This paper revisits the question of what core inflation is meant to represent and assesses the competing measures of core inflation that are available, including some new ones. I take the primary perspective that core inflation is a simple predictor of future headline inflation. There is evidence for ex food and energy, and other core measures, being superior predictors than headline inflation itself. Within choices of core inflation, simple averaging of different measures and different horizons seems to work best. I also consider some other concepts of core inflation: closeness to a common trend component and measurement of demand-driven inflation. The averaging estimator fares well by all of these metrics.

Using responses of credit default swap indexes to ECB monetary policy announcements, we isolate a novel credit policy component of monetary policy surprises. We examine how such unconventional monetary policy surprises affect investor perceptions of credit risk and the functioning of primary corporate debt markets. Favorable credit surprises cause declines in uncertainty about credit risk and suggest a more stable outlook on its dynamics over the following months. Both net and gross corporate bond issuance increase as a result of favorable credit surprises, with the largest response in investment grade issuance. We argue that this provides evidence for the efficacy of a local channel of unconventional monetary policy.

This paper considers new options on Treasury futures than expire each Wednesday and Friday. I examine the variances implied by these options as of the night before expiration, and compare the variances just before FOMC days and employment report days with the variances on other Tuesdays or Thursdays, respectively. This can be used to measure the risk-neutral interest rate uncertainty associated with FOMC announcements and employment reports. I can also compare the average physical and risk-neutral uncertainty. Lastly, I construct options-implied densities on the eve of FOMC and employment report days.

ABSTRACTWe study the recent Australian experience with yield curve control (YCC) as perhaps the best evidence of how this policy might work in other developed economies. YCC seemingly worked well in 2020, when the market expected short rates to stay at zero for a long period of time. As the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the targeted government bond outstanding, and the target bond's yield dislocated from other financial market instruments. The evidence suggests that central bank bond purchase programs can operate more narrowly than previously considered.

The vast majority of the literature on the effects of monetary policy shocks has considered their impacts on aggregate variables, including aggregate prices. The paper by Borağan Aruoba and Thomas Drechsel studies the impacts of monetary policy on the components of PCE. It documents considerable variability in the impulse response functions across components and finds that monetary policy shocks have large but very delayed effects on price aggregates. The finding of cross-sectional variability and it’s implications are very convincing, The large but delayed effects on aggregates may be more dependent on methodology and shock identification.

The slope of the Phillips curve flattened around the turn of the century. The slope, however, is also kinked (nonlinear) such that it is steeper in a tight labor market than in a more normal one. The magnitude of this kink means that the flattening of the Phillips curve around the turn of the century has not changed much the slope in a tight labor market. This holds for both price and wage Phillips curves and for both the United States (US) and the European Union (EU). Our findings are relevant to policy debates about the costs and benefits of a running a hot labor market. Monetary policy-makers face a fundamentally different inflation-unemployment tradeoff in tight labor markets compared with looser labor markets and should consider this when setting policy.

We revisit time-variation in the Phillips curve, applying new Bayesian panel methods with breakpoints to US and European Union disaggregate data. Our approach allows us to accurately estimate both the number and timing of breaks in the Phillips curve. It further allows us to determine the existence of clusters of industries, cities, or countries whose Phillips curves display similar patterns of instability and to examine lead-lag patterns in how individual inflation series change. We find evidence of a marked flattening in the Phillips curves for US sectoral data and among EU countries, particularly poorer ones. Conversely, evidence of a flattening is weaker for MSA-level data and for the wage Phillips curve. US regional data and EU data point to a kink in the price Phillips curve which remains relatively steep when the economy is running hot.

We investigate the effect of uncertainty surrounding the slope of the Phillips curve on optimal monetary policy. To do this, we first account for parameter uncertainty in a time-invariant Bayesian Phillips curve model. Second, we generalize this model to allow for instabilities in the form of breaks. In both the United States (US) and the European Union (EU), we identify a break around the turn of the century, after which the Phillips curve flattened. Finally, we show how breaks amplify uncertainty in the Phillips curve model, significantly impacting optimal monetary policy. Accounting for breaks causes policymakers to respond more cautiously to deviations in the unemployment rate from its natural rate – as they are less certain about the impact of economic slack on inflation – but to compensate for this increased caution by responding more aggressively to deviations of inflation from its target. Our estimates provide a lower bound for the magnitude of the impact of breaks on the change in responsiveness of optimal monetary policy since they are based on the full sample of data, while policymakers face additional uncertainty as they must continuously determine in real time whether a break has occurred.

We survey the history, market structure, pricing and usage of futures and options contracts. We focus in particular on their ability to provide high-frequency measures of expectations, uncertainty, higher moments, and investor risk aversion. Futures and options are a rich and growing treasure trove of information to academics and policymakers alike.

This introduction sets the background to the Handbook of Financial Markets; a volume of 22 chapters on the state of different financial markets. It gives a discussion of the historical background to financial markets and the linkages between finance and the broader economy, emphasizing the importance of central banks in modern finance. It explains how the chapters are linked together and are not just a collection of standalone essays. The introduction gives a roadmap of the sections of the book, on central banking, financial intermediaries, money markets, capital markets, and derivative markets; and describes how the book addresses both historical background and recent market developments, as well as highlighting open questions.

Identification in VARs has traditionally mainly relied on second moments. Some researchers have considered using higher moments as well, but there are concerns about the strength of the identification obtained in this way. In this paper, we propose refining existing identification schemes by augmenting sign restrictions with a requirement that rules out shocks whose higher moments significantly depart from independence. This approach does not assume that higher moments help with identification; it is robust to weak identification. In simulations we show that it controls coverage well, in contrast to approaches that assume that the higher moments deliver point-identification. However, it requires large sample sizes and/or considerable non-normality to reduce the width of confidence intervals by much. We consider some empirical applications. We find that it can reject many possible rotations. The resulting confidence sets for impulse responses may be non-convex, corresponding to disjoint parts of the space of rotation matrices. We show that in this case, augmenting sign and magnitude restrictions with an independence requirement can yield bigger gains.

ABSTRACT: This paper discusses the process of balance sheet shrinkage that the Federal Reserve is currently undertaking. I argue that the overall balance sheet is unlikely to shrink by much and that it will remain a much larger share of nominal GDP than it was before the COVID-19 pandemic. I examine the effects of balance sheet shrinkage on asset prices, taking the perspective that these effects are mostly likely to be narrow, that is, specific to the price of the asset that the market has to absorb rather than spilling over to fixed income prices more generally. I argue that the effects of reducing the Fed's holdings of Treasuries can be thought of as equivalent to the Treasury increasing the amount and maturity of its issuance. I estimate that this will have very small effects on term premia and bond yields. The reduction of the Fed's holdings of mortgage-backed securities might have larger effects on the yields of these securities, especially if the Fed starts selling these securities. Any substantive macroeconomic effect of balance sheet runoff is likely to operate through mortgage rates and the housing market.

The WeCanTalk (WCT) Corpus is a new multi-language, multi-modal resource for speaker recognition. The corpus contains Cantonese, Mandarin and English telephony and video speech data from over 200 multilingual speakers located in Hong Kong. Each speaker contributed at least 10 telephone conversations of 8-10 minutes’ duration collected via a custom telephone platform based in Hong Kong. Speakers also uploaded at least 3 videos in which they were both speaking and visible, along with one selfie image. At least half of the calls and videos for each speaker were in Cantonese, while their remaining recordings featured one or more different languages. Both calls and videos were made in a variety of noise conditions. All speech and video recordings were audited by experienced multilingual annotators for quality including presence of the expected language and for speaker identity. The WeCanTalk Corpus has been used to support the NIST 2021 Speaker Recognition Evaluation and will be published in the LDC catalog.

The Linguistic Data Consortium was founded in 1992 to solve the problem that limitations in access to shareable data was impeding progress in Human Language Technology research and development. At the time, DARPA had adopted the common task research management paradigm to impose additional rigor on their programs by also providing shared objectives, data and evaluation methods. Early successes underscored the promise of this paradigm but also the need for a standing infrastructure to host and distribute the shared data. During LDC’s initial five year grant, it became clear that the demand for linguistic data could not easily be met by the existing providers and that a dedicated data center could add capacity first for data collection and shortly thereafter for annotation. The expanding purview required expansions of LDC’s technical infrastructure including systems support and software development. An open question for the center would be its role in other kinds of research beyond data development. Over its 30 years history, LDC has performed multiple roles ranging from neutral, independent data provider to multisite programs, to creator of exploratory data in tight collaboration with system developers, to research group focused on data intensive investigations.

Panel on Shrinking the Federal Reserve Balance Sheet Arvind Krishnamurthy, Sydney C. Ludvigson, and Jonathan H. Wright Lessons for Policy from Research Arvind Krishnamurthy ABSTRACT I review lessons from the research on central bank actions over the last decade and draw out implications for expanding the Federal Reserve balance sheet (quantitative easing) and shrinking the balance sheet (quantitative tightening). As I outline, there is already enough evidence in the research to indicate the manner in which the Federal Reserve could update its policy normalization principles and plans. Former Federal Reserve chairman Ben Bernanke famously quipped, in a 2014 discussion at the Brookings Institution, that "the problem with QE is that it works in practice, but it doesn't work in theory." Academic and policy research on quantitative easing (QE) has come quite far over the last decade, and we are less in the dark about the workings of QE. In this paper, I review the lessons from this research and then draw out implications for expanding the Federal Reserve balance sheet (QE) and shrinking the balance sheet (quantitative tightening, or QT). There are three principal lessons from the research: (1) QE works differently than conventional monetary policy in that the impacts are highest in the asset market targeted. (2) QE impacts are highest during periods of financial distress, market segmentation, and illiquidity. While this statement is likely also true of conventional policy, the effects are much more dramatic with QE. (3) QE alters the quantity of central bank reserves, and the post-2008 regulatory and economic regime implies substantially higher necessary reserve balances. I review each of these points and then turn to their implications for the formulation of rules governing QE/QT. The Fed [End Page 233] Click for larger view View full resolution Figure 1. Yield Changes by Maturity from UK QE for UK Gilts and Gilt-OIS Spreads Source: Joyce and others (2011); copyright Bank of England and the Association of the International Journal of Central Banking; adapted with permission. currently uses QE in two ways: to provide liquidity to markets during financial illiquidity episodes ("crisis QE") and to lower financing costs for borrowers at a time when the zero lower bound binds ("easing QE"). I argue that rules for these two types of policies should differ, but that the Fed has blurred the lines between them which has led to policy errors. I. Lessons from Research I.A. QE Works through Narrow Channels Joyce and others (2011) present data from an event study around two significant QE news dates in 2009 by the Bank of England. On February 11, 2009, the Inflation Report and the subsequent press conference gave a strong indication that the bank would do QE. Markets interpreted this to mean that the bank would purchase bonds out to around fifteen-year maturity. On March 5, 2009, the bank announced that purchases would be in the five- to twenty-five-year range. Figure 1, replicating figure 4 in Joyce and others (2011), shows the changes in gilt yields around the event dates and the changes in the spread between gilt and overnight index swap (OIS) yields around these dates. Panel A shows the market reaction to the [End Page 234] February announcements: yields fall across the board. The pattern is similar to a conventional policy response in that there are larger effects on short-term bonds than longer-term bonds. In the curve showing the yield-OIS spread change, we see unique QE effects. If the policy transmission is akin to conventional monetary policy, there should be no change in these spreads as we would expect that both gilt yields and OIS yields will move in lockstep so that their spread would not change. Panel B shows the market reaction to the March announcement, and here we can really see the unique QE effects. First note that the effect on gilt yields is concentrated in the five- to twenty-five-year range, which the bank indicated as the target of QE purchases, with yields in the fifteen- to twenty-five-year range falling dramatically on the news that these maturities would also be purchased. Second, note that the yield-OIS spread change reflects the...

When forecasting with economic time series data, researchers often use a restricted window of observations or downweight past observations in order to mitigate the potential effects of parameter instability. In this paper, we study the problem of selecting a window for point forecasts made at the end of the sample. We develop asymptotic approximations to the sampling properties of window selection methods, and post-window selection point forecasts, where there is local parameter instability of various sorts. We examine risk properties of point forecasts made after cross-validation to select the window, and compare this approach to some alternative methods of selecting the window. We also propose a quasi-Bayesian form of cross-validation that we find to have good risk properties.

High quality recordings and transcriptions of speech are important to a wide variety of disciplines from linguistics and human language technology to biomedical screening, diagnosis and tracking. The wide availability of internet connections and powerful mobile devices offers low cost opportunities for collecting speech data at scale. But even in the era of open source software, numerous challenges remain. For example, video call applications such as Zoom have become widespread and allow for recording, but only provide lossy codecs with low frame rates, and often contain missing, repeated, or interpolated frames, as well as freezes, longer dropouts and other audio artefacts. LDC has recently developed a suite of tools to allow high quality internet-based audio recordings and transcription, with a premium on portability and flexibility, using secure cloud computing services for storage and back-end processing. We present here the current design and capabilities of our software, as well as availability in terms of open source code and app distribution. We also discuss future plans; planned capabilities include 2 + sided conversational recordings, connecting participants via the internet, a modern extension of Conversational Telephone Speech (CTS) collections.

Seasonal adjustment is a key statistical procedure underlying the creation of many economic series. Large economic shocks, such as the 2007-09 downturn, can generate lasting seasonal echoes in subsequent data. In this Liberty Street Economics post, we discuss the prospects for these echo effects after last year’s sharp economic contraction by focusing on the payroll employment series published by the U.S. Bureau of Labor Statistics (BLS). We note that seasonal echoes may lead the official numbers to overstate actual changes in payroll employment modestly between March and July of this year after which distortions flip the other way.