Search Results
Journal Article
Labor Market Dynamics During the 2021-24 Inflation Surge
This paper revisits the common interpretation that the surge in the vacancy-tounemployment ratio during the 2021–24 inflation episode primarily reflected an overheated labor market. Instead, I argue that the increase in vacancies relative to unemployment was largely driven by falling real wages and a rise in job-to-job transitions, as workers sought to recover lost purchasing power, rather than by broad-based labor market overheating.
Journal Article
High and Volatile Inflation Begets a More Volatile Business Cycle
Following five years of inflation above the Federal Reserve's 2 percent target, a pressing question for policymakers is: what are the macroeconomic consequences of inflation remaining persistently elevated? Drawing on historical lessons from the 1970s and a new theoretical framework, this paper shows that elevated and persistent inflation makes the economy more vulnerable to costpush shocks. When inflation is already high, a cost-push shock generates larger and more persistent inflation and a deeper output contraction than it would in an environment of low and stable inflation. The ...
Journal Article
An International Approach to the Neutral Interest Rate
Following the COVID-19 recession, the US net international investment position, which is negative, declined to nearly 90 percent of national income. This decline coincided with an increase in long-term yields and a steady drop in net investment income. Increasing net savings is necessary to meet the US long-run budget constraint, suggesting that higher interest rates are needed to boost the net savings of US households and firms.
Working Paper
Automation, Learning, and Career Dynamics
We study how an automating technology affects career dynamics, human capital, and welfare in an economy where workers acquire skill through the tasks they perform. In a continuous-time general equilibrium model, learning-by-doing is determined jointly with the share of tasks automated, the frontier of tasks managers maintain, and the worker-to-manager career transition. Economies with high learning capacity admit pairs of stationary equilibria strictly ranked by the aggregate learning rate. Cheaper technology has opposite effects across the two: in the high-learning equilibrium, it raises ...
Working Paper
The Dynamics of Large Inflation Surges
We empirically characterize episodes of large inflation surges that have been observed worldwide in the last three decades. We document four facts. (1) Inflation surges tend to be persistent, with the duration of disinflation exceeding that of the initial inflation increase. (2) Surges are initially unexpected but followed by a gradual catch-up of average short-term expectations with realized inflation. (3) Long-term inflation expectations tend to exhibit increases that persist throughout disinflation. (4) Policy responses are characterized by hikes in nominal interest rates but no tightening ...
Working Paper
Nonlinear Dynamics in Menu Cost Economies? Evidence from U.S. Data
We show that standard menu cost models cannot simultaneously reproduce the dispersion in the size of micro-price changes and the extent to which the fraction of price changes increases with inflation in the U.S. time-series. Though the Golosov and Lucas (2007) model generates fluctuations in the fraction of price changes, it predicts too little dispersion in the size of price changes and therefore little monetary nonneutrality. In contrast, versions of the model that reproduce the dispersion in the size of price changes and generate stronger monetary nonneutrality predict a nearly constant ...
Working Paper
Nonlinear Inflation Dynamics in Menu Cost Economies
Existing menu cost models, when parameterized to match the micro-price data, cannot reproduce the extent to which the fraction of price changes increases with inflation. In addition, in the presence of strategic complementarities, they predict implausibly large menu costs and misallocation. We resolve these shortcomings using a multi-product menu cost model that features two key ingredients. First, the products sold by a firm are imperfect substitutes. Second, strategic complementarities are at the firm, not product level. In contrast to existing models, the fraction of price changes ...
Working Paper
The Inflation Accelerator
We develop a tractable sticky price model in which the fraction of price changes evolves endogenously over time and, consistent with the evidence, increases with inflation. Because we assume that firms sell multiple products and choose how many, but not which, prices to adjust in any given period, our model admits exact aggregation and reduces to a one-equation extension of the Calvo model. This additional equation determines the fraction of price changes. The model features a powerful inflation accelerator—a feedback loop between inflation and the fraction of price changes—that ...
Working Paper
The Macroeconomics of Irreversibility
We study aggregate capital dynamics in an investment model with idiosyncratic productivity shocks, fixed capital adjustment costs, and irreversibility driven by a wedge between capital purchase and resale prices. We derive sufficient statistics capturing the role of investment frictions on aggregate capital fluctuations, measure these statistics with investment microdata, and exploit them to discipline the capital price wedge. Irreversibility doubles the persistence of capital fluctuations and is crucial for reconciling micro-level investment behavior with macroeconomic propagation.
Journal Article
Inflation: Drivers and Dynamics 2019 Conference Summary
To provide insights into the processes that drive inflationary dynamics, the Federal Reserve Bank of Cleveland holdsan annual conference on the topic of inflation: “Inflation: Drivers and Dynamics.” This Commentary summarizes thepapers presented at the 2019 conference.