Òscar Jordà

Vice President

Financial Research

Econometrics, Macroeconomics, Monetary economics

Oscar.Jorda (at) sf.frb.org


Working Papers
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Output and Unemployment Dynamics

2013-32 | With Daly, Fernald, and Nechio | November 2014

abstract (+)
The evolution of the secular and business-cycle comovement between different components of the production function and unemployment, Okun’s law, provides important stylized facts for macro modelers. We show that total hours worked adjust two-to-one to changes in the unemployment rate. The cyclicality of productivity has changed over time and as a function of the type of shock hitting the economy. Even the responses of different margins to shocks vary over time. We document these and other features of the data using the growth-accounting decomposition in Fernald (2014)

Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited

2013-24 | With Angrist and Kuersteiner | August 2013

abstract (+)
We develop flexible semiparametric time series methods that are then used to assess the causal effect of monetary policy interventions on macroeconomic aggregates. Our estimator captures the average causal response to discrete policy interventions in a macro-dynamic setting, without the need for assumptions about the process generating macroeconomic outcomes. The proposed procedure, based on propensity score weighting, easily accommodates asymmetric and nonlinear responses. Application of this estimator to the effects of monetary restraint shows the Fed to be an effective inflation fighter. Our estimates of the effects of monetary accommodation, however, suggest the Federal Reserve’s ability to stimulate real economic activity is more modest. Estimates for recent financial crisis years are similar to those for the earlier, pre-crisis period.

Performance Evaluation of Zero Net-Investment Strategies

NBER WP 17150 | With Taylor | June 2011

abstract (+)
This paper introduces new nonparametric statistical methods to evaluate zero-cost investment strategies. We focus on directional trading strategies, risk-adjusted returns, and the investor’s decisions under uncertainty as the core of our analysis. By relying on classification tools with a long tradition in the sciences and biostatistics, we can provide a tighter connection between model-based risk characteristics and the no-arbitrage conditions for market efficiency. Moreover, we extend the methods to multicategorical settings, such as when the investor can sometimes take a neutral position. A variety of inferential procedures are provided, many of which are illustrated with applications to excess equity returns and to currency carry trades.
Published Articles (Refereed Journals and Volumes)
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Leveraged Bubbles

Forthcoming in Journal of Monetary Economics | With Schularick and Taylor

The Great Mortgaging

Forthcoming in Economic Policy | With Schularick and Taylor

The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy

Forthcoming in Economic Journal | With Taylor

Betting the House

Journal of International Economics 96(S1), July 2015, S2-S18 | With Schularick and Taylor

Sovereigns versus Banks: Credit, Crises and Consequences

Journal of the European Economic Association DOI: 10.1111/jeea.12144, July 2015 | With Schularick and Taylor

Assessing the Historical Role of Credit: Business Cycles, Financial Crises and the Legacy of Charles S. Peirce

International Journal of Forecasting 30(3), July 2014, 729-740

abstract (+)
This paper provides a historical overview of financial crises and their origins. The objective is to discuss a few of the modern statistical methods that can be used to evaluate predictors of these rare events. The problem involves the prediction of binary events, and therefore fits modern statistical learning, signal processing theory, and classification methods. The discussion also emphasizes the need for statistics and computational techniques to be supplemented with economics. The success of a forecast in this environment hinges on the economic consequences of the actions taken as a result of the forecast, rather than on typical statistical metrics of prediction accuracy.

Computing Systemic Risk Using multiple Behavioral and Keystone Networks: The Emergence of a Crisis in Primate Societies and Banks

International Journal of Forecasting 30(3), July 2014, 797-806 | With Fushing, Beisner, and McCowan

abstract (+)
What do the behavior of monkeys in captivity and the financial system have in common? The nodes in such social systems relate to each other through multiple and keystone networks, not just one network. Each network in the system has its own topology, and the interactions among the system’s networks change over time. In such systems, the lead into a crisis appears to be characterized by a decoupling of the networks from the keystone network. This decoupling can also be seen in the crumbling of the keystone’s power structure toward a more horizontal hierarchy. This paper develops nonparametric methods for describing the joint model of the latent architecture of interconnected networks in order to describe this process of decoupling, and hence provide an early warning system of an impending crisis.

Labor Markets in the Global Financial Crisis: The Good, the Bad and the Ugly

National Institute Economic Review 228: R58-R64, May 2014 | With Nechio, Daly, and Fernald

abstract (+)
This note examines labor market performance across countries through the lens of Okun’s Law. We find that after the 1970s but prior to the global financial crisis of the 2000s, the Okun’s Law relationship between output and unemployment became more homogenous across countries. These changes presumably reflected institutional and technological changes. But, at least in the short term, the global financial crisis undid much of this convergence, in part because the affected countries adopted different labor market policies in response to the global demand shock.

Empirical Simultaneous Prediction Regions for Path-Forecasts

International Journal of Forecasting 29(3), September 2013, 456-468 | With Marcellino and Knuppel

abstract (+)
This paper investigates the problem of constructing prediction regions for forecast trajectories 1 to H periods into the future-a path forecast. When the null model is only approximative, or completely unavailable, one cannot either derive the usual analytic expressions or resample from the null model. In this context, this paper derives a method for constructing approximate rectangular regions for simultaneous probability coverage that correct for serial correlation in the case of elliptical distributions. In both Monte Carlo studies and an empirical application to the Greenbook path-forecasts of growth and inflation, the performance of this method is compared to the performances of the Bonferroni approach and the approach which ignores simultaneity.

A Chronology of Turning Points in Economic Activity

Journal of the Spanish Economic Association – SERIES 4(1), March 2013, 1-34 | With Berge

abstract (+)
This paper codifies in a systematic and transparent way a historical chronology of business cycle turning points for Spain reaching back to 1850 at annual frequency, and 1939 at monthly frequency. Such an exercise would be incomplete without assessing the new chronology itself and against others—this we do with modern statistical tools of signal detection theory. We also use these tools to determine which of several existing economic activity indexes provide a better signal on the underlying state of the economy. We conclude by evaluating candidate leading indicators and hence construct recession probability forecasts up to 12 months in the future.

When Credit Bites Back

Journal of Money Credit and Banking 45(s2), 2013, 3-28 | With Schularick and Taylor

abstract (+)
This paper studies the role of credit in the business cycle, with a focus on private credit overhang. Based on a study of the universe of over 200 recession episodes in 14 advanced countries between 1870 and 2008, we document two key facts of the modern business cycle: financial-crisis recessions are more costly than normal recessions in terms of lost output; and for both types of recession, more credit-intensive expansions tend to be followed by deeper recessions and slower recoveries. In additional to unconditional analysis, we use local projection methods to condition on a broad set of macroeconomic controls and their lags. Then we study how past credit accumulation impacts the behavior of not only output but also other key macroeconomic variables such as investment, lending, interest rates, and inflation. The facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle.

The Carry Trade and Fundamentals: Nothing to Fear but FEER Itself

Journal of International Economics 88(1), September 2012, 74-90 | With Taylor

abstract (+)
The carry trade is the investment strategy of going long in high-yield target currencies and short in low-yield funding currencies. Recently, this naive trade has seen very high returns for long periods, followed by large crash losses after large depreciations of the target currencies. Based on low Sharpe ratios and negative skew, these trades could appear unattractive, even when diversified across many currencies. But more sophisticated conditional trading strategies exhibit more favorable payoffs. We apply novel (within economics) binary-outcome classification tests to show that our directional trading forecasts are informative, and out-of-sample loss-function analysis to examine trading performance. The critical conditioning variable, we argue, is the fundamental equilibrium exchange rate (FEER). Expected returns are lower, all else equal, when the target currency is overvalued. Like traders, researchers should incorporate this information when evaluating trading strategies. When we do so, some questions are resolved: negative skewness is purged, and market volatility (VIX) is uncorrelated with returns; other puzzles remain: the more sophisticated strategy has a very high Sharpe ratio, suggesting market inefficiency.

The Harrod-Balassa-Samuelson Hypothesis: Real Exchange Rates and their Long-Run Equilibrium

International Economic Review 53(2), May 2012, 609-634 | With Chong and Taylor

abstract (+)
Frictions and perturbations may influence currency values in the short run, but it is generally acknowledged that real-exchange rates eventually settle toward equilibrium. The puzzle then is how gradually this parity is reached given the fluidity in foreign exchange markets. Persistent differences in the relative productivity of countries—a broad characterization of the Harrod–Balassa–Samuelson hypothesis—may help explain this puzzle. This article introduces methods to estimate equilibrium adjustment paths semiparametrically, and then sort how each of these components influences the dynamics of exchange rates. This is done in a dynamic panel setting by introducing novel local projections methods for cointegrated systems. Productivity shocks affect dynamics, and after adjusting for these factors, adjustment toward equilibrium is relatively rapid.

Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons

IMF Economic Review 59(2), June 2011, 340-378 | With Schularick and Taylor

abstract (+)
Do external imbalances increase the risk of financial crises? This paper studies the experience of 14 developed countries over 140 years (1870-2008). It exploits the long-run data set in a number of different ways. First, the paper applies new statistical tools to describe the temporal and spatial patterns of crises and identifies five episodes of global financial instability in the past 140 years. Second, it studies the macroeconomic dynamics before crises and shows that credit growth tends to be elevated and short-term interest rates depressed relative to the “natural rate” in the run-up to global financial crises. Third, the paper shows that recessions associated with crises lead to deeper slumps and stronger turnarounds in imbalances than during normal recessions. Finally, the paper asks to what extent external imbalances help predict financial crises. The overall result is that credit growth emerges as the single best predictor of financial instability. External imbalances have played an additional role, but more so in the pre-WWII era of low financialization than today.

Estimation and Inference by the Method of Projection Minimum Distance: An Application to the New Keynesian Hybrid Phillips Curve

International Economic Review 52(2), May 2011, 461-487 | With Kozicki

abstract (+)
The stability of the solution path in a macroeconomic model implies that it admits a Wold representation. This Wold representation can be estimated semiparametrically by local projections and used to estimate the model’s parameters by minimum distance techniques even when the stochastic process for the solution path is unknown or unconventional. We name this two-step estimation procedure “projection minimum distance” and investigate its statistical properties for the broad class of models where the mapping between Wold coefficients and parameters is linear. This includes many situations with likelihood score functions nonlinear in the parameters that would otherwise require numerical optimization routines.

Evaluating the Classification of Economic Activity into Recessions and Expansions

American Economic Journal: Macroeconomics 3(2), April 2011, 246-277 | With Berge

abstract (+)
The Business Cycle Dating Committee of the National Bureau of Economic Research provides a historical chronology of business cycle turning points. We investigate three central aspects of this chronology. How skillful is the Dating Committee when classifying economic activity into expansions and recessions? Which indices of economic conditions best capture the current but unobservable state of the business cycle? And which indicators best predict future turning points, and at what horizons? We answer each of these questions in detail using methods specifically designed to assess classification ability. In the process, we clarify several important features of the business cycle.

Path Forecast Evaluation

Journal of Applied Econometrics 25(4), May 2010, 635-662 | With Marcellino

abstract (+)
A path forecast refers to the sequence of forecasts 1 to H periods into the future. A summary of the range of possible paths the predicted variable may follow for a given confidence level requires construction of simultaneous confidence regions that adjust for any covariance between the elementsof the path forecast. This paper shows how to construct such regions with the joint predictive density and Scheffe’s (1953) S-method. In addition, the joint predictive density can be used to construct simple statistics to evaluate the local internal consistency of a forecasting exercise of a system of variables. Monte Carlo simulations demonstrate that these simultaneous confidence regions provide approximately correct coverage in situations where traditional error bands, based on the collection of marginal predictive densities for each horizon, are vastly off mark. The paper showcases these methods with an application to the most recent monetary episode of interest rate hikes in the U.S. macroeconomy.

Simultaneous Confidence Regions for Impulse Responses

Review of Economics and Statistics 91(3), August 2009, 629-647

abstract (+)
Inference about an impulse response is a multiple testing problem with serially correlated coefficient estimates. This paper provides a method to construct simultaneous confidence regions for impulse responses and conditional bands to examine significance levels of individual impulse response coefficients given propagation trajectories. The paper also shows how to constrain a subset of impulse response paths to anchor structural identification and how to formally test the validity of such identifying constraints. Simulation and empirical evidence illustrate the new techniques. A broad summary of asymptotic analytic formulas is provided to make the methods easy to implement with commonly available statistical software.

Estimation and Inference of Impulse Responses by Local Projections

American Economic Review 95(1), March 2005, 161-182

abstract (+)
This paper introduces methods to compute impulse responses without specification and estimation of the underlying multivariate dynamic system. The central idea consists in estimating local projections at each period of interest rather than extrapolating into increasingly distant horizons from a given model, as it is done with vector autoregressions (VAR). The advantages of local projections are numerous: (1) they can be estimated by simple regression techniques with standard regression packages; (2) they are more robust to misspecification; (3) joint or point-wise analytic inference is simple; and (4) they easily accommodate experimentation with highly nonlinear and flexible specifications that may be impractical in a multivariate context. Therefore, these methods are a natural alternative to estimating impulse responses from VARs. Monte Carlo evidence and an application to a simple, closed-economy, new-Keynesian model clarify these numerous advantages.

Time Scale Transformations of Discrete Time Processes

Journal of Time Series Analysis 25(6), November 2004, 873-894 | With Marcellino

abstract (+)
This paper investigates the effects of temporal aggregation when the aggregation frequency is variable and possibly stochastic. The results that we report include, as a particular case, the well-known results on fixed-interval aggregation, such as when monthly data are aggregated into quarters. A variable aggregation frequency implies that the aggregated process will exhibit time-varying parameters and non-spherical disturbances, even when these characteristics are absent from the original model. Consequently, we develop methods for specification and estimation of the aggregate models and show with an example how these methods perform in practice.

Measuring Monetary Policy Interdependence

Journal of International Money and Finance 23(5), September 2004, 761-783 | With Bergin

abstract (+)
This paper measures the degree of monetary policy interdependence between major industrialized countries from a new perspective. The analysis uses a special data set on central bank issued policy rate targets for 14 OECD countries. Methodologically, our approach is novel in that we separately examine monetary interdependence due to (1) the coincidence in time of when policy actions are executed from (2) the nature and magnitude of the policy adjustments made. The first of these elements requires that the timing of events be modeled with a dynamic discrete duration design. The discrete nature of the policy rate adjustment process that characterizes the second element is captured with an ordered response model. The results indicate there is significant policy interdependence among these 14 countries during the 1980-1998 sample period. This is especially true for a number of European countries which appeared to respond to German policy during our sample period. A number of other countries appeared to respond to U.S. policy, though this number is smaller than that suggested in preceding studies. Moreover, the policy harmonization we find appears to work through channels other than formal coordination agreements.

The Response of Term Rates to Fed Announcements

Journal of Money, Credit, and Banking 36(3), June 2004, 387-406 | With Demiralp

abstract (+)
In February 4, 1994 the Federal Reserve began the practice of announcing changes in the targeted level for the federal funds rate immediately after such decisions were made. This paper investigates to what extent the policy of “the announcement” affected a key ingredient in the monetary transmission mechanism: the term structure of nominally risk-free, Treasury securities. We find that term rates react much more in unison during announcement days than at any other time. Moreover, the practice of circumscribing almost all changes in the federal funds rate target to Federal Open Market Committee (FOMC) meeting dates regiments the formation of market expectations in the overnight rate and the price discovery process of term rates, thus facilitating the Fed’s goal of controlling long-term rates.

The Response of Term Rates to Monetary Policy Uncertainty

Review of Economic Dynamics 6(4), October 2003, 941-962 | With Salyer

abstract (+)
This paper shows that greater uncertainty about monetary policy can lead to a decline in nominal interest rates. In the context of a limited participation model, monetary policy uncertainty is modeled as a mean preserving spread in the distribution for the money growth process. This increase in uncertainty lowers the yield on short-term maturity bonds because the household sector responds by increasing liquidity in the banking sector. Long-term maturity bonds also have lower yields but this decrease is a result of the effect that greater uncertainty has on the nominal intertemporal rate of substitution–which is a convex function of money growth. We examine the nature of these relations empirically by introducing the GARCH-SVAR model–a multivariate generalization of the GARCH-M model. The predictions of the model are broadly supported by the data: higher uncertainty in the federal funds rate can lower the yields of the three- and six-month treasury bill rates.

Modeling High-Frequency FX Data Dynamics

Macroeconomic Dynamics 7(4), August 2003, 618-635 | With Marcellino

abstract (+)
This paper shows that high-frequency, irregularly spaced, foreign exchange (FX) data can generate nonnormality, conditional heteroskedasticity, and leptokurtosis when aggregated into fixed-interval calendar time, even when these features are absent in the original DGP. Furthermore, we introduce a new approach to modeling these high-frequency irregularly spaced data based on the Poisson regression model. The new model is called the autoregressive conditional intensity model and it has the advantage of being simple and of maintaining the calendar timescale. To illustrate the virtues of this approach, we examine a classical issue in FX microstructure: the variation in information content as a function of fluctuations in the intensity of activity levels.

A Model for the Federal Funds Rate Target

Journal of Political Economy 110(5), July 2002, 1135-1167 | With Hamilton

abstract (+)
This paper is a statistical analysis of the manner in which the Federal Reserve determines the level of the federal funds rate target, one of the most publicized and anticipated economic indicators in the financial world. The paper introduces new statistical tools for forecasting a discrete-valued time series such as the target, and suggests that these methods, in conjunction with a focus on the institutional details of how the target is determined, can significantly improve on standard VAR forecasts of the effective federal funds rate. We further show that the news that the Fed has changed the target has substantially different statistical content from the news that the Fed failed to make an anticipated target change, causing us to challenge some of the conclusions drawn from standard linear VAR impulse-response functions.

Testing Nonlinearity: Decision Rules for Choosing between Logistic and Exponential STAR Models

Spanish Economic Review 3, 2001, 193-209 | With Escribano

abstract (+)
A new LM specification procedure to choose between Logistic and Exponential Smooth Transition Autoregressive (STAR) models is introduced. The new decision rule has better properties than those previously available in the literature when the model is ESTAR and similar properties when the model is LSTAR. A simple natural extension of the usual LM-test for linearity is introduced and evaluated in terms of power. Monte-Carlo simulations and empirical evidence are provided in support of our claims.

Random Time Aggregation in Partial Adjustment Models

Journal of Business and Economic Statistics 7(3), July 1999, 382-396

abstract (+)
How is econometric analysis (of partial adjustment models) affected by the fact that, while data collection is done at regular, fixed intervals of time, economic decisions are made at random intervals of time? This paper addresses this question by modelling the economic decision making process as a general point process. Under randomtime aggregation: (1) inference on the speed of adjustment is biased–adjustments are a function of the intensity of the point procEss and the proportion of adjustment; (2) inference on the correlation with exogenous variables is generally downward biased; and (3) a non-constant intensity of the point process gives rise to a general class of regime dependent time series models. An empirical application to test the production smoothing-buffer stock model of inventory behavior illustrates, in practice, the effects of random-time aggregation.
FRBSF Publications
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Interest Rates and House Prices: Pill or Poison?

Economic Letter 2015-25 | August 3, 2015 | With Schularick and Taylor

Mortgaging the Future?

Economic Letter 2015-09 | March 23, 2015 | With Schularick and Taylor

Interpreting Deviations from Okun’s Law

Economic Letter 2014-12 | December 1, 2014 | With Daly, Fernald, and Nechio

Monetary Policy When the Spyglass Is Smudged

Economic Letter 2014-35 | November 24, 2014 | With Elias and Irvin

Interpreting Deviations from Okun’s Law

Economic Letter 2014-12 | April 21, 2014 | With Daly, Fernald, and Nechio

Private Credit and Public Debt in Financial Crises

Economic Letter 2014-07 | March 10, 2014 | With Schularick and Taylor

Labor Markets in the Global Financial Crisis

Economic Letter 2013-38 | December 23, 2013 | With Daly, Fernald, and Nechio

Crises Before and After the Creation of the Fed

Economic Letter 2013-13 | May 6, 2013 | With Elias

Will the Jobless Rate Drop Take a Break?

Economic Letter 2012-37 | December 17, 2012 | With Daly, Elias, and Hobijn

Credit: A Starring Role in the Downturn

Economic Letter 2012-12 | April 16, 2012

Future Recession Risks: An Update

Economic Letter 2011-35 | November 14, 2011 | With Berge and Elias

Variable Capital Rules in a Risky World

Economic Letter 2011-27 | August 29, 2011

Future Recession Risks

Economic Letter 2010-24 | August 9, 2010 | With Berge

Diagnosing Recessions

Economic Letter 2010-05 | February 16, 2010

Do Monetary Aggregates Help Forecast Inflation?

Economic Letter 2007-10 | April 13, 2007 | With Hale

Can Monetary Policy Influence Long-term Interest Rates?

Economic Letter 2005-09 | May 20, 2005

Other Works
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Discussion of ‘Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates’ by Drehmann, Borio, and Tsatsaronis

Forthcoming in International Journal of Central Banking

Carry Trade

Forthcoming in Encyclopedia of Financial Globalization. Elsevier

Currency Carry Trades

Forthcoming in International Seminar of Macroeconomics 2010. NBER | With Taylor

Book Review: ‘New Introduction to Multiple Time Series Analysis’ by Helmut Lutkepohl

Econometric Reviews 29(2), 2010, 243-246

Open Market Operations

In International Encyclopedia of the Social Sciences, 2nd edition | MacMillan Reference/Thomson-Gale, 2007

North Coast River Loading Study: Road Crossing on Small Streams

In Report prepared for the Division of Environmental Analysis | California Department of Transportation, 2002 | With et al.

The Announcement Effect: Evidence from Open Market Desk Data

Economic Policy Review, FRB New York 8(1), May 2002, 29-48 | With Demiralp

Measuring Systematic Monetary Policy

FRB St. Louis Review 83(4), July 2001, 113-137 | With Hoover

Economic Time

Boletín Inflación y Analisis Económico: Predicción y Diagnóstico 68, June 2000

Improved Testing and Specification of Smooth Transition Regression Models

In Dynamic Modeling and Econometrics in Economics and Finance, Vol 1, Nonlinear Time Series Analysis of Economic and Financial Data, ed. by Rothman | Kluwer Academic Press, 1998. 289-319 | With Escribano

La Política Monetaria en los Estados Unidos: El Objetivo de los Tipos de Fondos Federales

Situación, March 1998, 89-92