This paper documents large revisions in a widely used series of utilization-adjusted total factor productivity (TFP) by Fernald (2014) and shows that these revisions can materially affect empirical results about the effects of news shocks. We trace these revisions to changes in estimated factor utilization that are evocative of cyclical measurement issues with productivity. We propose an alternative identification that is robust to these measurement issues. Applied to U.S. data, the shock predicts delayed productivity growth while simultaneously generating strong responses of novel indicators of technological innovation and forward-looking variables. The shock does not lead to comovement in macroeconomic aggregates.

Innovations to consumer confidence convey incremental information about economic activity far into the future. Does this reflect a causal effect of animal spirits on economic activity, or news about exogenous future productivity received by consumers? Using indirect inference, we study the impulse responses to confidence innovations in conjunction with an appropriately augmented New Keynesian model. While news, animal spirits, and pure noise all contribute to confidence innovations, the relationship between confidence and subsequent activity is almost entirely reflective of the news component. Confidence innovations are well characterized as noisy measures of changes in expected productivity growth over a relatively long horizon. (JEL D12, D83, D84, E12)

The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. We find that there is no significant difference in the response of expected inflation to a productivity shock at the ZLB compared to normal times.

AbstractThis paper develops a novel dataset of weekly economic conditions indices for the 50 U.S. states going back to 1987 based on mixed-frequency dynamic factor models with weekly, monthly, and quarterly variables that cover multiple dimensions of state economies. We find considerable cross-state heterogeneity in the length, depth, and timing of business cycles. We illustrate the usefulness of these state-level indices for quantifying the main contributors to the economic collapse caused by the COVID-19 pandemic and for evaluating the effectiveness of the Paycheck Protection Program. We also propose an aggregate indicator that gauges the overall weakness of the U.S. economy.

This paper develops a New Keynesian model featuring financial intermediation, short- and long-term bonds, credit shocks, and scope for unconventional monetary policy. The log-linearized model reduces to four equations: Phillips and IS curves, as well as policy rules for the short-term interest rate and the central bank's long-bond portfolio (QE). Credit shocks and QE appear in both the IS and Phillips curves. In equilibrium, optimal monetary policy entails adjusting the short-term interest rate to offset natural rate shocks but using QE to offset credit market disruptions. Use of QE significantly mitigates the costs of a binding zero lower bound.