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Moreover, financial recessions that are preceded by strong increases in income inequality or low productivity growth are also associated with deeper and slower recoveries.
Overall, the results indicate that both the productive capacity of an economy and the distribution of income matter for financial stability.
We also provide a simulation study showing that a one-step approach can extract the information in large panels of bond prices and avoid any arbitrary noise introduced from a first-stage interpolation of yields.
We introduce a novel approach to studying heterogeneity in job finding rates by classifying the non-employed, the unemployed and those out of the labor force (OLF), according to their labor force status (LFS) histories using four-month panels in the CPS.
Respondents’ LFS histories outperform current-month responses to survey questions about duration and reason for unemployment, desire to work, or reasons for not searching in predicting future employment.
We find that the best predictor of future employment for the non-employed is their duration since last employment.
I find that changes in top income shares and productivity growth are strong early warning indicators as well.
In fact, changes in top income shares outperform credit as crises predictors.
Sustained periods when the real interest rate remains below the central bank's estimate of r-star can induce the agent to place a substantially higher weight on the deflation equilibrium, causing it to occasionally become self-fulfilling. In model simulations, raising the central bank's inflation target to 4% from 2% can reduce, but not eliminate, the endogenous switches to the deflation equilibrium. All of these developments may have contributed to an unusual buildup of financial instability.
In contrast, we consider the advantages of a one-step approach that directly analyzes the universe of bond prices.
To illustrate the feasibility and desirability of the onestep approach, we compare arbitrage-free dynamic term structure models estimated using both approaches.
Which particular assets have the highest long-run returns?
We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing.