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Report
The firm and the plant in general equilibrium theory
The general equilibrium formulations are developed for two important economic environments. The first environment is the Lucas managerial span-of-control theory of the firm. It is shown that, in the spirit of McKenzie, the aggregate production set can be characterized by a convex cone. The second environment permits both the number of hours plants are operated and the number of workers operating them to be varied. For empirically reasonable elasticities of substitution, equilibrium is characterized by employment-consumption lotteries.
Journal Article
Introduction to the special issue on modern macroeconomic theory
An introduction to the special issue on modern macroeconomic theory.
Journal Article
How Have Changing Sectoral Trends Affected GDP Growth?
Trend GDP growth has slowed about 2.3 percentage points to 1.7% since 1950. Different economic sectors have contributed to this slowing to varying degrees depending on the distinct trends of technology and labor growth in each sector. The extent to which sectors influence overall growth depends on the degree of spillovers to other sectors, which amplifies the effect of sectoral changes. Three sectors with slowing growth and linkages to other sectors?construction, nondurable goods, and professional and business services?account for 60% of the decline in trend GDP growth.
Working Paper
(S, s) inventory policies in general equilibrium
We study the aggregate implications of (S,s) inventory policies in a dynamic general equilibrium model with aggregate uncertainty. Firms in the model's retail sector face idiosyncratic demand risk, and (S,s) inventory policies are optimal because of fixed order costs. The distribution of inventory holdings affects the aggregate outcome in two ways: variation in the decision to order and variation in the rate of sale through the pricing decisions of retailers. We find that both mechanisms must operate to reconcile observations that orders are more volatile than, and inventory investment is ...
Working Paper
On the implementation of Markov-Perfect interest rate and money supply rules : global and local uniqueness
Currently there is a growing literature exploring the features of optimal monetary policy in New Keynesian models under both commitment and discretion. This literature usually solves for the optimal allocations that are consistent with a rational expectations market equiibrium, but it does not study how the policy can be implemented given the available policy instruments. Recently, however, King and Wolman (2004) have shown that a time-consistent policy cannot be implemented through the control of nominal money balances. In particular, they find that equilibria are not unique under a money ...
Working Paper
Understanding how employment responds to productivity shocks in a model with inventories
Whether technological progress raises or lowers aggregate employment in the short run has been the subject of much debate in recent years. Using a simple model of industry employment, we show that cross-industry differences of inventory holding costs, demand elasticities, and price rigidities potentially all affect employment decisions in the face of productivity shocks. In particular, the employment response to a permanent productivity shock is more likely to be positive the less costly it is to hold inventories, the more elastic industry demand is, and the more flexible prices are. Using ...
Briefing
Profits and Inflation in the Time of COVID
Following the onset of the COVID pandemic in 2020, inflation accelerated in 2021-22 and peaked at roughly 7 percent in mid-2022. This was an inflation rate not seen since the early 1980s. Among the many accounts of this increase that have been introduced, one attributes the increase to firms being greedy and exploiting supply chain disruptions to raise their prices excessively. In this article, I first argue that a frequent piece of evidence in support of "greedflation" — the increased share of gross operating surplus in the nonfinancial corporate business (NFCB) sector — is not that ...
Briefing
Aggregate Effects of the Adoption of AI
AI is holding out the prospect of substantial productivity improvements. While the potential of AI may be large, it is uncertain how much of that potential will be realized and how fast it will occur. Recent estimates of the medium-term AI impact on labor productivity range from negligible to larger than the 1990s IT impact. But should AI meaningfully affect medium-term productivity growth, monetary policy is likely to respond by accommodating the increase in potential output. On the other hand, recalling the 1990s IT diffusion, one should not be too surprised that, even though AI is ...
Journal Article
Growth accounting with technological revolutions
Working Paper
The replacement problem in frictional economies : a near equivalence result
We examine how technological change affects wage inequality and unemployment in a calibrated model of matching frictions in the labor market. We distinguish between two polar cases studied in the literature: a "creative destruction" economy where new machines enter chiefly through new matches and an "upgrading" economy where machines in existing matches are replaced by new machines. Our main results are: (i) these two economies produce very similar quantitative outcomes, and (ii) the total amount of wage inequality generated by frictions is very small. We explain these findings in light ...