Working Paper
Plagborg-Møller, Mikkel. Working Paper. “Bayesian Inference on Structural Impulse Response Functions”.Abstract

I propose to estimate structural impulse responses from macroeconomic time series by doing Bayesian inference on the Structural Vector Moving Average representation of the data. This approach has two advantages over Structural Vector Autoregressions. First, it imposes prior information directly on the impulse responses in a flexible and transparent manner. Second, it can handle noninvertible impulse response functions, which are often encountered in applications. Rapid simulation of the posterior distribution of the impulse responses is possible using an algorithm that exploits the Whittle likelihood. The impulse responses are partially identified, and I derive the frequentist asymptotics of the Bayesian procedure to show which features of the prior information are updated by the data. The procedure is used to estimate the effects of technological news shocks on the U.S. business cycle.

Working paper (July 14, 2017) Online appendix (July 14, 2017) Replication files and data (July 7, 2017)

Job market paper

Boz, Emine, Gita Gopinath, and Mikkel Plagborg-Møller. Working Paper. “Global Trade and the Dollar”.Abstract

We document that it is not bilateral exchange rates but the dollar exchange rate that drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) The cross-sectional heterogeneity in pass-through/elasticity across country pairs is related to the share of imports invoiced in dollars. Our results derive from fixed effects panel regressions as well as a Bayesian semiparametric hierarchical panel data model. Unlike standard panel regressions, the Bayesian approach allows us to quantify the cross-sectional heterogeneity of exchange rate pass-through/elasticities and the relation of this heterogeneity to dollar invoicing. Our findings strongly support the dominant currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms.

Working paper (March 16, 2017)
Montiel Olea, José Luis, and Mikkel Plagborg-Møller. Working Paper. “Simultaneous Confidence Bands: Theoretical Comparisons and Suggestions for Practice”.Abstract

Simultaneous confidence bands are used in applied work to visualize estimation uncertainty for vector-valued parameters. Although many confidence bands have been proposed - e.g., Bonferroni, projection, and sup-t bands - theoretical comparisons and practical recommendations are lacking outside the linear regression model. In a general nonlinear setting, we show that commonly reported confidence bands have the same form, asymptotically: a consistent point estimator for the parameter of interest plus/minus c times the vector of coordinate-wise standard errors. The sup-t band is known to be the narrowest band inside this one-parameter family that achieves simultaneous coverage. We show that, additionally, the sup-t band uniquely minimizes "worst case" regret among all translation equivariant bands, where the worst case is taken over possible loss functions in coordinate-wise lengths. Hence, the sup-t band is a good default choice when the researcher does not know the audience’s preferences. We propose a simple Bayesian implementation of the sup-t band, which has exact finite-sample simultaneous credibility and is often asymptotically equivalent with standard plug-in or bootstrap implementations. We apply the sup-t band to two settings where it has been overlooked: impulse response function estimation and sensitivity analysis in linear regression. In our applications, the sup-t band is at least 15-35% narrower than other simultaneous bands.

Working paper (April 18, 2017)
Plagborg-Møller, Mikkel. 2016. “Essays in Macroeconometrics.” Department of Economics, Harvard University.Abstract

This dissertation consists of three independent chapters on econometric methods for macroeconomic analysis. In the first chapter, I propose to estimate structural impulse response functions from macroeconomic time series by doing Bayesian inference on the Structural Vector Moving Average representation of the data. This approach has two advantages over Structural Vector Autoregression analysis: It imposes prior information directly on the impulse responses in a flexible and transparent manner, and it can handle noninvertible impulse response functions. The second chapter, which is coauthored with B. J. Bates, J. H. Stock, and M. W. Watson, considers the estimation of dynamic factor models when there is temporal instability in the factor loadings. We show that the principal components estimator is robust to empirically large amounts of instability. The robustness carries over to regressions based on estimated factors, but not to estimation of the number of factors. In the third chapter, I develop shrinkage methods for smoothing an estimated impulse response function. I propose a data-dependent criterion for selecting the degree of smoothing to optimally trade off bias and variance, and I devise novel shrinkage confidence sets with valid frequentist coverage.

PhD Dissertation (May 12, 2016)
Journal Article
Mavroeidis, Sophocles, Mikkel Plagborg-Møller, and James H. Stock. 2014. “Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve.” Journal of Economic Literature 52 (1): 124-188. Publisher's VersionAbstract

We review the main identification strategies and empirical evidence on the role of expectations in the New Keynesian Phillips curve, paying particular attention to the issue of weak identification. Our goal is to provide a clear understanding of the role of expectations that integrates across the different papers and specifications in the literature. We discuss the properties of the various limited-information econometric methods used in the literature and provide explanations of why they produce conflicting results. Using a common dataset and a flexible empirical approach, we find that researchers are faced with substantial specification uncertainty, as different combinations of various a priori reasonable specification choices give rise to a vast set of point estimates. Moreover, given a specification, estimation is subject to considerable sampling uncertainty due to weak identification. We highlight the assumptions that seem to matter most for identification and the configuration of point estimates. We conclude that the literature has reached a limit on how much can be learned about the New Keynesian Phillips curve from aggregate macroeconomic time series. New identification approaches and new datasets are needed to reach an empirical consensus.

Working paper (November 28, 2013)

Online supplement (external link)

Bates, Brandon J., Mikkel Plagborg-Møller, James H. Stock, and Mark W. Watson. 2013. “Consistent factor estimation in dynamic factor models with structural instability.” Journal of Econometrics 177 (2): 289-304. Publisher's VersionAbstract

This paper considers the estimation of approximate dynamic factor models when there is temporal instability in the factor loadings. We characterize the type and magnitude of instabilities under which the principal components estimator of the factors is consistent and find that these instabilities can be larger than earlier theoretical calculations suggest. We also discuss implications of our results for the robustness of regressions based on the estimated factors and of estimates of the number of factors in the presence of parameter instability. Simulations calibrated to an empirical application indicate that instability in the factor loadings has a limited impact on estimation of the factor space and diffusion index forecasting, whereas estimation of the number of factors is more substantially affected.

Working paper (December 28, 2012) Replication files (December 3, 2012)
Peysakhovich, Alexander, and Mikkel Plagborg-Møller. 2012. “A note on proper scoring rules and risk aversion.” Economics Letters 117 (1): 357-361. Publisher's VersionAbstract

When risk averse forecasters are presented with risk neutral proper scoring rules, they report probabilities whose ratios are shaded towards 1. If elicited probabilities are used as inputs to decision-making, naive elicitors may violate first-order stochastic dominance.

Longer working paper (March 9, 2012)
Pedersen, Erik Haller, and Mikkel Plagborg-Møller. 2010. “New Calculation of Danmarks Nationalbank’s Effective Krone-Rate Index.” Danmarks Nationalbank Monetary Review 2nd Quarter: 139-144. Publisher's VersionAbstract

Danmarks Nationalbank regularly publishes an index of the development in the strength of the krone, the effective krone-rate index, and an index of the competitiveness of the Danish manufacturing sector, the real effective krone-rate index. Changing trade patterns make it necessary to revise the weights of the currencies in the index from time to time. The 2009 weights are presented below. The most recent revision of the weights is documented in Pedersen (2004).

This article has not been peer reviewed. Danish version