Search Results
Journal Article
Setting the interest rate
Journal Article
What's different about banks - still?
Working Paper
Inflation Taxes, Financial Intermediation, and Home Production
This paper examines the incidence and welfare costs of inflation in the presence of financial market frictions and home production. The results suggest that financing constraints on firms’ working capital expenditures significantly increase the welfare costs relative to the standard Cooley-Hansen (1989) cash-in-advance framework. These costs are reduced, but remain above those computed by Cooley and Hansen, when a financial intermediary is introduced that engages in asset transformation by creating liquid, interest-bearing deposit accounts and uses the proceeds to finance working capital ...
Working Paper
The wage premium puzzle and the quality of human capital
The wage premium for high-skilled workers in the United States, measured as the ratio of the 90th-to-10th percentiles from the wage distribution, increased by 20 percent from the 1970s to the late 1980s. A large literature has emerged to explain this phenomenon. A leading explanation is that skill-biased technological change (SBTC) increased the demand for skilled labor relative to unskilled labor. In a calibrated vintage capital model with heterogenous labor, this paper examines whether SBTC is likely to have been a major factor in driving up the wage premium. Our results suggest that the ...
Journal Article
Banks, bonds, and the liquidity effect
An "easing" of monetary policy can be characterized by an expansion of bank reserves and a persistent decline in the federal funds rate that, with a considerable lag, induces a pickup in employment, output, and prices. This article presents empirical evidence consistent with this depiction of the dynamic response of the economy to monetary policy actions and develops a theoretical model that exhibits similar dynamic properties. The decline in the federal funds rate is referred to as the "liquidity effect" of an expansionary monetary policy. A key feature of this class of theoretical ...
Working Paper
Productivity Shocks in a Model with Vintage Capital and Heterogeneous Labor
We construct a vintage capital model in which worker skills lie along a continuum and workers can be paired with different vintages (as technology evolves) under a matching rule of "best worker with the best machine." Labor reallocation in response to technology shocks has two key implications for the wage premium. First, it limits both the magnitude and duration of change in the wage premium following a (permanent) embodied technology shock, so empirically plausible shocks do not lead to the kind of increases in the wage premium observed in the U.S. during the 1980s and early 1990s (though ...
Journal Article
Mortgage refinancing
Journal Article
Shifting household assets in a bear market
Working Paper
The Role of Capital Service-Life in a Model with Heterogenous Labor and Vintage Capital
We examine how the economy responds to both disembodied and embodied technology shocks in a model with vintage capital. We focus on what happens when there is a change in the number of vintages of capital that are in use at any one time and on what happens when there is a change in the persistence of the shocks hitting the economy. The data suggest that these kinds of changes took place in the U.S. economy in the 1990s, when the pace of embodied technical progress appears to have accelerated. We find that embodied technology shocks lead to greater variability (of output, investment and labor ...
Working Paper
Relative Productivity Growth and the Secular “Decline” of U.S. Manufacturing
There has been considerable debate about the causes of the "decline" of U.S. manufacturing over the post-war period. We show that the behavior of employment, prices and output in manufacturing relative to services over this period can be explained by a two-sector growth model in which productivity shocks are the only driving forces. The data also suggest that households are unwilling to substitute goods for services (the estimated elasticity of substitution is statistically indistinguishable from zero), so the economy adjusts to differential productivity growth entirely by reallocating labor ...