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Unbundling Labor
Why is there so much wage inequality within occupations? Why has the overall level of within-occupation wage inequality risen? Why is the rise concentrated in cognitive-intensive occupations, while inequality has fallen in manual-intensive ones? To answer these questions we develop a general equilibrium model with heterogeneous workers who supply multiple skills jointly, as an indivisible bundle. This bundling friction allows a given skill to be priced differently in different occupations. We find in US data that differences in skill prices, not worker composition, explain why ...
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Sluggish responses of prices and inflation to monetary shocks in an inventory model of money demand
We examine the responses of prices and inflation to monetary shocks in an inventory-theoretic model of money demand. We show that the price level responds sluggishly to an exogenous increase in the money stock because the dynamics of households' money inventories leads to a partially offsetting endogenous reduction in velocity. We also show that inflation responds sluggishly to an exogenous increase in the nominal interest rate because changes in monetary policy affect the real interest rate. In a quantitative example, we show that this nominal sluggishness is substantial and persistent if ...