Search Results
Journal Article
Why Are Recessions So Hard to Predict? Random Shocks and Business Cycles
Economists are like doctors, not soothsayers. They can't predict recessions, but they can help us understand why one is happening. And that can make all the difference for policymaking.
Working Paper
Refining Set-Identification in VARs through Independence
Identification in VARs has traditionally mainly relied on second moments. Some researchers have considered using higher moments as well, but there are concerns about the strength of the identification obtained in this way. In this paper, we propose refining existing identification schemes by augmenting sign restrictions with a requirement that rules out shocks whose higher moments significantly depart from independence. This approach does not assume that higher moments help with identification; it is robust to weak identification. In simulations we show that it controls coverage well, in ...
Working Paper
Bargaining Shocks and Aggregate Fluctuations
We argue that social and political risk causes significant aggregate fluctuations by changing bargaining power. To that end, we document significant changes in the capital share after large political events, such as political realignments, modifications in collective bargaining rules, or the end of dictatorships, in a sample of developed and emerging economies. These policy changes are associated with significant fluctuations in output. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks cause movements in output and unemployment. To quantify the ...
Working Paper
Polarized Contributions but Convergent Agendas
The political process in the United States appears to be highly polarized: Data show that the political positions of legislators have diverged substantially, while the largest campaign contributions come from the most extreme donor groups and are directed to the most extreme candidates. Is the rise in campaign contributions the cause of the growing political polarization? In this paper, we show that, in standard models of campaign contributions and electoral competition, a free-rider problem among potential contributors leads naturally to polarization of campaign contributors but without any ...
Working Paper
Political Distribution Risk and Aggregate Fluctuations
We argue that political distribution risk is an important driver of aggregate fluctuations. To that end, we document significant changes in the capital share after large political events, such as political realignments, modifications in collective bargaining rules, or the end of dictatorships, in a sample of developed and emerging economies. These policy changes are associated with significant fluctuations in output and asset prices. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks cause movements in output, unemployment, and sectoral asset prices. To ...
Working Paper
Fiscal stimulus and distortionary taxation
We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act of 2009. We extend the benchmark Smets-Wouters New Keynesian model (Smets and Wouters, 2007), allowing for credit-constrained households, the zero lower bound, government capital, and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound, and the capital. The stimulus ...
Journal Article
Politics and Income Distribution
We take a closer look at how political reforms affect labor’s share of national income.
Working Paper
The Role of Startups for Local Labor Markets
We investigate the dynamic response of local U.S. labor markets to increased job creation by new firms and compare the effects to overall labor demand shocks. To account for both dynamic and spatial dependence we develop a spatial panel VAR that builds on recent advances in the VAR literature to identify structural shocks using external instruments. We find that startup shocks have a small but persistent effect on local employment through population growth. Population growth, in turn, is largely driven by immigration. We also investigate how the responses differ by local characteristics such ...
Working Paper
IDENTIFICATION THROUGH HETEROGENEITY
We analyze set identification in Bayesian vector autoregressions (VARs). Because set identification can be challenging, we propose to include micro data on heterogeneous entities to sharpen inference. First, we provide conditions when imposing a simple ranking of impulse-responses sharpens inference in bivariate and trivariate VARs. Importantly; we show that this set reduction also applies to variables not subject to ranking restrictions. Second, we develop two types of inference to address recent criticism: (1) an efficient fully Bayesian algorithm based on an agnostic prior that directly ...
Journal Article
Just How Important Are New Businesses?
New businesses are major job generators, so disappointing trends in firm formation have raised concern. Thorsten Drautzburg discusses why at least some of the worry might be misplaced.