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Advisor(s)
Abstract(s)
In this paper we introduce a flexible framework to estimate the expected time (ET) an outcome variable takes to cross a threshold conditional on covariates. The proposed method ology makes use of the Markovian property and allows us to infer the impacts that co variates have on the ET an outcome variable takes to revert to a value of interest (for instance, its mean) given a specific starting point. An empirical analysis of the response of U.S. unemployment persistence to monetary policy and government spending shocks is provided, contributing to a still limited literature which simultaneously allows for both types of shocks. Our results suggest that unexpected monetary and fiscal expansions seem to have a relevant role in accelerating the pace of unemployment decline towards its natural rate; and that contractionary monetary and fiscal shocks in a context of labor market slack may result in high ETs.
Description
Keywords
Expected Time Markov Chains Nonlinearity Unemployment Gap Natural Rate of Unemployment Fiscal Shocks Monetary Shocks
Pedagogical Context
Citation
Zsurkis, Gabriel, João Nicolau and Paulo M.M Rodrigues.(2021). "The expected time to cross a threshold and its determinants: a simple and flexible framework." Journal of Economic Dynamics and Control Vol. 122: 104047.(Search PDF in 2023)
Publisher
Elsevier B.V.