arXiv 30 Mar 2021 · Econometrics · 2 citations (OpenAlex)
arXiv:2103.16452 · PDF · DOI · OpenAlex · Extracted main text
I show that Holston, Laubach and Williams' (2017) implementation of Median Unbiased Estimation (MUE) cannot recover the signal-to-noise ratio of interest from their Stage 2 model. Moreover, their implementation of the structural break regressions which are used as an auxiliary model in MUE deviates from Stock and Watson's (1998) formulation. This leads to spuriously large estimates of the signal-to-noise parameter $\lambda _{z}$ and thereby an excessive downward trend in other factor $z_{t}$ and the natural rate. I provide a correction to the Stage 2 model specification and the implementation of the structural break regressions in MUE. This correction is quantitatively important. It results in substantially smaller point estimates of $\lambda _{z}$ which affects the severity of the downward trend in other factor $z_{t}$. For the US, the estimate of $\lambda _{z}$ shrinks from $0.040$ to $0.013$ and is statistically highly insignificant. For the Euro Area, the UK and Canada, the MUE point estimates of $\lambda _{z}$ are exactly zero. Natural rate estimates from HLW's model using the correct Stage 2 MUE implementation are up to 100 basis points larger than originally computed.
appendix boundary found by none_found · 100% of the source is main text. Read the extracted text to check this.
The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Stock, James H. and Mark W. Watson (1998) Median Unbiased Estimation of Coefficient Variance in a Time-Varying Parameter Model | 1.000 | 12 | 4 | 100% |
| 2 | Holston, Kathryn, Thomas Laubach and John C. Williams (2017) Measuring the Natural Rate of Interest: International Trends and Determinants | 1.000 | 6 | 4 | 100% |
| 3 | Laubach, Thomas and John C. Williams (2003) Measuring the Natural Rate of Interest | 0.644 | 2 | 2 | 100% |
| 4 | Berger, Tino and Bernd Kempa (2019) Testing for time variation in the natural rate of interest | 0.511 | 2 | 1 | 100% |
| 5 | Andrews, Donald W. K. and Werner Ploberger (1994) Optimal Tests when a Nuisance Parameter is Present only under the Alternative | 0.405 | 1 | 1 | 100% |
| 6 | Benes., J., K. Clinton, R. Garcia-Saltos, M. Johnson, D. Laxton, P.… (2010) Available from: https://www.imf.org/external/pubs/ft/wp/2010/wp10285.pdf | 0.405 | 1 | 1 | 100% |
| 7 | Buncic, Daniel and Martin Melecky (2008) An Estimated New Keynesian Policy Model for Australia self | 0.405 | 1 | 1 | 100% |
| 8 | Buncic, Daniel (2021): Econometric Issues with Laubach and Williams… Available from: https://www.riksbank.se/globalassets/media/rapporter/working-papers/2019/no.-397-econometric-issues-with-laubach… self | 0.405 | 1 | 1 | 100% |
| 9 | Chow, Gregory C (1960) Tests of Equality between Sets of Coefficients in two Linear Regressions | 0.405 | 1 | 1 | 100% |
| 10 | Clark, Peter K (1987) The Cyclical Component of U.S | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 15 scored citations.