A hitchhiker’s guide to empirical macro models

Canova, Fabio; Ferroni, Filippo

doi:10.21033/wp-2021-15

Cited by 15 publications

(3 citation statements)

References 65 publications

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“…The Bayesian VAR is estimated using a standard Minnesota prior with hyperparameters determined according to Canova (2007) and Giannone, Lenza and Primiceri (2015). The BVAR is estimated with 12 lags using the toolkit of Canova and Ferroni (2021). Our sample period is 1999M1 to 2021M12.…”

Section: A3 Ebp and Emerging Market: Complete Lp Resultsmentioning

confidence: 99%

The Global Dollar Cycle

Obstfeld¹,

Zhou²

2023

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The U.S. dollar's nominal effective exchange rate closely tracks global financial conditions, which themselves show a cyclical pattern. Over that cycle, world asset prices, leverage, and capital flows move in concert with global growth, especially influencing the fortunes of emerging and developing economies (EMDEs). This paper documents that dollar appreciation shocks predict economic downturns in EMDEs and highlights policies countries could implement to dampen the effects of dollar fluctuations. Dollar appreciation shocks themselves are highly correlated not just with tighter U.S. monetary policies, but also with measures of U.S. domestic and international dollar funding stress that themselves reflect global investors' risk appetite. After the initial market panic and upward dollar spike at the start of the COVID-19 pandemic, the dollar fell as global financial conditions eased; but the higher inflation that followed has induced central banks everywhere to tighten monetary policies more recently. The dollar has strengthened considerably since mid-2021 and a contractionary phase of the global financial cycle is now under way. Owing to increases in public-and business-sector debts during the pandemic, a strong dollar, higher interest rates, and slower economic growth will be challenging for EMDEs.

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Section: A3 Ebp and Emerging Market: Complete Lp Resultsmentioning

confidence: 99%

The Global Dollar Cycle

Obstfeld¹,

Zhou²

2023

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“…13 Specifically, we combine the u t vectors into a T × I matrix we call U , with T the number of years in our sample and I the number of counties. We then extract the principal components as described by Canova and Ferroni (2021). We use their toolkit to implement the PCA in Matlab, computing the eigenvectors We find that the first two factors explain over 50 percent of variation observed in our panel of county unemployment rates.…”

Section: A Closer Look At National Shocksmentioning

confidence: 99%

Currency Areas, Labor Markets, and Regional Cyclical Sensitivity

Russ¹,

Shambaugh²,

Singh³

2023

ERWP

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In his papers during the lead up to the birth of the European Monetary Union, Obstfeld considered whether the countries forming the EMU were sufficiently similar to survive a single monetary policy--and more importantly, whether they had the capacity to adjust to asymmetric shocks given a single monetary and exchange rate policy. The convention at the time was to take the United States as the baseline for a smoothly functioning currency union. We document the evolution of the literature on regional labor market adjustment within the United States, expanding on stylized facts illustrating how stratification in local labor market outcomes appears far more persistent today than 30 years ago in the context of what Obstfeld and Peri (1998) call non-adjustment in unemployment rates. We then extend the currency union literature by adding an additional consideration: differences in regional cyclical sensitivity. Using measures of cyclicality and Obstfeld-Peri-type non-adjustment, we explore the characteristics of places that can get left behind when local labor markets respond differently to national shocks and discuss implications for policy.

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“…Ho, Lubik and Matthes (2021) include BLP alongside other models in prediction pools designed for the estimation of robust impulse response functions. The BLP methodology is also distributed within the econometric package of Canova and Ferroni (2020).…”

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confidence: 99%

Bayesian Local Projections

Miranda-Agrippino¹,

Ricco²

2023

Review of Economics and Statistics

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We propose a Bayesian approach to Local Projections that optimally addresses the empirical bias-variance trade-off intrinsic in the choice between direct and iterative methods. Bayesian Local Projections (BLP) regularise LP regressions via informative priors, and estimate impulse response functions that capture the properties of the data more accurately than iterative VARs. BLPs preserve the flexibility of LPs while retaining a degree of estimation uncertainty comparable to Bayesian VARs with standard macroeconomic priors. As regularised direct forecasts, BLPs are also a valuable alternative to BVARs for multivariate out-of-sample projections.

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A hitchhiker’s guide to empirical macro models

Cited by 15 publications

References 65 publications

The Global Dollar Cycle

The Global Dollar Cycle

Currency Areas, Labor Markets, and Regional Cyclical Sensitivity

Bayesian Local Projections

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