Federal Reserve Bank of Boston

ABSTRACT Under current standards for evaluating scientific evidence, economic models of antitrust are frequently excluded from legal consideration, but not always for reasons that make them genuinely unreliable. This paper clarifies why antitrust models face difficulties when subjected to methodological scrutiny: the employment of model-based counterfactual arguments under an epistemically defective ‘but-for’ structure of causation. A more flexible causal framework, the weak-necessity structure of causation, is suggested as a means of developing and evaluating model-based counterfactuals. The framework is demonstrated in application to causal mechanisms derived from economic theories as well as those implicit to many regression models.

This paper shows that global inflation dynamics have a sizable regional component.Using a balanced panel of 61 countries that starts in 1970, we document that while the global factor, defined as the dominant principal component, explains a large portion of inflation variation in advanced economies, a model with only one principal component is less successful for developing countries.By contrast, a hierarchical dynamic factor model, which includes a global (unconstrained) factor and regional (restricted) factors, performs substantially better for emerging market and developing economies.The regional factors are linked to commodity prices and help improve the accuracy of inflation forecasts at the country level.Employing an unsupervised machine-learning technique, we show that the estimated clusters of countries, grouped according to similarities in inflation dynamics, exhibit a strong regional pattern.Our findings suggest that policymakers in developing countries should pay close attention to inflation dynamics in their neighboring countries.

We provide a parsimonious setup for forecasting U.S. GDP growth and the unemployment rate based on a few fundamental drivers.This setup yields forecasts that are reasonably accurate compared with private-sector and Federal Reserve forecasts over the 1984-2019 and post-COVID-19 pandemic periods.This result is achieved by jointly estimating the processes for GDP growth and the unemployment rate, with the constraint that GDP and unemployment follow Okun's law in first differences.This setup can be easily extended to replace the variables in the information set with factors that might better capture the underlying fundamentals.

Abstract We study the mortgage rate channel of monetary policy transmission under two different mortgage regimes by analyzing the United States with primarily long-term fixed-rate mortgages (FRMs) and Spain with mainly annually resetting adjustable-rate mortgages (ARMs). We find a robust transmission of mortgage rate changes to spending in both regimes, with marginal propensities to consume ranging between 0.58–0.67 in Spain and 0.27–0.52 in the United States. Under ARMs, transmission is stronger when rate changes are expected to persist, whereas under FRMs, the effect is larger when rate changes are expected to revert. We further document the important role of mortgage type in shaping the variation in transmission across mortgagors—while the mortgage rate effect is fairly homogeneous across diverse household characteristics under ARMs, it is more heterogeneous under FRMs and largest among potential refinancers.