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Working Paper
Estimating Hysteresis Effects
In this paper, we identify demand shocks that can have a permanent effect on output through hysteresis effects. We call these shocks permanent demand shocks. They are found to be quantitatively important in the United States, in particular when the sample includes the Great Recession. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, although output per worker is largely unaffected. We find strong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately ...
Working Paper
Output Gap, Monetary Policy Trade-offs, and Financial Frictions
This paper investigates how the presence of pervasive financial frictions and large financial shocks changes the optimal monetary policy prescriptions and the estimated dynamics in a New Keynesian model. We find that financial factors affect the optimal policy only to some extent. A policy of nominal stabilization (with a particular focus on targeting wage inflation) is still the optimal policy, although the central bank is now unable to fully stabilize economic activity around its potential level. In contrast, the presence of financial frictions and financial shocks crucially changes the ...
Working Paper
Estimating Hysteresis Effects
In this paper we identify demand shocks that can have a permanent effect on output through hysteresis effects. We call these shocks permanent demand shocks. They are found to be quantitatively important in the United States, in particular when the Great Recession is included in the sample. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, while output per worker is largely unaffected. We find strong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately ...
Working Paper
The Slope of the Phillips Curve
We review recent developments in the estimation and identification of the Phillips curve and its slope. We have three main objectives. First, we describe the econometric challenges faced by traditional approaches of estimating the Phillips curve, explain how new approaches address those challenges, and assess which limitations still remain. Second, we review the findings of those new approaches and examine the evidence regarding a potential flattening of the Phillipscurve in the pre-pandemic period. Third, we provide an account of inflation dynamics in the post-pandemic period with a ...