Credit Supply and the Housing Boom Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea
The Journal of political economy,
06/2019, Letnik:
127, Številka:
3
Journal Article
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An increase in credit supply driven by looser lending constraints in the mortgage market is the key force behind four empirical features of the housing boom before the Great Recession: the ...unprecedented rise in home prices, the surge in household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are more difficult to reconcile with the popular view that attributes the housing boom only to looser borrowing constraints associated with lower collateral requirements, because they shift the demand for credit.
PRIOR SELECTION FOR VECTOR AUTOREGRESSIONS Giannone, Domenico; Lenza, Michele; Primiceri, Giorgio E.
The review of economics and statistics,
05/2015, Letnik:
97, Številka:
2
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Vector autoregressions (VARs) are flexible time series models that can capture complex dynamic interrelationships among macroeconomic variables. However, their dense parameterization leads to ...unstable inference and inaccurate out-of-sample forecasts, particularly for models with many variables. A solution to this problem is to use informative priors in order to shrink the richly parameterized unrestricted model toward a parsimonious naive benchmark, and thus reduce estimation uncertainty. This paper studies the optimal choice of the informativeness of these priors, which we treat as additional parameters, in the spirit of hierarchical modeling. This approach, theoretically grounded and easy to implement, greatly reduces the number and importance of subjective choices in the setting of the prior. Moreover, it performs very well in terms of both out-of-sample forecasting—as well as factor models—and accuracy in the estimation of impulse response functions.
ECONOMIC PREDICTIONS WITH BIG DATA Giannone, Domenico; Lenza, Michele; Primiceri, Giorgio E.
Econometrica,
September 2021, Letnik:
89, Številka:
5
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We compare sparse and dense representations of predictive models in macroeconomics, microeconomics, and finance. To deal with a large number of possible predictors, we specify a prior that allows for ...both variable selection and shrinkage. The posterior distribution does not typically concentrate on a single sparse model, but on a wide set of models that often include many predictors.
This note shows how to apply the procedure of Kim et al. (1998) to the estimation of VAR, DSGE, factor, and unobserved components models with stochastic volatility. In particular, it revisits the ...estimation algorithm of the time-varying VAR model of Primiceri (2005). The main difference of the new algorithm is the ordering of the various MCMC steps, with each individual step remaining the same.
Monetary policy and the private sector behaviour of the U.S. economy are modelled as a time varying structural vector autoregression, where the sources of time variation are both the coefficients and ...the variance covariance matrix of the innovations. The paper develops a new, simple modelling strategy for the law of motion of the variance covariance matrix and proposes an efficient Markov chain Monte Carlo algorithm for the model likelihood/posterior numerical evaluation. The main empirical conclusions are: (1) both systematic and non-systematic monetary policy have changed during the last 40 years—in particular, systematic responses of the interest rate to inflation and unemployment exhibit a trend toward a more aggressive behaviour, despite remarkable oscillations; (2) this has had a negligible effect on the rest of the economy. The role played by exogenous non-policy shocks seems more important than interest rate policy in explaining the high inflation and unemployment episodes in recent U.S. economic history.
Summary
This paper illustrates how to handle a sequence of extreme observations—such as those recorded during the COVID‐19 pandemic—when estimating a vector autoregression, which is the most popular ...time‐series model in macroeconomics. Our results show that the ad hoc strategy of dropping these observations may be acceptable for the purpose of parameter estimation. However, disregarding these recent data is inappropriate for forecasting the future evolution of the economy, because it may underestimate uncertainty.
We investigate the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time ...variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades.
Household leveraging and deleveraging Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea
Review of economic dynamics,
January 2015, 2015-01-00, 20150101, Letnik:
18, Številka:
1
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U.S. households' debt skyrocketed between 2000 and 2007, and has been falling since. This leveraging (and deleveraging) cycle cannot be accounted for by the relaxation, and subsequent tightening, of ...collateral requirements in mortgage markets observed during the same period. We base this conclusion on a quantitative dynamic general equilibrium model calibrated using macroeconomic aggregates and microeconomic data from the Survey of Consumer Finances. From the perspective of the model, the credit cycle is more likely due to factors that impacted house prices more directly, thus affecting the availability of credit through a change in collateral values. In either case, the macroeconomic consequences of leveraging and deleveraging are relatively minor, because the responses of borrowers and lenders roughly wash out in the aggregate. These results suggest that household debt overhang alone cannot account for the slow recovery from the Great Recession.
Priors for the Long Run Giannone, Domenico; Lenza, Michele; Primiceri, Giorgio E.
Journal of the American Statistical Association,
04/2019, Letnik:
114, Številka:
526
Journal Article
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We propose a class of prior distributions that discipline the long-run behavior of vector autoregressions (VARs). These priors can be naturally elicited using economic theory, which provides guidance ...on the joint dynamics of macroeconomic time series in the long run. Our priors for the long run are conjugate, and can thus be easily implemented using dummy observations and combined with other popular priors. In VARs with standard macroeconomic variables, a prior based on the long-run predictions of a wide class of theoretical models yields substantial improvements in the forecasting performance. Supplementary materials for this article, including a standardized description of the materials available for reproducing the work, are available as an online supplement.
The Mortgage Rate Conundrum Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea
The Journal of political economy,
01/2022, Letnik:
130, Številka:
1
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We study the interest rates of privately securitized residential mortgages during the credit boom of the early 2000s. They reveal a sharp and persistent drop in the spread between mortgage and ...Treasury rates starting in the summer of 2003. The emergence of this mortgage rate conundrum immediately followed the collapse of an unprecedented refinancing wave, and it was more pronounced in the regions where that wave had grown faster. These same areas also experienced more originations of the nonconforming mortgages that boosted private label securitization after 2003. Mortgages originated after this shift are the first to show signs of deteriorating quality.
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