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Journal Article
Labor markets in the global financial crisis
The impact of the global financial crisis on labor markets varied widely from country to country. In the United States, the unemployment rate nearly doubled from its pre-recession level. The rate rose much less in the United Kingdom and barely changed in Germany, despite larger declines in gross domestic product. Institutional and technological changes since the 1970s had previously made relationships between output and unemployment more homogeneous across countries. But the global financial crisis undid much of this convergence as countries adopted different labor market policies to adjust ...
Working Paper
Growth accounting with misallocation: Or, doing less with more in Singapore
We derive aggregate growth-accounting implications for a two-sector economy with heterogeneous capital subsidies and monopoly power. In this economy, measures of total factor productivity (TFP) growth in terms of quantities (the primal) and real factor prices (the dual) can diverge from each other as well as from true technology growth. These distortions potentially give rise to dynamic reallocation effects that imply that change in technology needs to be measured from the bottom up rather than the top down. We show an example, for Singapore, of how incomplete data can be used to obtain ...
Working Paper
Monetary Policy Effectiveness in China: Evidence from a FAVAR Model
We use a broad set of Chinese economic indicators and a dynamic factor model framework to estimate Chinese economic activity and inflation as latent variables. We incorporate these latent variables into a factor-augmented vector autoregression (FAVAR) to estimate the effects of Chinese monetary policy on the Chinese economy. A FAVAR approach is particularly well-suited to this analysis due to concerns about Chinese data quality, a lack of a long history for many series, and the rapid institutional and structural changes that China has undergone. We find that increases in bank reserve ...
Working Paper
What do we know and not know about potential output?
Potential output is an important concept in economics. Policymakers often use a one-sector neoclassical model to think about long-run growth, and often assume that potential output is a smooth series in the short run--approximated by a medium- or long-run estimate. But in both the short and long run, the one-sector model falls short empirically, reflecting the importance of rapid technical change in producing investment goods; and few, if any, modern macroeconomic models would imply that, at business cycle frequencies, potential output is a smooth series. Discussing these points allows us to ...
Working Paper
The case of the missing productivity growth: or, does information technology explain why productivity accelerated in the United States but not the United Kingdom?
Solow's paradox has disappeared in the United States but remains alive and well in the United Kingdom. In particular, the U.K. experienced an information and communications technology (ICT) investment boom in the 1990s in parallel with the U.S., but measured total factor productivity has decelerated rather than accelerated in recent years. We ask whether ICT can explain the divergent TFP performance in the two countries. Stories of ICT as a 'general purpose technology' suggest that measured TFP should rise in ICT-using sectors (reflecting either unobserved accumulation of intangible ...
Journal Article
What is the value of bank output?
Financial institutions often do not charge explicit fees for the services they provide, but are instead compensated by the spread between interest rates on loans and deposits. The lack of explicit fees in lending makes it difficult to measure the output of banks and other financial institutions. Effective measurement should distinguish between income derived from lending services and income derived from portfolio decisions about risk and duration, and should be consistent among bank and nonbank financial institutions.
Working Paper
Constant returns and small markups in U.S. manufacturing
We estimate that returns to scale are close to constant in two-digit gross output data. Value-added data appear instead to give significant increasing returns. We show why, with imperfect competition, value-added estimates are in general meaningless. We use data on intermediate inputs to correct the value-added estimates, and find that returns to scale again appear close to constant. Given that profits are small, our results imply that markups of price over marginal cost are also small.
Working Paper
Does Disappointing European Productivity Growth Reflect a Slowing Trend? Weighing the Evidence and Assessing the Future
In the years since the Great Recession, many observers have highlighted the slow pace of labor and total factor productivity (TFP) growth in advanced economies. This paper focuses on the European experience, where we highlight that trend TFP growth was already low in the runup to the Global Financial Crisis (GFC). This suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. After the mid-1990s, European economies stopped converging, or even began diverging, from the U.S. level of TFP. That said, in contrast to the United ...
Working Paper
Why is productivity procyclical? Why do we care?
Productivity rises in booms and falls in recessions. There are four main explanations for this procyclical productivity: (i) procyclical technology shocks, (ii) widespread imperfect competition and increasing returns, (iii) variable utilization of inputs over the cycle, and (iv) resource reallocations. Recent macroeconomic literature views this stylized fact of procyclical productivity as an essential feature of business cycles because each explanation has important implications for macroeconomic modeling. In this paper, we discuss empirical methods for assessing the importance of these four ...