This Tuesday 12-1pm Andrew Foerster Economist at the Kansas City Fed will speak on “Optimal Monetary Policy Regime Switches.”  Dr. Foerster gained some notoriety for his 2014 Macro Bulletin on the The Asymmetric Effects of Uncertainty on Employment.    This analysis of how market volatility affects employment growth underlies what the Wall Street Journal Real Time Economics call the Fear Gauge (Figure 1 below).   As reported in a 2014 Kansas City Fed’s Macro Bulletin Foerster’s finds an asymmetric response of firms to uncertainty as measured by the VIX (Figure 2).  When uncertainty increases firms slow hiring, but after the VIX returns to normal levels firms are slow to return to previous hiring rates. This means a spike in the VIX can have significant and long lasting negative impact on employment.  His results suggest that the spike in the CBOE “fear” index triggered by the 2010 Euro crisis  led to a cumulative lost 400,000 jobs while the 2011-12 U.S. debt ceiling crisis cost even more jobs.  Without these jumps in CBOE volatility index the U.S. economy would have added almost about 16,000 more per month from 2010 to 2013 or a total of 600,000 jobs, suggesting this uncertainty slowed the slowed the U.S. recover from the 2008 Global Financial Crisis.

Department Seminar Note new Time: Tuesday, Feb 9, 12 – 1 pm

 Optimal Monetary Policy Regime Switches

Place: Economics Conference Room, Dealy Hall E-530