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We present the R package MSTest, which implements hypothesis testing procedures to determine the number of regimes in Markov switching models. The package provides several testing frameworks, including Monte Carlo likelihood ratio tests, moment-based tests, parameter stability tests, and classical likelihood ratio procedures.

Can monetary policy influence the neutral real interest rate (r-star)? Using a new statistical model, we show that interest rate hikes tend to lower r-star and long-run growth, but that monetary policy explains only a small share of the long-run decline in r-star.

We use a randomization of question placement in surveys to estimate the causal effect on financial literacy results. We find that financial literacy questions placed at the end of a survey lead to a drop in financial literacy of 5%–15%. This research suggests a measure of financial literacy adapted for survey length.

In markets with costly buyer entry, information transparency about prices draws in buyers, increasing demand-side competition and putting upward pressure on prices. We show that this buyer entry effect may dominate seller competition as emphasized by conventional wisdom and prices and markups may rise with information transparency.

The current monetary policy framework of the Fed intends to be more ’inclusive’ by running the economy hot for longer during expansions.

We study household mortgage choice in a model with three mortgage contracts that differ in their payment structures: fixed-rate fixed-payment, variable-rate variable-payment, and a hybrid variable-rate fixed-payment mortgage where interest rate changes affect principal repayment rather than payment size. We calibrate the model to match mortgage choice patterns in Canada, where all these options are offered with short terms. We demonstrate that restricting contract choice or mandating long terms, as in the U.S. system, can lead to substantial welfare losses by limiting risk management strategies and increasing mortgage pricing ex-ante.

An economy with fixed amortization mortgages and borrowing-constrained consumers leads to the level of inflation targeted having real effects on home ownership, consumption, and debt. Using a life-cycle housing tenure choice model, we show that by front-loading real mortgage payments, higher inflation lowers steady-state home ownership and the mortgage-debt-to-income ratio.

We quantify the effects of large-scale stock purchases by a central bank and compare these to bond purchases. We find that the central bank’s equity purchases would lower the risk and term premiums on stocks and long-term bonds, respectively, and thereby stimulate economic activity.

This paper quantifies the contribution of sector-specific supply and demand shocks to personal consumption expenditure (PCE) inflation. It derives identification restrictions that are consistent with a large class of dynamic stochastic general equilibrium models with production networks.

This paper shows that regional disparities in house price growth are more pronounced during house price busts than during booms. To explain this observation we construct a two-region currency union model incorporating a housing sector and extrapolative belief updating regarding house prices. To solve the model, we propose a new method that efficiently handles extrapolative belief updating in a wide class of structural models.