Central bank research hub - Papers by Pablo Guerrón-Quintana
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Research hub papers by author Pablo Guerrón-QuintanaenOn Liquidity Shocks and Asset Prices
http://www.boj.or.jp/en/research/wps_rev/wps_2019/data/wp19e04.pdf
Bank of Japan Working Papers by Pablo A. Guerron-Quintana and Ryo JinnaiOn Liquidity Shocks and Asset Prices2019-03-13T00:00:00ZIn models of financial frictions, stock market booms tend to follow adverse liquidity shocks. This finding is clearly at odds with the data. We demonstrate that this counterfactual result is specific to real business cycle models with exogenous growth. Once we allow for both endogenous productivity and growth, this puzzling price dynamics easily disappear. Intuitively, the gloomy economic-growth outlook following the adverse liquidity shocks generates a predictable and negative long-run component in dividend growth, leading to the collapse of equity prices.On Liquidity Shocks and Asset PricesFull texthttp://www.boj.or.jp/en/research/wps_rev/wps_2019/data/wp19e04.pdfRyo JinnaiPablo Guerrón-QuintanaPablo A. Guerron-Quintana and Ryo Jinnai2019-03-13Bank of Japan Working PapersOn Regional Borrowing, Default, and Migration
https://www.richmondfed.org/-/media/richmondfedorg/publications/research/working_papers/2019/wp19-04.pdf
Federal Reserve Bank of Richmond Working Papers by Grey Gordon and Pablo Guerron-QuintanaOn Regional Borrowing, Default, and Migration2019-02-12T00:00:00ZMigration plays a key role in city finances with every new entrant reducing debt per person and every exit increasing it. We study the interactions between regional borrowing, migration, and default from empirical, theoretical, and quantitative perspectives. Empirically, we document that in-migration rates are positively correlated with deficits, that many cities appear to be at or near state-imposed borrowing limits, and that defaults can occur after booms or busts in productivity and population. Theoretically, we show that migration creates an externality that results in over-borrowing, and our quantitative model is able to rationalize many features of the data because of it. Counterfactuals reveal (1) Detroit should have deleveraged in the financial crisis to avoid default; (2) a return to the high-interest rate environment prevailing in the 1990s has only small long-run effects on city finances; and (3) anticipated bailouts double default rates.On Regional Borrowing, Default, and MigrationFull texthttps://www.richmondfed.org/-/media/richmondfedorg/publications/research/working_papers/2019/wp19-04.pdfGrey GordonPablo Guerrón-QuintanaGrey Gordon and Pablo Guerron-Quintana2019-02-12Federal Reserve Bank of Richmond Working PapersE21F22F34R23R51Recurrent Bubbles, Economic Fluctuations, and Growth
http://www.boj.or.jp/en/research/wps_rev/wps_2018/data/wp18e05.pdf
Bank of Japan Working Papers by Pablo A. Guerron-Quintana, Tomohiro Hirano and Ryo JinnaiRecurrent Bubbles, Economic Fluctuations, and Growth2018-03-12T00:00:00ZWe propose a model that generates permanent effects on economic growth following a recession (super hysteresis). Recurrent bubbles are introduced to an otherwise standard infinite-horizon business-cycle model with liquidity scarcity and endogenous productivity. In our setup, bubbles promote growth because they provide liquidity to constrained investors. Bubbles are sustained only when the financial system is under-developed. If the financial development is in an intermediate stage, recurrent bubbles can be harmful in the sense that they decrease the unconditional mean and increase the unconditional volatility of the growth rate relative to the fundamental equilibrium in the same economy. Through the lens of an estimated version of our model fitted to U.S. data, we argue that 1) there is evidence of recurrent bubbles; 2) the Great Moderation results from the collapse of the monetary bubble in the late 1970s; and 3) the burst of the housing bubble is partially responsible for the post-Great Recession dismal recovery of the U.S. economy.Recurrent Bubbles, Economic Fluctuations, and GrowthFull texthttp://www.boj.or.jp/en/research/wps_rev/wps_2018/data/wp18e05.pdfTomohiro HiranoRyo JinnaiPablo Guerrón-QuintanaPablo A. Guerron-Quintana, Tomohiro Hirano and Ryo Jinnai2018-03-12Bank of Japan Working PapersPolitical Distribution Risk and Aggregate Fluctuations
https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2017/wp17-25.pdf?utm_campaign=WorkingPapers=2017/08/21=E-mail
Philadelphia Fed Working Papers by Thorsten Drautzburg, Jesus Fernandez-Villaverde and Pablo Guerron-QuintanaPolitical Distribution Risk and Aggregate Fluctuations2017-08-21T00:00:00ZWe argue that political distribution risk is an important driver of aggregate fluctuations. To that end, we document significant changes in the capital share after large political events, such as political realignments, modifications in collective bargaining rules, or the end of dictatorships, in a sample of developed and emerging economies. These policy changes are associated with significant fluctuations in output and asset prices. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks cause movements in output, unemployment, and sectoral asset prices. To quantify the importance of these political shocks for the U.S. as a whole, we extend an otherwise standard neoclassical growth model. We model political shocks as exogenous changes in the bargaining power of workers in a labor market with search and matching. We calibrate the model to the U.S. corporate non-financial business sector and we back up the evolution of the bargaining power of workers over time using a new methodological approach, the partial filter. We show how the estimated shocks agree with the historical narrative evidence. We document that bargaining shocks account for 34% of aggregate fluctuations.Political Distribution Risk and Aggregate FluctuationsFull texthttps://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2017/wp17-25.pdf?utm_campaign=WorkingPapers=2017/08/21=E-mailThorsten DrautzburgJesús Fernández-VillaverdePablo Guerrón-QuintanaThorsten Drautzburg, Jesus Fernandez-Villaverde and Pablo Guerron-Quintana2017-08-21Federal Reserve Bank of Philadelphia Working PapersE32E37E44J20Fiscal Volatility Shocks and Economic Activity
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-32R.pdf
Philadelphia Fed Working Papers by Pablo Guerron-QuintanaFiscal Volatility Shocks and Economic Activity2012-01-06T17:40:00ZThe authors study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. In light of large fiscal deficits and high public debt levels in the U.S., a fiscal consolidation seems inevitable. However, there is notable uncertainty about the policy mix and timing of such a budgetary adjustment. To evaluate the consequences of the increased uncertainty, the authors first estimate tax and spending processes for the U.S. that allow for timevarying volatility. They then feed these processes into an otherwise standard New Keynesian business cycle model calibrated to the U.S. economy. The authors find that fiscal volatility shocks can have a sizable adverse effect on economic activity.Fiscal Volatility Shocks and Economic ActivityFull texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-32R.pdfPablo Guerrón-QuintanaPablo Guerron-Quintana2011-01Federal Reserve Bank of Philadelphia Working PapersSupply-Side Policies and the Zero Lower Bound
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-47.pdf
Philadelphia Fed Working Papers by Pablo Guerrón-QuintanaSupply-Side Policies and the Zero Lower Bound2011-10-27T17:40:00ZThis paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect that pulls current consumption and output up. Since the economy is at the ZLB, increases in the interest rates do not undo this wealth effect, as we will have in the case outside the ZLB. The authors illustrate this mechanism with a simple two-period New Keynesian model. They discuss possible objections to this set of policies and the relation of supply-side policies with more conventional monetary and fiscal policies.Supply-Side Policies and the Zero Lower BoundFull texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-47.pdfPablo Guerrón-QuintanaPablo Guerrón-Quintana2011-10Federal Reserve Bank of Philadelphia Working PapersFiscal Volatility Shocks and Economic Activity
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-32.pdf
Philadelphia Fed Working Papers by Pablo Guerron-QuintanaFiscal Volatility Shocks and Economic Activity2011-08-12T06:25:00ZThe authors study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about the policy mix and timing of such budgetary adjustment. To evaluate the consequences of this increased uncertainty, the authors first estimate tax and spending processes for the U.S. that allow for time-varying volatility. They then feed these processes into an otherwise standard New Keynesian business cycle model calibrated to the U.S. economy. The authors find that fiscal volatility shocks have an adverse effect on economic activity that is comparable to the effects of a 25-basis-point innovation in the federal funds rate.Fiscal Volatility Shocks and Economic ActivityFull texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-32.pdfPablo Guerrón-QuintanaPablo Guerron-Quintana2011-08Federal Reserve Bank of Philadelphia Working PapersReading the Recent Monetary History of the U.S., 1959-2007
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-15.pdf
Philadelphia Fed Working Papers by Pablo Guerron-QuintanaReading the Recent Monetary History of the U.S., 1959-20072010-04-30T17:50:00ZReading the Recent Monetary History of the U.S., 1959-2007Full texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-15.pdfPablo Guerrón-QuintanaPablo Guerron-Quintana2010-04Federal Reserve Bank of Philadelphia Working PapersC11E10E30Fortune or Virtue: Time-Variant Volatilities Versus Parameter Drifting
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-14.pdf
Philadelphia Fed Working Papers by Pablo Guerron-QuintanaFortune or Virtue: Time-Variant Volatilities Versus Parameter Drifting2010-04-30T06:29:00ZThis paper compares the role of stochastic volatility versus changes in monetary policy rules in accounting for the time-varying volatility of U.S. aggregate data. Of special interest to the authors is understanding the sources of the great moderation of business cycle fluctuations that the U.S. economy experienced between 1984 and 2007. To explore this issue, the authors build a medium-scale dynamic stochastic general equilibrium (DSGE) model with both stochastic volatility and parameter drifting in the Taylor rule and they estimate it non-linearly using U.S. data and Bayesian methods. Methodologically, the authors show how to confront such a rich model with the data by exploiting the structure of the high-order approximation to the decision rules that characterize the equilibrium of the economy. Their main empirical findings are: 1) even after controlling for stochastic volatility (and there is a fair amount of it), there is overwhelming evidence of changes in monetary policy during the analyzed period; 2) however, these changes in monetary policy mattered little for the great moderation; 3) most of the great performance of the U.S. economy during the 1990s was a result of good shocks; and 4) the response of monetary policy to inflation under Burns, Miller, and Greenspan was similar, while it was much higher under Volcker.Fortune or Virtue: Time-Variant Volatilities Versus Parameter DriftingFull texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-14.pdfPablo Guerrón-QuintanaPablo Guerron-Quintana2010-04Federal Reserve Bank of Philadelphia Working PapersC11E10E30The Implications of Inflation in an Estimated New-Keynesian Model
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-2.pdf
Philadelphia Fed Working Papers by Pablo A. Guerron-QuintanaThe Implications of Inflation in an Estimated New-Keynesian Model2010-02-19T17:40:59ZThis paper studies the steady state and dynamic consequences of inflation in an estimated dynamic stochastic general equilibrium model of the U.S. economy. It is found that 10 percentage points of inflation entails a steady state welfare cost as high as 13 percent of annual consumption. This large cost is mainly driven by staggered price contracts and price indexation. The transition from high to low inflation inflicts a welfare loss equivalent to 0.53 percent. The role of nominal/real frictions as well as that of parameter uncertainty is also addressed.The Implications of Inflation in an Estimated New-Keynesian ModelFull texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-2.pdfPablo Guerrón-QuintanaPablo A. Guerron-Quintana2010-02Federal Reserve Bank of Philadelphia Working PapersCommon Factors in Small Open Economies: Inference and Consequences
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-4.pdf
Philadelphia Fed Working Papers by Pablo A. Guerron-QuintanaCommon Factors in Small Open Economies: Inference and Consequences2010-02-19T17:40:59ZInference about common international stochastic trends and interest rates is gained using a small open economy model, data from seven developed countries, and Bayesian methods. Shocks to these common factors explain up to 17 percent of the variability of output in several economies. Country-specific preference and premium disturbances account for the bulk of the volatility observed in the data. There is substantial heterogeneity in the estimated structural parameters as well as stochastic processes for the countries in the sample. This diversity translates into a rich array of impulse responses across countries. According to the model, the recent low international interest rates might have initially deepened the decline of GDP in several developed economies.Common Factors in Small Open Economies: Inference and ConsequencesFull texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-4.pdfPablo Guerrón-QuintanaPablo A. Guerron-Quintana2010-02Federal Reserve Bank of Philadelphia Working PapersDo Uncertainty and Technology Drive Exchange Rates?
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2009/wp09-20.pdf
Philadelphia Fed Working Papers by Pablo A. Guerron-QuintanaDo Uncertainty and Technology Drive Exchange Rates?2009-09-20T17:40:59ZThis paper investigates the extent to which technology and uncertainty contribute to fluctuations in real exchange rates. Using a structural VAR and bilateral exchange rates, the author finds that neutral technology shocks are important contributors to the dynamics of real exchange rates. Investment-specific and uncertainty shocks have a more restricted effect on international prices. All three disturbances cause short-run deviations from uncovered interest rate parity.Do Uncertainty and Technology Drive Exchange Rates?Full texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2009/wp09-20.pdfPablo Guerrón-QuintanaPablo A. Guerron-Quintana2009-09Federal Reserve Bank of Philadelphia Working PapersFrequentist Inference in Weakly Identified DSGE Models
http://www.philadelphiafed.org/research-and-data/publications/working-papers/2009/wp09-13.pdf
Philadelphia Fed Working Papers by Pablo Guerron-QuintanaFrequentist Inference in Weakly Identified DSGE Models2009-08-04T07:16:59ZThe authors show that in weakly identified models (1) the posterior mode will not be a consistent estimator of the true parameter vector, (2) the posterior distribution will not be Gaussian even asymptotically, and (3) Bayesian credible sets and frequentist confidence sets will not coincide asymptotically. This means that Bayesian DSGE estimation should not be interpreted merely as a convenient device for obtaining asymptotically valid point estimates and confidence sets from the posterior distribution. As an alternative, the authors develop a new class of frequentist confidence sets for structural DSGE model parameters that remains asymptotically valid regardless of the strength of the identification. The proposed set correctly reflects the uncertainty about the structural parameters even when the likelihood is flat, it protects the researcher from spurious inference, and it is asymptotically invariant to the prior in the case of weak identification.Frequentist Inference in Weakly Identified DSGE ModelsFull texthttp://www.philadelphiafed.org/research-and-data/publications/working-papers/2009/wp09-13.pdfPablo Guerrón-QuintanaPablo Guerron-Quintana2009-08Federal Reserve Bank of Philadelphia Working PapersC32C52E30E50