Professor and Department Head
Department of Economics
Rensselaer Polytechnic Institute
SA 3rd Fl.
110 8th Street
Troy, NY 12180
TOPICS IN MACROECONOMICS:
Predicting recessions with the
term structure of interest rates: I. Empirical
In 1988-89, developed with Gikas Hardouvelis a probit model
of the probability of a future recession. The model has correctly
forecasted the last three
recessions in real time with a lead time of about one year and no
false positives. See
working paper, 2006 New
York Fed article, and yield curve FAQs
with extensive bibliography.
recessions with the
term structure of interest rates: II. Theoretical
work of Svensson
and others, developed theoretical macroeconomic model that
ability of term interest rate spreads to predict future real activity
inflation. See article
Jeff Fuhrer, showed that forward-looking macroeconomic models popular
recent literature (i) are mathematically incapable of capturing robust
macroeconomic data (AER
2002) and (ii) fare worse than backward-looking models
in empirical tests of the Lucas critique (REStat
2003). Hybrid models are found to be more
suitable for empirical monetary policy analysis.
TOPICS IN ECONOMETRICS:
Pseudo R-squared for probit
and other DDV models
a simple differential equation,
derived a pseudo
R-squared for dichotomous dependent variable models that outperforms
alternatives, including the classic McFadden measure. Published in JBES
the measure has become part of the standard output in RATS, TSP, SAS,
In empirical work with Jeff Fuhrer (see macroeconomic modeling above),
and implemented a method for calculating exact p
values in breapoint tests based on GMM estimates. The
mathematical basis for the method and computational optimization are
2003, which also provides critical values for
Tony Rodrigues, developed a directional
breakpoint test for a single parameter.
Time series filtering and
the business cycle
the analytical effects of using various popular time series filters to
extract business cycle fluctuations from macroeconomic data. Results
are not always
what one might expect and guidelines for selecting specific filters are
provided. In an empirical application, used frequency domain filters to
relationship between labor
productivity growth and the business cycle.
combinations of explanatory variables with statistically optimal
weights are the
linear regression and many of its extensions. But, what happens when
dependent variable is also a linear combination of several variables
shows how it can be done.
TOPICS IN BANK CAPITAL AND REGULATION:
is the best general
approach to bank capital regulation?
series of articles discusses basic principles for bank capital
regulation using an
approach that extends beyond the boundaries of finance to
philosophy, legal theory, and institutional economics. See Prolegomenon,
requirements better than simple formulas?
necessarily so, as this
and Stavros Peristiani shows. Moreover, a regulatory
minimum requirement based on value-at-risk, if binding, is likely to be
Can investors rely on banks
to provide voluntary information about risk?
forces help by inducing banks to reveal valuable information to
investors, but this
article shows that it also helps
to have independent bank examiners with access to
bank information and the best interests of the public in mind.