NORMALIZATION IN ECONOMETRICS (2009)
James D. Hamilton, Daniel F. Waggoner, Tao Zha
Abstract. The issue of normalization arises whenever two different values for a vector of unknown parameters imply the identical economic model. A normalization implies not just a rule for selecting...
METHODS FOR INFERENCE IN LARGE MULTIPLE-EQUATION MARKOV-SWITCHING MODELS (2008)
Christopher A. Sims, Daniel F. Waggoner, Tao Zha
ABSTRACT. Inference for hidden Markov chain models in which the structure is a multiple-equation macroeconomic model raises a number of difficulties that are not as likely to ap-pear in smaller...
Under the assumption that asset markets are incomplete, this paper introduces bankruptcy in an intertemporal heterogenous agent model with capital accumulation and heterogeneous agents. It explores...
STRUCTURAL VECTOR AUTOREGRESSIONS: THEORY OF IDENTIFICATION AND ALGORITHMS FOR INFERENCE (2007)
ABSTRACT. SVARs are widely used for policy analysis and to provide stylized facts for dynamic general equilibrium models. Yet there have been no workable rank conditions to ascertain whether an SVAR...
Asymmetric Expectation Effects of Regime Shifts and the Great Moderation (2007)
Zheng Liu, Daniel F. Waggoner, Tao Zha, Nobu Kiyotaki, Especially Michael Golosov
The possibility of regime shifts in monetary policy can have important effects on rational agents’ expectation formation and equilibrium dynamics. In a DSGE model where the monetary policy rule...
Jesús Fernández-villaverde, Manuel S. Santos, We Thank The, Three Referees, Jim Nason, ...
several seminars, and especially Lee Ohanian for useful comments. Jesús Fernández-Villaverde thanks the NSF for financial support under the project SES-0338997. Any views expressed herein are those...
Jesús Fernández-villaverde, Marco Del Negro, Will Roberds, Eric Renault, Barbara Rossi, ...
for comments. Jonas Fisher provided us with his investment deflator. Mark Fisher’s help with coding was priceless. Beyond the usual disclaimer, we must note that any views expressed herein are...
Quantifying the uncertainty about the half-life of deviations from PPP (2002)
We propose a Bayesian framework in which the uncertainty about the half-life of deviations from purchasing power parity can be quantified. Based on the responses to a survey study, we propose a prior...
Assessing Simple Policy Rules: A View from a Complete Macroeconomic Model (2001)
Eric M. Leeper, Eric M. Leeper, Eric M. Leeper, Tao Zha, Tao Zha, Tao Zha
Abstract: We explore two popular approaches to empirical analysis of monetary policy: the New Keynesian and the identified vector autoregression approaches. Stylized models of private behavior...
Conditional Forecasts in Dynamic Multivariate Models (1998)
: In the existing literature, conditional forecasts in the vector autoregressive (VAR) framework have not been commonly presented with probability distributions or error bands. This paper develops...
Normalization, Probability Distribution, and Impulse Responses (1997)
Abstract: When impulse responses in dynamic multivariate models such as identified VARs are given economic interpretations, it is important that reliable statistical inferences be provided. Before...
Thesis (Ph. D.)--University of Minnesota, 1992.
Under the assumption that asset markets are incomplete, this paper introduces bankruptcy in an intertemporal heterogeneous agent model with capital accumulation and heterogeneous agents. It explores...
Markov-switching structural vector autoregressions: theory and application
This paper develops a new and easily implementable necessary and sufficient condition for the exact identification of a Markov-switching structural vector autoregression (SVAR) model. The theorem...
Transparency, expectations, and forecasts
Andrew Bauer, Robert A. Eisenbeis, Daniel F. Waggoner, Tao Zha
In 1994, the Federal Open Market Committee (FOMC) began to release statements after each meeting. This paper investigates whether the public’s views about the current path of the economy and of...
A dynamic multivariate model for use in formulating policy
A policy action by the Federal Reserve consists of using any one of various instruments, such as the federal funds rate and different measures of money, to pursue its multiple objectives. Because of...
Forecast evaluation with cross-sectional data: The Blue Chip Surveys
Andy Bauer, Robert A. Eisenbeis, Daniel F. Waggoner, Tao Zha
If economic forecasts are to be used for decision making, then being able to evaluate their accuracy is essential. Assessing accuracy using single variables from a forecast is acceptable as a first...
The Conquest of South American Inflation
Thomas Sargent, Noah Williams, Tao Zha
We infer determinants of Latin American hyperinflations and stabilizations by using the method of maximum likelihood to estimate a hidden Markov model that potentially assigns roles both to...
Markov-Switching Structural Vector Autoregressions: Theory and Application
This paper develops a new and easily implementable necessary and sufficient condition for the exact identification of a Markov-switching SVAR model. The theorem applies to models with both linear and...
Indeterminacy in a Forward Looking Regime Switching Model
This paper is about the properties of Markov switching rational expectations (MSRE) models. We present a simple monetary policy model that switches between two regimes with known transition...
Understanding the New-Keynesian Model when Monetary Policy Switches Regimes
This paper studies a New-Keynesian model in which monetary policy may switch between regimes. We derive sufficient conditions for indeterminacy that are easy to implement and we show that the...
Shocks and Government Beliefs: The Rise and Fall of American Inflation
Thomas Sargent, Noah Williams, Tao Zha
We use a Bayesian Markov Chain Monte Carlo algorithm to estimate the parameters of a “true” data-generating mechanism and those of a sequence of approximating models that a monetary authority...
Understanding the New Keynesian model when monetary policy switches regimes
This paper studies a New Keynesian model in which monetary policy may switch between regimes. We derive sufficient conditions for indeterminacy that are easy to implement and we show that the...
Expectation Effects of Regimes Shifts in Monetary Policy
Zheng Liu, Daniel F. Waggoner, Tao Zha
We assess the quantitative importance of expectation effects of regime shifts in monetary policy in a DSGE model that allows the monetary policy rule to switch between a “bad” regime and a...
Asymmetric Expectation Effects of Regime Shifts and the Great Moderation
Zheng Liu, Daniel F. Waggoner, Tao Zha
The possibility of regime shifts in monetary policy can have important effects on rational agents' expectation formation and equilibrium dynamics. In a DSGE model where the monetary policy rule...
Eric M. Leeper, Christopher A. Sims, Tao Zha
macroeconomics, monetary policy
Error bands for impulse responses
We examine the theory and behavior in practice of Bayesian and bootstrap methods for generating error bands on impulse responses in dynamic linear models. The Bayesian intervals have a firmer...
Identifying monetary policy in a small open economy under flexible exchange rates
Previous empirical study on the effects of monetary policy shocks in small open economies has produced exchange rate responses that are inconsistent with existing open economy macroeconomic theory....
Identification, vector autoregression, and block recursion
In the applications of identified VAR models, finite-sample properties are not obvious to obtain when identifying restrictions are imposed on some lagged relationships. As a result, researchers have...
Bayesian methods for dynamic multivariate models
If multivariate dynamic models are to be used to guide decision-making, it is important that it be possible to provide probability assessments of their results. Bayesian VAR models in the existing...
Trends in velocity and policy expectations
David B. Gordon, Eric M. Leeper, Tao Zha
U.S. velocity of base money exhibits three distinct trends since 1950. After rising steadily for thirty years, it flattens out in the 1980s and falls substantially in the 1990s. This paper explores...
Normalization, probability distribution, and impulse responses
When impulse responses in dynamic multivariate models such as identified VARs are given economic interpretations, it is important that reliable statistical inferences be provided. Before probability...
Conditional forecasts in dynamic multivariate models
In the existing literature, conditional forecasts in the vector autoregressive (VAR) framework have not been commonly presented with probability distributions or error bands. This paper develops...
Quantifying the half-life of deviations from PPP: The role of economic priors
The half-life of deviations from purchasing power parity (PPP) plays a central role in the ongoing debate about the ability of macroeconomic models to account for the time series behavior of the real...
This paper brings together identification and forecasting in a positive econometric analysis of policy. We contend that a broad range of important policy questions is consistent with the existing...
Likelihood-preserving normalization in multiple equation models
Causal analysis in multiple equation models often revolves around the evaluation of the effects of an exogenous shift in a structural equation. When taking into account the uncertainty implied by the...
A Gibbs simulator for restricted VAR models
Many economic applications call for simultaneous equations VAR modeling. We show that the existing importance sampler can be prohibitively inefficient for this type of models. We develop a Gibbs...
Assessing simple policy rules: a view from a complete macro model
We explore two popular approaches to empirical analysis of monetary policy: the New Keynesian and the identified vector autoregression approaches. Stylized models of private behavior coupled with...
Evaluating Wall Street Journal survey forecasters: a multivariate approach
Robert Eisenbeis, Daniel Waggoner, Tao Zha
This paper proposes a methodology for assessing the joint performance of multivariate forecasts of economic variables. The methodology is illustrated by comparing the rankings of forecasters by the...
The authors present a framework for computing and evaluating linear projections of macro variables conditional on hypothetical paths of monetary policy. A modest policy intervention is a change in...
The authors present a theoretical and empirical framework for computing and evaluating linear projections conditional on hypothetical paths of monetary policy. A modest policy intervention does not...
James D. Hamilton, Daniel F. Waggoner, Tao Zha
The issue of normalization arises whenever two different values for a vector of unknown parameters imply the identical economic model. A normalization does not just imply a rule for selecting which...
Were there regime switches in U.S. monetary policy?
A multivariate model, identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances, is confronted with U.S. data since 1959. The best fit is with a...
MCMC method for Markov mixture simultaneous-equation models: a note
This paper extends the methods developed by Hamilton (1989) and Chib (1996) to identified multiple-equation models. It details how to obtain Bayesian estimation and inference for a class of models...
Shocks and government beliefs: the rise and fall of American inflation
Thomas Sargent, Noah Williams, Tao Zha
The authors use a Bayesian Markov chain Monte Carlo algorithm to estimate a model that allows temporary gaps between a true expectational Phillips curve and the monetary authority’s approximating...
The conquest of South American inflation
Thomas Sargent, Noah Williams, Tao Zha
We infer determinants of Latin American hyperinflations and stabilizations by using the method of maximum likelihood to estimate a hidden Markov model that potentially assigns roles both to...
Indeterminacy in a forward-looking regime-switching model
This paper is about the properties of Markov-switching rational expectations (MSRE) models. We discuss possible solution concepts for MSRE models, distinguishing between stationary and bounded...
Methods for inference in large multiple-equation Markov-switching models
Christopher A. Sims, Daniel F. Waggoner, Tao Zha
The inference for hidden Markov chain models in which the structure is a multiple-equation macroeconomic model raises a number of difficulties that are not as likely to appear in smaller models. One...
Identifying monetary policy: a primer
The question of the quantitative effect of monetary policy has been of considerable debate for decades. Economists' beliefs about it stem largely from theoretical models that imply the effects of...
A dynamic multivariate model for use in formulating policy
A policy action by the Federal Reserve consists of using any one of various instruments, such as the federal funds rate and different measures of money, to pursue its multiple objectives. Because of...
Evaluating the effects of monetary policy with economic models
Because of limited knowledge about how the actual, complex economy operates, policymakers depend on models for understanding its workings. For models to be usable for evaluating monetary policy...
Monetary policy and racial unemployment rates
When the Federal Open Market Committee began raising interest rates in June 1999 to forestall inflationary pressures, concern mounted that monetary policy moves might slow the pace of economic...
Assessing simple policy rules: A view from a complete macroeconomic model
Monetary policy analysts looking for a model on which to base decisions may consider two popular approaches-the New Keynesian (NK) and the identified vector autoregression (VAR) approaches. Choosing...
Forecast evaluation with cross-sectional data: The Blue Chip Surveys
Andy Bauer, Robert A. Eisenbeis, Daniel F. Waggoner, Tao Zha
If economic forecasts are to be used for decision making, then being able to evaluate their accuracy is essential. Assessing accuracy using single variables from a forecast is acceptable as a first...
Transparency, expectations and forecasts
Andrew Bauer, Robert A. Eisenbeis, Daniel F. Waggoner, Tao Zha
Many economists believe that a central bank’s transparency about its objectives, economic outlook, and policy changes affect the public’s views about future economic and financial conditions. In...
Indeterminacy in a Forward Looking Regime Switching Model
Farmer, Roger E A, Waggoner, Daniel F, Zha, Tao
This paper is about the properties of Markov switching rational expectations (MSRE) models. We present a simple monetary policy model that switches between two regimes with known transition...
Bayesian Methods for Dynamic Multivariate Models.
If dynamic multivariate models are to be used to guide decisionmaking, it is important that probability assessments of forecasts or policy projections be provided. When identified Bayesian vector...
DOES MONETARY POLICY GENERATE RECESSIONS?
SIMS, CHRISTOPHER A., ZHA, TAO
We consider two kinds of answers to the title question: Do random shifts in monetary policy account for historical recessions, and would changes in the systematic component of monetary policy have...
Eric M. Leeper, Christopher A. Sims, Tao Zha
macroeconomics, monetary policy
Eric M. Leeper, Christopher A. Sims, Tao Zha
macroeconomics, monetary policy
Asymmetric expectation effects of regime shifts and the Great Moderation
Zheng Liu, Daniel F. Waggoner, Tao Zha
The possibility of regime shifts in monetary policy can have important effects on rational agents' expectation formation and equilibrium dynamics. In a dynamic stochastic general equilibrium model...
Error Bands for Impulse Responses
We examine the theory and behavior in practice of Bayesian and bootstrap methods for generating error bands on impulse responses in dynamic linear models. The Bayesian intervals have a firmer...
Asymmetric expectation effects of regime shifts and the Great Moderation
Zheng Liu, Daniel F. Waggoner, Tao Zha
We assess the quantitative importance of the expectation effects of regime shifts in monetary policy in a DSGE model that allows the monetary policy rule to switch between a ?bad? regime and a ?good?...
Were There Regime Switches in U.S. Monetary Policy?
A multivariate model, identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances, is confronted with US data since 1959. The best fit is with a...
Were There Regime Switches in U.S. Monetary Policy?
A multivariate model, identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances, is confronted with US data since 1959. The best fit is with a...
Error Bands for Impulse Responses
We show how to correctly extend known methods for generating error bands in reduced form VAR's to overidentified models. We argue that the conventional pointwise bands common in the literature should...
Were There Regime Switches in U.S. Monetary Policy?
A multivariate regime-switching model for monetary policy is confronted with U.S. data. The best fit allows time variation in disturbance variances only. With coefficients allowed to change, the best...
Empirical analysis of policy interventions
We construct linear projections of macro variables conditional on hypothetical paths of monetary policy, using as an example an identified VAR model. Hypothetical policies are restricted to ones...
We discuss the results of fitting a 6-variable structural VAR in which we allow for certain types of parameter variation over time. Allowing structural equation variances to change over time is...
Assessing simple policy rules: a view from a complete macroeconomic model
Macroeconomics ; Econometric models
Quantifying the uncertainty about the half-life of deviations from PPP
We propose a Bayesian framework in which the uncertainty about the half-life of deviations from purchasing power parity can be quantified. Based on the responses to a survey study, we propose a prior...
Effects of monetary policy regime changes in the Euro Economy
Tao Zha, Juan Rubio, Daniel Waggoner
There prevails a view that the monetary policy in the Euro area has changed, especially after the European Monetary System (EMS) came into operation in 1979. The goal of this paper is to quantify (1)...
Assessing Changes in U.S. Monetary Policy in a Regime-Switching Rational Expectations Model
We develop a new method for solving forward-looking rational expectations models with regime change and we apply it to the case of switches in monetary regime in U.S. data. Existing solutions to this...
Quantifying the Half-Life of Deviations from PPP: The Role of Economic Priors
The half-life of deviations from purchasing power parity (PPP) plays a central role in the ongoing debate about the ability of macroeconomic models to account for the time series behaviour of the...
Conditional Forecasts In Dynamic Multivariate Models
In the existing literature, conditional forecasts in the vector autoregressive (VAR) framework have not been commonly presented with probability distributions. This paper develops Bayesian methods...
Learning, Adaptive Expectations, and Technology Shocks
This study explores theoretical and macroeconomic implications of the self-confirming equilibrium in a standard growth model. When rational expectations are replaced by adaptive expectations, we...
James D. Hamilton, Daniel F. Waggoner, Tao Zha
The issue of normalization arises whenever two different values for a vector of unknown parameters imply the identical economic model. A normalization implies not just a rule for selecting which...
Comment on An and Schorfheide's Bayesian Analysis of DSGE Models
An and Schorfheide's article provides an excellent review of Bayesian estimation of DSGE models. Rather than recapitulating the points already made in this article, my comment focuses on three...
Learning, adaptive expectations, and technology shocks
This study explores the macroeconomic implications of adaptive expectations in a standard real business cycle model. When rational expectations are replaced by adaptive expectations, we show that the...
Structural vector autoregressions: theory of identification and algorithms for inference
Structural vector autoregressions (SVARs) are widely used for policy analysis and to provide stylized facts for dynamic general equilibrium models. Yet there have been no workable rank conditions to...
Generalizing the Taylor principle: comment
Davig and Leeper (2007) have proposed a condition they call the generalized Taylor principle to rule out indeterminate equilibria in a version of the New Keynesian model, where the parameters of the...
Learning, adaptive expectations, and technology shocks
This study explores the macroeconomic implications of adaptive expectations in a standard real business cycle model. When rational expectations are replaced by adaptive expectations, we show that the...
Empirical Analysis of Policy Interventions
We construct linear projections of macro variables conditional on hypothetical paths of monetary policy, using as an example an identified VAR model. Hypothetical policies are restricted to ones...
We present a framework for computing and evaluating linear projections of macro variables conditional on hypothetical paths of monetary policy. A modest policy intervention is a change in policy that...
Shocks and Government Beliefs: The Rise and Fall of American Inflation
Thomas Sargent, Noah Williams, Tao Zha
We use a Bayesian Markov Chain Monte Carlo algorithm to estimate a model that allows temporary gaps between a true expectational Phillips curve and the monetary authority's approximating...
Asymmetric expectation effects of regime shifts in monetary policy
Zheng Liu, Daniel F. Waggoner, Tao Zha
This paper addresses two substantive issues: (1) Does the magnitude of the expectation effect of regime switching in monetary policy depend on a particular policy regime? (2) Under which regime is...
Minimal state variable solutions to Markov-switching rational expectations models
We develop a new method for computing minimal state variable solutions (MSV) to Markov-switching rational expectations models. We provide an algorithm to compute an MSV solution and show how to test...
Asymmetric Expectation Effects of Regime Shifts in Monetary Policy
Zheng Liu, Daniel Waggoner, Tao Zha
This paper addresses two substantive issues: (1) Does the magnitude of the expectation effect of regime switching in monetary policy depend on a particular policy regime? (2) Under which regime is...
Learning, Adaptive Expectations,and Technology Shocks
Zheng Liu, Daniel F. Waggoner, Tao Zha
This study explores theoretical and macroeconomic implications of the self-confirming equilibrium in a standard growth model. When rational expectations are replaced by adaptive expectations, we...
Sources of the Great Moderation: Shocks, Frictions, or Monetary Policy?
Zheng Liu, Daniel F. Waggoner, Tao Zha
We study the sources of the Great Moderation by estimating a variety of medium-scale DSGE models that incorporate regime switches in shock variances and in the inflation target. The best-fit model,...
Methods for inference in large multiple-equation Markov-switching models
Sims, Christopher A., Waggoner, Daniel F., Zha, Tao
Inference for multiple-equation Markov-chain models raises a number of difficulties that are unlikely to appear in smaller models. Our framework allows for many regimes in the transition matrix,...
Understanding Markov-Switching Rational Expectations Models
We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to...
Sources of the Great Moderation: shocks, friction, or monetary policy?
Zheng Liu, Daniel F. Waggoner, Tao Zha
We study the sources of the Great Moderation by estimating a variety of medium-scale DSGE models that incorporate regime switches in shock variances and in the inflation target. The best-fit model,...
Understanding Markov-switching rational expectations models
We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models, and we develop an algorithm to...
Sources of the Great Moderation: shocks, frictions, or monetary policy?
Zheng Liu, Daniel F. Waggoner, Tao Zha
We study the sources of the Great Moderation by estimating a variety of medium-scale dynamic stochastic general equilibrium (DSGE) models that incorporate regime switches in shock variances and the...
The Conquest of South American Inflation
Thomas Sargent, Noah Williams, Tao Zha
We infer determinants of Latin American hyperinflations and stabilizations by using the method of maximum likelihood to estimate a hidden Markov model that assigns roles both to fundamentals in the...
Understanding Markov-switching rational expectations models
Farmer, Roger E.A., Waggoner, Daniel F., Zha, Tao
We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to...