Working Papers

"House Prices, Debt Burdens, and the Heterogeneous Effects of Mortgage Rate Shocks," with William D. Larson

Abstract: This research examines the heterogeneous effects of mortgage interest rate shocks on house prices in a 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 borrowers have high debt levels, consistent with a model with both price frictions and credit constraints. Responsiveness thus varies by location and time period, and is related to both borrower characteristics and underwriting rules. This has important implications for our understanding of monetary policy transmission, systemic risk, and the role of household finances in the macroeconomy.

"The Reliability of the Nominal GDP Expectations Gaps", with Alexander D. Schibuola and David Beckworth (under review)

Abstract:  Arguments for nominal income targeting are often dismissed because it is an unreliable measure. To assess these concerns, we compare the real-time performance of several nominal and real measures of economic slack. We find that the nominal GDP expectations gap – the difference between nominal GDP and average projections thereof from surveys of professional forecasters – performs well as a measure of economic slack: its historical revisions are 2–3 times smaller than other measures, it significantly improves real-time forecasts of inflation since the pandemic, and it makes monetary policy rules up to 35 percent less volatile. Overall, concerns about nominal income targets are misplaced.

"Modeling the Interconnectivity of Non-stationary Polar Ice Sheets", with Luke P. Jackson, Katarina Juselius, and Felix Pretis, August 2021 (under review)

Abstract:  Understanding changes to the mass of the polar ice sheets is of crucial scientific and socioeconomic importance due to their effect on the wider Earth system and potential to contribute to future sea level rise. On monthly to multi-decadal timescales, there is much uncertainty around the extent to which the non-stationary, non-linear responses of the ice sheets interact through the atmosphere-ocean climate. We test and quantify the nature of non-stationarity and inter-dependence between ice mass balance time series for Greenland, West and East Antarctica using a multi-cointegration vector autoregression model, which has been used to show equivalence between simple climate models and emulations of complex physical processes. We focus on three alternative specifications by comparing I(2) models of cumulative ice mass balance with an I(1) model of the ice mass balance, exploring the model dynamics, and evaluating the out-of-sample forecasts against satellite observations. Our results support the I(2) model with a bipolar relationship between Greenland and West Antarctica and provide some of the first empirical evidence of tipping-points in the recent observed record. Long-term projections indicate that there is considerable risk of Greenland contributing more to sea level rise than under the IPCC’s extreme climate change scenario.

"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.

"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.

"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