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Working Paper
Sticky Wages, Monetary Policy and Fiscal Policy Multipliers
This paper demonstrates how adding nominal wage rigidity to a standard sticky price model can create a mechanism by which increases in government spending cause increases in consumption. The increase in output arising from government purchases puts upward pressure on the price level. At a fixed short-run nominal wage, this bids down the real wage, which leads producers to increase labor demand. Increased labor demand allows households to both finance the tax bill associated with the government spending as well as increase their own consumption. Our approach does not rely upon existing ...
How Uneven Were the Labor Market Recoveries across U.S. States?
Some states finished 2021 with unemployment rates below their pre-pandemic levels, while most had rates still above levels before COVID-19.
Working Paper
The 2008 U.S. Auto Market Collapse
New vehicle sales in the U.S. fell nearly 40 percent during the last recession, causing significant job losses and unprecedented government interventions in the auto industry. This paper explores two potential explanations for this decline: falling home values and falling households? income expectations. First, we establish that declining home values explain only a small portion of the observed reduction in vehicle sales. Using a county-level panel from the episode, we ?nd: (1) A one-dollar fall in home values reduced new vehicle spending by about 0.9 cents; and (2) Falling home values ...
Journal Article
The Volcker Tightening Cycle: Explaining the 1982 Course Reversal
This article studies the factors that led former Federal Reserve Chairman Paul Volcker to stop and then reverse course in the most famous monetary tightening cycle in U.S. history. I explain how the Fed began cutting its policy rate target, thus ending the tightening cycle, in July of 1982. Although the Fed had gained some ground in its fight against inflation, in mid-1982, inflation was running above 7 percent, well above the 2 percent inflation rate that the U.S. enjoyed before the Great Inflation. Beyond the Federal Open Market Committee’s (FOMC) partial success at taming inflation, I ...
Working Paper
A Cup Runneth Over: Fiscal Policy Spillovers from the 2009 Recovery Act
This paper studies the effects of interregional spillovers from the government spending component of the American Recovery and Reinvestment Act of 2009 (the Recovery Act). Using cross-county Census Journey to Work commuting data, we cluster U.S. counties into local labor markets, each of which we further partition into two subregions. We then compare differential labor market outcomes and Recovery Act spending at the regional and subregional levels using instrumental variables. Our instrument is the sum of spending by federal agencies not instructed to allocate Recovery Act funds according to ...
The End of Emergency Pandemic Unemployment Benefits in 2021
Although many saw the $300 weekly add-on as the key disincentive to work, the large drop in benefit recipients was driven primarily by the halt in other federal jobless programs.
Journal Article
Employment Effects of Pandemic Emergency Unemployment Benefits: Incentives Matter
The employment effects of halting programs that granted emergency unemployment benefits during the pandemic were substantial and differed across age groups.
Working Paper
Regional Consumption Responses and the Aggregate Fiscal Multiplier
We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in the Nielsen scanner data and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases local non-durable consumer spending by $0.29 and local auto spending by $0.09. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents, ...
Working Paper
Decomposing the Government Transfer Multiplier
We estimate the local, spillover and aggregate causal effects of government transfers on personal income. We identify exogenous changes in federal transfers to residents at the state-level using legislated social security cost-of-living adjustments between 1952 and 1974. Each effect is measured as a multiplier: the change in personal income in response to a one unit change in transfers. The local multiplier, i.e., the effect of own-state transfers on own-state income holding fixed other state's income, at a four-quarter horizon is approximately 3.4. The cross-state spillover multiplier is ...
Early Impact of States Halting Federal Jobless Benefits
Continuing claims for state unemployment insurance benefits appear to have fallen faster in states that have stopped accepting federal pandemic benefits.