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Working Paper
Household Consumption Does Not Respond Directly to Interest Rates: Evidence From 10 Macroeconomic Shocks
We estimate how much household spending responds directly to changes in interest rates. We develop a Bayesian procedure that uses the empirical impulse responses to macroeconomic shocks to discipline the consumer block of a HANK model. The procedure can be applied shock-by-shock or pooled jointly. We apply this method in two ways using 10 macroeconomic shocks: a structural model with sticky expectations over both income and interest rates, and a non-parametric estimation of the consumption-to-interest-rate Jacobian. We find no evidence that households respond directly to interest rates at any ...
Working Paper
Entry, Variable Markups, and Business Cycles
The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms. In response to a decline in entry, incumbent firms' market shares increase, their elasticity of demand falls, and they increase their markups and reduce employment. To quantify the model, I study the relationship ...