Macroeconomics Research

The Determinants of Inflation

The findings from this Hidden Markov Model analysis provide policymakers with valuable insights into the nature and behavior of inflation regimes. This information can inform the design and implementation of monetary, fiscal, and regulatory policies to effectively manage inflation, stabilize the economy, and promote sustainable economic growth.

Political Beta

This example of research on political beta is an example of applying portfolio theory to problems associated with global politics.

Measuring Geopolitical Risk

Although geopolitical risk has traditionally been approached from a qualitative aspect, what makes it a novel risk is the application of innovative techniques to measure it.

The Role of the Secular Decline in Interest Rates in Asset Pricing Anomalies

Jules van Binsbergen, Liang Ma and Michael Schwert, authors of the September 2022 study “The Factor Multiverse: The Role of Interest Rates in Factor Discovery,” posed an interesting question: Are the findings of at least some of the reported anomalies the direct result of the 40-year secular decline in global interest rates and thus not really anomalies?

Do Stocks Efficiently Predict Recessions?

I find that returns are predictably negative for several months after the onset of recessions, becoming high only thereafter. I identify business cycle turning points by estimating a state-space model using macroeconomic data. Conditioning on the business cycle further reveals that returns exhibit momentum in recessions, whereas in expansions they display the mild reversals expected from discount rate changes. A strategy exploiting this pattern produces positive alphas. Using analyst forecast data, I show that my findings are consistent with investors' slow reaction to recessions. When expected returns are negative, analysts are too optimistic and their downward expectation revisions are exceptionally high.

Does Emerging Markets Investing Make Sense?

The analysis above suggests that portfolios that include or exclude emerging allocations are roughly the same. For some readers, this may be a surprise, but for many readers, this may not be "news." That said, even if the data don't strictly justify an Emerging allocation, the first principle of "stay diversified" might be enough to make an allocation.

Of course, the assumptions always matter.

Did Covid-19 Change how We Shop?

We study e-commerce across 47 economies and 26 industries during the COVID-19 pandemic using aggregated and anonymized transaction-level data from Mastercard, scaled to represent total consumer spending. The share of online transactions in total consumption increased more in economies with higher pre-pandemic e-commerce shares, exacerbating the digital divide across economies. Overall, the latest data suggest that these spikes in online spending shares are dissipating at the aggregate level, though there is variation across industries. In particular, the share of online spending in professional services and recreation has fallen below its pre-pandemic trend, but we observe a longer-lasting shift to digital in retail and restaurants.

Gaining an Edge via Textual Analysis of FOMC Meetings

How investors understand and use central bank communications, aka FEDSPEAK, is oftentimes cryptic and difficult to analyze.  This study attempts to provide some clarity to this issue by applying textual analysis to both high-frequency price and communication data, to focus on episodes whereby stock price movements are identifiable and on investors’ reactions to specific sentences communicated by the Fed.

The Fed Put is Alive and Well

The question of whether or not the FED considers or responds to the stock market in its policy decisions has been studied fairly extensively, the subject of the existence of the "FED put" continues to pop up in the literature.   In this particular revival of the issue, the authors are among the first to study FOMC minutes, transcripts, and other sources of information using textual analysis in order to provide an answer to the question: Does the FED respond to stock market events and if it does, what is the nature of the response?

Go to Top