Research Database

This memo describes a revision to the mixed-frequency vector autoregression (MF-VAR) model originally constructed by Schorfheide and Song (2012) and subsequently revised by Beauchemin (2013). In this most recent version, the 14-variable model is expanded to include nonfarm payroll employment. The forecast performance of the augmented model is compared with that of its predecessor.

In this paper I develop a practical extension of the Method of Simulated Moments (MSM) estimator for limited dependent variable models to the panel data case. The method is based on a factorization of the MSM first order condition into transition probabilities, along with the development of a new highly accurate method for simulating these transition probabilities. A series of Monte-Carlo tests show that this MSM estimator performs quite well relative to quadrature-based ML estimators, even when large numbers of quadrature points are employed. The estimator also performs well relative to simulated ML, even when a highly accurate method is used to simulate the choice probabilities. In terms of computational speed, complex panel data models involving random effects and ARMA errors may be estimated via MSM in times similar to those necessary for estimation of simple random effects models via ML-quadrature.

This paper critically reevaluates recent claims that the postwar U.S. price level exhibits countercyclicality. While overall countercyclicality is confirmed, temporal disaggregation suggests a shift from pro- to countercyclicality in the early 1970s. Furthermore, the countercyclicality is markedly more pronounced for negative than for positive output innovations. The evidence thus casts doubt on single-source business cycle explanations.