The Fed's switch to an explicit inflation target: Communication and policy consequences

We aim to shed light on the important issue of central bank communication in general, and the monetary policy strategy of the Fed in particular. In particular, we apply probabilistic topic models to the Fed's communication with the public to identify the policy priorities expressed in this communication. Specifically, we seek to analyze whether the Fed's adoption of an explicit inflation target in 2012 can be detected in corresponding shifts in the focus of its communication and in adjustments of its monetary policy stance.

Real exchange rate dynamics in the European monetary union

Flexibility of nominal exchange rates can foster adjustment in real exchange rates, but also can be a source of destabilizing shocks. We apply Bayesian methods to investigate how the loss of the nominal exchange rate within the European monetary union affected the temporal dynamics of real exchange rate adjustment in its member countries.

The natural interest rate in semi-structural unobserved components models

Our project moves along two different avenues of advancing the frontier of scientific knowledge in estimating the natural rate of interest (NRI). We are going to demonstrate that utilizing cross-sectional data within a structural multiple-indicator unobserved components model leads to a substantial reduction in estimation uncertainty and a dramatic improvement in the precision of estimating the NRI. The second avenue of investigation is concerned with the selection and appropriate econometric modeling of the factors determining the NRI. We develop a Bayesian model selection procedure to determine empirically the time series properties of the NRI. We also propose to combine a Beveridge-Nelson trend-cycle decomposition with a SVAR approach to identify the NRI and its underlying structural determinants.