Search Results
Working Paper
Inflation dynamics when inflation is near zero
This paper discusses the likely evolution of U.S. inflation in the near and medium term on the basis of (1) past U.S. experience with very low levels of inflation, (2) the most recent Japanese experience with deflation, and (3) recent U.S. micro evidence on downward nominal wage rigidity. Our findings question the view that stable long-run inflation expectations and downward nominal wage rigidity will provide sufficient support to prices such that deflation can be avoided. We show that an inflation model fitted on Japanese data over the past 20 years, which accounts for both short- and ...
Working Paper
The forecasting power of consumer attitudes for consumer spending
The widely studied Reuters/Michigan Index of Consumer Sentiment is constructed from the answers to five questions from the more comprehensive Reuters/Michigan Surveys of Consumers. Yet little work has been done on what predictive power the information taken from this more thorough compilation of consumer attitudes and expectations may have for forecasting consumption expenditures. The authors construct a limited set of real-time summary measures for 42 questions selected from these broader Surveys corresponding to three broad economic determinants of consumption?income and wealth, prices, and ...
Working Paper
Do real-time Okun's law errors predict GDP data revisions?
Using U.S. real-time data, we show that changes in the unemployment rate unexplained by Okun's Law have significant predictive power for GDP data revisions. A positive (negative) error in Okun's Law in real time implies that GDP will be later revised to show less (more) growth than initially estimated by the statistical agency. The information in Okun's Law errors about the true state of real economic activity also helps to improve GDP forecasts in the near term. Our findings add a new dimension to the interpretation of real-time Okun's Law errors, as they show that these errors can convey ...
Working Paper
High-Frequency Spending Responses to Government Transfer Payments
This paper evaluates the marginal propensity to consume (MPC) out of the 2020 fiscal stimulus payments using high-frequency, transaction-level data for a sample of low-income cardholders, many of whom are unbanked. Consumers’ MPC out of non-stimulus income and their MPC out of tax refunds are estimated simultaneously. Spending responds less on impact to the stimulus payments than to non-stimulus income (15 cents versus 20 cents per dollar of income), but stimulus-payment spending quickly catches up and is noticeably higher than non-stimulus-income spending on a cumulative basis after 16 ...
Briefing
The role of expectations and output in the inflation process: an empirical assessment
This brief examines two issues of current interest concerning inflation: (1) whether "well-anchored" expectations will help to restrain inflation's decline and whether an "un-anchoring" of expectations could lead to undesirably high inflation and (2) to what extent output (or utilization) gaps are useful components of empirical models of inflation and, if they are useful, to what extent current gaps might counterbalance the effect of expectations on inflation. The goals of conducting this examination are to articulate a reasonably coherent framework for the discussion, highlight the ...
Report
The Distribution of Sectoral Price Changes and Recent Inflation Developments
Inflation has declined across many sectors so far in 2023, but the distribution of sectoral price changes still shows atypical features, such as bimodality in which substantial masses of sectors record price changes both below and above the Federal Reserve’s 2 percent inflation target. Such bimodality was not typical before the pandemic, suggesting that sector-specific price adjustments are now playing a more important role in inflation developments. The recent slowdown in inflation was partly caused by a larger-than-normal share of the consumption basket being located in the left tail of ...
Working Paper
Monetary policy and regional house-price appreciation
This paper examines the link between monetary policy and house-price appreciation by exploiting the fact that monetary policy is set at the national level, but has different effects on state-level activity in the United States. This differential impact of monetary policy provides an exogenous source of variation that can be used to assess the effect of monetary policy on state-level housing prices. Policy accommodation equivalent to 100 basis points on an equilibrium real federal funds rate basis raises housing prices by about 2.5 percent over the next two years. However, the estimated effect ...
Briefing
A principal components approach to estimating labor market pressure and its implications for inflation
We build a summary measure of labor market pressure that captures the common movement among a variety of labor market series. Obtained as the labor market series? first principal component, this measure explains a large portion of the variability of the underlying series. For this reason, it is a good summary indicator of labor market pressure. We show that the unemployment rate gap has tracked this summary measure closely over the past 35 years. At times, however, the summary measure and the unemployment rate gap have sent somewhat different signals. In terms of relying on the principal ...
Briefing
The estimated macroeconomic effects of the Federal Reserve's large-scale Treasury purchase program
This brief examines an issue of current importance to the conduct of U.S. economic policy: how has the Federal Open Market Committee (FOMC) plan to purchase up to $600 billion of Treasury securities by June 30, 2011 affected the movement of inflation, GDP, and employment to more desirable medium-term and long-term levels? Following the FOMC's announcement of the plan on November 3, 2010, other events that potentially influence Treasury yields have been at play. To estimate the effects that the FOMC Treasury purchases may have on the goal of achieving more desirable levels of inflation and ...
Briefing
Cyclical versus secular: decomposing the recent decline in U.S. labor force participation
Since the start of the Great Recession, one of the most striking developments in the U.S. labor market has been the pronounced decline in the labor force participation rate. The crucial issue in interpreting the decline in U.S. labor force participation is how much of the decline reflects cyclical factors and how much reflects more persistent developments such as the demographic effects of an aging population. We provide a decomposition of cyclical versus trend movements in the labor force participation rate, informed by the joint dynamics of this variable with the employment-to-population ...