in business cycle, in order to better capture any further asymmetry in the data and the structural break induced by the Great Depression. Accordingly, we showed two important findings. First, the linearity hypothesis was rejected, and we found that an On/Off Taylor Rule is appropriate to reproduce the conduct of monetary policy during the interwar period more effectively (the activation of drivers only occurs per regime). Second, unlike Field [Field, A. 2015. “The Taylor Rule in the 1920s.” Working Paper], we validated the use of a Taylor rule to explain the conduct of monetary policy in history more effectively. Consequently, this nonlinear Taylor rule specification provides interesting results for a better understanding of monetary regimes during the interwar period, and offers useful complements to narrative monetary history.

Time-Varying Risk Premiums and the Output Gap

CFA Digest ◽  
2010 ◽  
Vol 40 (1) ◽  
pp. 61-62
Author(s):  
C. Mitchell Conover
Keyword(s):  
Output Gap ◽  
Time Varying ◽  
Risk Premiums

scholarly journals The Post-COVID-19 Economic Policy Uncertainty and the Effectiveness of Monetary Policy: Evidence From China

2021 ◽  
Vol 9 ◽  
Author(s):  
Yuegang Song ◽  
Yanling Yang ◽  
Jianzhong Yu ◽  
Zhichao Zhao
Keyword(s):  
Monetary Policy ◽  
Economic Policy ◽  
Central Bank ◽  
Threshold Effect ◽  
Policy Instrument ◽  
Output Gap ◽  
Policy Uncertainty ◽  
Time Varying ◽  
Vector Autoregressive ◽  
Economic Policy Uncertainty

The outbreak of the COVID-19 pandemic has caused an upsurge economic policy uncertainty (EPU). Study on the time-varying effect of EPU is of substantial implication for the central bank in implementation of monetary policy. To empirically investigate the time-varying effect of EPU, the paper considers the shock of the monetary policy implemented by China's central bank on different economic variables including interest rate, output gap, and inflationary gap using the latent threshold time-varying parameter vector autoregressive model (LT-TVP-VAR Model). Data period is chosen to be January 2015 through April 2021. Our findings show that (i) EPU has a significant threshold effect on the shock of quantitative monetary policy instrument and the shock of price-based monetary policy, and that the two types of policy are positively correlated; (ii) the price-based monetary policy instrument has a significant counter-cyclical effect on both output gap and inflationary gap; (iii) relative to the quantitative monetary policy instrument, the price-based monetary policy instrument has a more significant counter-cyclical effect on output gap; and (iv) a higher level of EPU is associated with a more significant monetary policy effect on output gap and inflationary gap.

scholarly journals Time-varying uncertainty of the Federal Reserve's output gap estimate

2021 ◽  
Vol 2021 (025) ◽  
pp. 1-58
Author(s):  
Travis J. Berge ◽  
Keyword(s):  
Common Factor ◽  
Stochastic Volatility Model ◽  
Output Gap ◽  
Time Varying ◽  
Common Component ◽  
Positive Effects ◽  
Macroeconomic Uncertainty ◽  
Congressional Budget Office ◽  
Volatility Model ◽  
The Common

A factor stochastic volatility model estimates the common component to estimates of the output gap produced by the staff of the Federal Reserve, its time-varying volatility, and time-varying, horizon-specific forecast uncertainty. Output gap estimates are very uncertain, even well after the fact, especially at business cycle turning points. However, the common component of the output gap estimates is clearly procyclical, and innovations to the common factor produce persistent positive effects on economic activity. Output gaps estimated by the Congressional Budget Office have very similar properties. Increased macroeconomic uncertainty, as measured by the common factor's volatility, leads to persistent negative responses in economic variables.

scholarly journals The Monetary Transmission Mechanism in Canada: A Time-Varying Vector Autoregression with Stochastic Volatility

2018 ◽  
Vol 5 (6) ◽  
pp. 42
Author(s):  
Ronald Henry Lange
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Stochastic Volatility ◽  
Vector Autoregression ◽  
Transmission Mechanism ◽  
Space Representation ◽  
Output Gap ◽  
Time Varying ◽  
Varying Coefficients ◽  
Time Varying Coefficients

This study uses the state-space representation of a time-varying vector autoregression with stochastic volatility (TVP-VAR-SV) to study monetary policy and private sector behaviour in Canada. The main results indicate that both shock variances and autoregressive coefficients of the VAR have evolved systematically over time. The time-varying coefficients of the systematic component of the VAR suggest that monetary policy has become more proactive and less reactive regarding inflation since the early-1990s, which coincides with the adoption of explicit inflation targets. Monetary policy is now able to focus mainly on movements in the output gap to prevent future increases in inflation. The coefficients on the policy rate in both the output gap and inflation equations suggest that the private sector and therefore the transmission mechanism have become more sensitive to monetary policy responses. On the other hand, the coefficients on the output gap in the equations for both inflation and the policy rate have been relatively stable over this period, consistent with view that monetary policy remains more forward-looking regarding inflation than being reactive to inflation surprises as in the past.

Time-Varying Risk Premiums and the Output Gap

2008 ◽  
Vol 22 (7) ◽  
pp. 2801-2833 ◽  
Author(s):  
Ilan Cooper ◽  
Richard Priestley
Keyword(s):  
Output Gap ◽  
Time Varying ◽  
Risk Premiums
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