Oscar Jorda

• University of California, Davis

A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls, and the intervention. Many of these interactions can be untangled using local proje...

Inference for impulse responses estimated with local projections presents interesting challenges and opportunities. Analysts typically want to assess the precision of individual estimates, explore the dynamic evolution of the response over particular regions, and generally determine whether the impulse generates a response that is any different fro...

We document that the real effects of monetary shocks last for over a decade. Our approach relies on (1) identification of exogenous and non-systematic monetary shocks using the trilemma of international finance; (2) merged data from two new international historical cross-country databases; and (3) econometric methods robust to long-horizon inconsis...

Inference for impulse responses estimated with local projections presents interesting challenges and opportunities. Analysts typically want to assess the precision of individual estimates, explore the dynamic evolution of the response over particular regions, and generally determine whether the impulse generates a response that is any different fro...

A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls and the intervention. Many of these interactions can be untangled using local projec...

Rare disaster models assume that growth is afflicted by a negative-mean and left-skewed component, which, if eliminated, could produce first-order welfare gains, unlike other models of business cycle costs. This paper introduces a new test to show that many if not most business cycles are asymmetric in this way, and resemble “mini-disasters” in add...

The dynamic causal effect of an intervention on an outcome is of paramount interest to applied macro- and microeconomics research. However, this question has been generally approached differently by the two literatures. In making the transition from traditional time series methods to applied microeconometrics, local projections can serve as a natur...

The dynamic causal effect of an intervention on an outcome is of paramount interest to applied macro- and micro-economics research. However, this question has been generally approached differently by the two literatures. In making the transition from traditional time series methods to applied microeconometrics, local projections can serve as a natu...

An impulse response function describes the dynamic evolution of an outcome variable following a stimulus or treatment. A common hypothesis of interest is whether the treatment affects the outcome. We show that this hypothesis is best assessed using significance bands rather than relying on commonly displayed confidence bands. Under the null hypothe...

An impulse response function describes the dynamic evolution of an outcome variable following a stimulus or treatment. A common hypothesis of interest is whether the treatment affects the outcome. We show that this hypothesis is best assessed using significance bands rather than relying on commonly displayed confidence bands. Under the null hypothe...

Financial markets play an important role in generating monetary policy transmission asymmetries in the US. Credit spreads only adjust to unexpected increases in interest rates, causing output and prices to respond more to a monetary tightening than to an expansion. At a one year horizon, the ‘financial multiplier’ of monetary policy—defined as the...

Following the worst of the COVID-19 pandemic, inflation surged to levels last seen in the 1980s. Motivated by vast differences in pandemic support across countries, we investigate the subsequent response of inflation and its feedback to wages. We exploit the differences in pandemic support to identify the effect that these programs had on inflation...

Many of the challenges in the estimation of dynamic heterogeneous treatment effects can be resolved with local projection (LP) estimators of the sort used in applied macroeconometrics. This approach provides a convenient alternative to the more complicated solutions proposed in the recent literature on Difference in-Differences (DiD). The key is to...

An impulse response is the dynamic average effect of an intervention across horizons. We use the well-known Kitagawa-Blinder-Oaxaca decomposition to explore a response’s heterogeneity over time and over states of the economy. This can be implemented with a simple extension to the usual local projection specification that nevertheless keeps the mode...

Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill this gap by analyzing long run historical data. We find t...

Following the worst of the COVID-19 pandemic, inflation has surged to 1980s levels in advanced economies. Motivated by vast differences in pandemic support across countries, we investigate the subsequent response of inflation and the feedback to wages. We exploit these differences to identify the effect these programs had on inflation and to examin...

Debt overhang is associated with higher financial fragility and slower recovery from recession. However, while household credit booms have been extensively documented to have this property, we find that corporate debt does not fit the same pattern. Newly collected data on nonfinancial business liabilities for 18 advanced economies over the past 150...

What are the medium- to long-term effects of pandemics? Do they differ from other economic disasters? We study major pandemics using rates of return on assets stretching back to the 14th century. Significant macroeconomic after-effects of pandemics persist for decades, with rates of return substantially depressed. The responses are in stark contras...

With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near universe modern business cycles. We show that business credit booms typically do not leave a l...

What is the relationship between bank capital, the risk of a financial crisis, and its severity? This paper introduces the first comprehensive analysis of the long-run evolution of the capital structure of modern banking using newly constructed data for banks’ balance sheets in 17 countries since 1870. In addition to establishing stylized facts on...

What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive data set for all major asset classes...

This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. While comovement of credit and house prices increased in line with growing real sector integration, comovement of equity pr...

The trilemma of international finance explains why interest rates in countries that fix their exchange rates and allow unfettered cross-border capital flows are outside the monetary authority's control. Based on this exogenous source of variation, we show that monetary interventions have large and significant effects using historical panel data sin...

Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies between 1870 and 2013 and for the post-WW2 period, and holds both within and between countries. We reach this startling conclusion using newly collected data on the liability side of banks’ balance sheets in 1...

The trilemma of international finance explains why interest rates in countries that fix their exchange rates and allow unfettered cross-border capital flows are largely outside the monetary authority’s control. Using historical panel-data since 1870 and using the trilemma mechanism to construct an external instrument for exogenous monetary policy f...

In advanced economies, a century-long, near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage in the last forty years. This “financial hockey stick” coincides withshifts in foundational macroeconomiCrelationships beyond the widely noted return of macroeconomiCfragility and crisis risk. Leverage is correlated with...

This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks’ balance sheets doubled in the course of the twentieth century, driven by a sharp rise of mortgage lending to households. Household debt to a...

After the Global Financial Crisis a controversial rush to fiscal austerity followed in many countries. Yet research on the effects of austerity on macroeconomic aggregates was and still is unsettled, mired by the difficulty of identifying multipliers from observational data. This paper reconciles seemingly disparate estimates of multipliers within...

What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. Wh...

Two separate narratives have emerged in the wake of the Global Financial Crisis. One interpretation speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet and worries about the risks of lax fiscal policy. However, the two may interact...

Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy tr...

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...

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 classif...

This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks’ balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset...

Using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle: relative to typical recessions, financial crisis recessions are costlier, and more credit‐intensive expansions tend to be followed by deeper recessions (in financial crises or otherwise) and slower recoveries. We use local projection me...

This paper investigates the problem of constructing prediction regions for forecast trajectories 1 to H periods into the future - a path forecast. We take the more general view that the null model is only approximative and in some cases it may be altogether unavailable. As a consequence, one cannot derive the usual analytic expressions nor resample...

Credit is a perennial understudy in models of the economy. But it became the protagonist in the Great Recession, reviving a role it had not played since the Great Depression. In fact, the central part played by credit in the downturn and weak recovery of recent years is not unusual. A study of 14 advanced economies over the past 140 years shows tha...

This paper studies the role of leverage in the business cycle. Based on a study of nearly 200 recession episodes in 14 advanced countries between 1870 and 2008, we document a new stylized fact of the modern business cycle: more credit-intensive booms tend to be followed by deeper recessions and slower recoveries. We find a close relationship betwee...

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 pro...

The stability of the solution path in a macroeconomic model implies that it admits a Wold representation. This Wold representation can be estimated semi-parametrically 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. W...

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...

In 2010, statistical experiments based on components of the Conference Board’s Leading Economic Index showed a significant possibility of a U.S. recession over a 24-month period. Since then, the European sovereign debt crisis has aggravated international threats to the U.S. economy. Moreover, the Japanese earthquake and tsunami demonstrated that th...

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 d...

An unstable economic environment has rekindled talk of a double-dip recession. The Conference Board’s Leading Economic Index provides data for predicting the probability of a recession but is limited by the weight assigned to its indicators and the varying efficacy of those indicators over different time horizons. Statistical experiments with LEI d...

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...

This paper introduces a new empirical strategy for the characterization of business cycles. It combines non-parametric decoding methods that classify a series into expansions and recessions but does not require specification of the underlying stochastic process generating the data. It then uses network analysis to combine the signals obtained from...

A wave of recent research has studied the predictability of foreign currency returns. A wide variety of forecasting structures have been proposed, including signals such as carry, value, momentum, and the forward curve. Some of these have been explored individually, and others have been used in combination. In this paper we use new econometric tool...

The beginnings and ends of recessions are officially dated about 12 months after the fact. A common rule of thumb declares recessions as two quarters of consecutive negative GDP growth, but this is very inaccurate. A better option is to apply medical diagnostic evaluation methods to the business conditions indexes of the Chicago and Philadelphia Fe...

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 elements of the path forecast. This paper shows how to constru...

Measuring and displaying uncertainty around path-forecasts, i.e. forecasts made in period T about the expected trajectory of a random variable in periods T+1 to T+H is a key ingredient for decision making under uncertainty. The probabilistic assessment about the set of possible trajectories that the variable may follow over time is summarized by th...

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 coul...

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 a...

The Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Research provides a historical chronology of business cycle turning points. This paper investigates three central aspects about this chronology: (1) How skillful is the BCDC in classifying economic activity into expansions and recessions? (2) Which indices of business con...

Forecasts are an inherent part of economic science and the quest for perfect foresight occupies economists and researchers in multiple fields. The release of economic forecasts (and its revisions) is a popular and often publicized event, with a multitude of institutions and think-tanks devoted almost exclusively to that task. The European Central B...

Poor identification of individual impulse response coefficients does not necessarily mean that an impulse response is imprecisely estimated. This paper introduces a three-pronged approach on how to communicate uncertainty of impulse response estimates: (1) withWald tests of joint significance; (2) with conditional t-tests of individual marginal coe...

This paper provides three measures of the uncertainty associated to an impulse response path: (1) conditional confidence bands which isolate the uncertainty of individual response coefficients given the temporal path experienced up to that point; (2) response percentile bounds} which provide bounds on the universe of permissible paths at a given pr...

This Economic Letter compares the historical predictive value of monetary aggregates in forecasting inflation in the United States and in the euro area.

We introduce deep habits into a sticky-price sticky-wage economy and examine the resulting models ability to account for the impact of monetary policy shocks. The deep habits mechanism gives rise to countercyclical markup movements even when prices are flexible and interacts with nominal rigidities in interesting ways. Key parameters are estimated...