Makram El-Shagi

A simple estimator for smooth local projections

ABSTRACT In this paper, we propose a simple approach to estimate impulse response function through smoothed local projections, thereby utilizing the flexibility of local projections, while creating smooth and economically plausible impulse response functions as provided by VARs. The approach allows to determine the appropriate degree of smoothing endogenously through a standard information criterion. This also avoids oversmoothing and provides an estimator that is generally more efficient than standard local projections.

Forecast Performance in Times of Terrorism

Governments, central banks, and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, which should be considered by decision makers. We focus on terrorism, as a mostly endogenously driven form of political uncertainty, and use new econometric tests to assess the forecasting performance of market and professional inflation and exchange-rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, forecasting performance and abilities of both market-based and expert forecasts are significantly reduced during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange-rate forecasts.

For they know not what they do: an analysis of monetary policy during the Great Moderation

ABSTRACT In this article, we develop an empirical framework to show the importance of money during the Great Moderation, while accounting for the fact that monetary policy was exclusively conducted through interest rates. We estimate the impulse response functions and forecast error variance decomposition derived from a structural VAR with a least absolute shrinkage and selection operator–based lag selection. The variance decomposition suggests that a substantial component of macroeconomic variation has been driven by shocks to the money market, which were not only unintended by the Federal Reserve, but worse passed unnoticed allowing those shocks to accumulate over time.