Statement of Research Interests
Hedieh Shadmani
My current research interests lie in the area of macroeconomics, with an emphasis on fiscal
and monetary policy. I am particularly interested in modeling the behavior of both fiscal
and monetary policy by allowing for asymmetry in preferences of the policy authorities.
Whether the responses of fiscal or monetary policy to the business cycle conditions are
symmetric or asymmetric is still an unresolved question. The idea behind asymmetric
behavior is that policy makers take stronger action during times of distress than during
ordinary times. My papers investigate this question empirically using data for the United
States and show that policy makers do behave asymmetrically. Some more specific details
about the various projects are provided in the paragraphs below.
1. Did asymmetric monetary preferences for output gap disappear during recent
economic times?
This paper is published in Applied Economics Letters (2014, Vol.21, No.2, 113-117). This
paper investigates whether the asymmetric monetary policy preferences for the output gap
as shown in Surico (2007) disappeared during the post-Volcker period spanning 1982:042003:02. The results show Surico’s conclusion to be fragile as moving the starting period
for the estimation a few quarters forward shows strong asymmetric policy behavior.
Furthermore, this conclusion is not sensitive to the end period of the sample.
2. Fiscal policy asymmetries and the sustainability of U.S. government debt revisited
This paper is my job market paper and has been submitted to Economic Inquiry. It
empirically investigates U.S. fiscal policy sustainability and cyclicality in an empirical
structure that allows for asymmetric responses of fiscal policy. Interest in the sustainability
of the U.S. fiscal policy became a concern to both policy makers and economists during the
1980s when the United States started to incur large government budget deficits. There is a
broad literature which examines the sustainability of debt using statistical unit root and
cointegration tests. However, Bohn (1998) introduced an alternative method which had a
policy reaction interpretation. The rapidly growing US government debt since the start of
the Great Recession in late 2007 has thrust the sustainability question back into the public
debate. This paper examines the sustainability of government debt by building on the
empirical model introduced by Bohn (1998) to include different regime switching models
that can capture the asymmetry of the fiscal policy. Two quarterly intervals of data are
used: a short sample that ends in the second quarter of 1995 and a full sample that includes
the financial crisis and the Great Recession. The most important finding of this paper is that
recent economic data are sufficiently different from earlier data that simple linear models
are not appropriate for modeling fiscal policy. The paper shows strong evidence of
asymmetric behavior only over the full sample. Furthermore, the empirical finding shows
that over the short sample fiscal policy is sustainable which confirms the results in Bohn
(1998). However, the fiscal policy sustainability question becomes less clear when using
the full sample data that include the recent financial crisis and the Great Recession.
3. Asymmetries in government spending and tax revenues for the United States
This work is in progress. It extends the fiscal policy analysis of my job market paper. In
order to analyze the source of cyclical asymmetry as found in my job market paper, this
paper separates the primary balance into government spending and tax revenues and
investigates the asymmetry properties of the U.S. budget components using Threshold
Autoregressive Models and Markov Switching models. Preliminary results have found that
both spending and revenues are counter cyclical and behave asymmetrically during bad
economic times
4. Future research interests
I foresee my future research continuing on related topics using state of the art econometric
models to investigate asymmetric monetary and fiscal policy behavior. One area I am
interested in is investigating information-related issues associated with policy analysis. In
particular, is the presence of real-time data incorporated into fiscal or monetary policy
behavior, or do policy makers wait until revised data come along? There has been some
work in this area in connection with monetary policy, but it is largely ignored in the
literature on fiscal policy. I would like to explore whether using the information actually
available to policy authorities in real-time can affect the asymmetric behavior of fiscal
policy.