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Journal Article
Government-subsidized training: a plan for prosperity?
Many analysts believe that the United States should subsidize training to increase its workers' skills because employers don't provide enough. This Commentary asks whether the present level of training is truly insufficient, or whether firms' incentives may already be in synch with the social costs and benefits of training.
Journal Article
Perils of price deflations: an analysis of the Great Depression
If a central bank adopted a zero inflation target, it would, in practice, occasionally deviate up and down from that rate, and the economy would experience episodes of mild inflation and deflation. Is deflation-a decrease in the level of prices-a cause for concern? Deflation can cause output to decline, but to what extent? This Economic Commentary explores how much of a problem deflation might be for modern economies by estimating the effect of massive price declines on output during the Great Depression. The authors find that while deflation can cause output to decline, mild episodes of ...
Journal Article
Regional variations in white-black earnings
An examination of why black Americans' earnings continue to lag whites' and why the problem is especially acute in the southern states. Better understanding of the factors driving regional pay differentials can help explain some of the disparities at the national level and is also applicable to a wide variety of other public policy issues.
Journal Article
Do Forecasters Agree on a Taylor Rule?
Forecasters? projections of interest rates vary a great deal. We use a Taylor rule to investigate two possible reasons why. Namely, do differences arise because forecasters have different projections for output growth or inflation, or do they arise because forecasters follow different guidelines to predict what the Federal Reserve will do with the federal funds rate? We find evidence for both explanations. Forecasters appear to use very different projections for inflation and output growth, but they also seem to use dramatically different Taylor rule coefficients.
Journal Article
Inertial Taylor rules: the benefit of signaling future policy
This article traces the consequences of an energy shock on the economy under two different monetary policy rules: (i) a standard Taylor rule, where the Fed responds to inflation and the output gap, and (ii) a Taylor rule with inertia, where the Fed moves slowly to the rate predicted by the standard rule. The authors show that, with both sticky wages and sticky prices, the outcome of an inertial Taylor rule is superior to that of the standard rule, in the sense that inflation is lower and output is higher following an adverse energy shock. However, if prices alone are sticky, the results are ...
Journal Article
Examining the microfoundations of market incentives for asset-backed lending
A review of four papers that model market-based (as opposed to regulatory-based) forces driving the asset-backed lending market, revealing that under certain conditions, the information costs that make financial markets important as conduits of credit can also create nonregulatory incentives for asset-backed lending as an efficient funding mode.
Working Paper
Magnification effects and acyclical real wages
An analysis of a one-period, two-sector model in which firms must pay a fixed cost of hiring. The authors show that this type of model results in more employment variability and less-procyclical wages than do models without fixed hiring costs.
Working Paper
Oil prices, monetary policy, and counterfactual experiments
Recessions are associated with both rising oil prices and increases in the federal funds rate. Are recessions caused by the spikes in oil prices or by the sharp tightening of monetary policy? This paper discusses the difficulties in disentangling these two effects.
Working Paper
Co-movement in sticky price models with durable goods
In an interesting paper Barsky, House, and Kimball (2005) demonstrate that in a standard sticky price model a monetary contraction will lead to a decline in nondurable goods production but an increase in durable goods production, so that aggregate output is little changed. This lack of co-movement between nondurables and durables is wildly at odds with the data and occurs because, by assumption, durable goods prices are relatively more flexible than nondurable goods prices. We investigate possible solutions to this puzzle: nominal wage stickiness and credit constraints. We demonstrate that by ...
Working Paper
Central bank independence and inflation: a note
We document increased central bank independence within the set of industrialized nations. This increased independence can account for nearly two thirds of the improved inflation performance of these nations over the last two decades.