Search Results
Discussion Paper
The Effect of Oil Prices on Core Inflation: Recent Evidence from the Advanced Economies
Elevated oil prices and heightened geopolitical uncertainty have renewed interest in a longstanding policy question: do supply shocks like oil-price increases pose a transitory or a persistent threat to price stability? This note sheds light on this question by providing new evidence on whether the inflation process has changed.
Discussion Paper
A Common Pattern behind Diverging Fortunes: U.S. Tariffs and Exports from Canada and Mexico
The 2025 U.S. tariff increases were followed by sharply different export outcomes in Canada and Mexico. Comparing the 12 months ending in April 2026 with calendar year 2024, Canadian goods exports to the United States fell about 10 percent, while Mexican exports rose about 16 percent, even though Mexico faced a higher average tariff exposure (figure 1). Do these contrasting outcomes mean that tariffs mattered for Canada but had little effect on Mexico, even though both economies depend heavily on the U.S. market?
Discussion Paper
Real Effects of Uncertainty: Evidence from Brexit
In the historic Brexit referendum on June 23, 2016, U.K. citizens voted in favor of leaving the European Union (EU), a result that created substantial uncertainty regarding the future economic relationship between the United Kingdom and the EU. As can be seen in Figure 1, uncertainty, measured by the Economic and Policy Uncertainty (EPU) index of Baker et al. (2016), spiked around the Brexit referendum date and has remained elevated relative to its pre-referendum levels since then.
Discussion Paper
Drivers of Post-pandemic Inflation in Selected Advanced Economies and Implications for the Outlook
With the reopening of economies from strict COVID-19 lockdowns and the war-induced sharp increases in food, energy, and other commodity prices, headline inflation has surged globally, as shown for a few selected advanced economies by the black line in the left panel of figure 1. Core inflation (the dashed red line) has also risen sharply and has become increasingly persistent across these economies.
Discussion Paper
Has the Inflation Process Become More Persistent? Evidence from the Major Advanced Economies
The sustained surge in inflation around the world following the pandemic has raised the possibility that the inflation process has become more persistent. Such a rise in persistence could result from firms and households putting greater weight on past inflation outcomes in their price- and wage-setting decisions than they did in the recent past, say, because they have less conviction that inflation will return promptly to target.
Working Paper
Capital-Task Complementarity and the Decline of the U.S. Labor Share of Income
This paper provides evidence that shifts in the occupational composition of the U.S. workforce are the most important factor explaining the trend decline in the labor share over the past four decades. Estimates suggest that while there is unitary elasticity between equipment capital and non-routine tasks, equipment capital and routine tasks are highly substitutable. Through the lenses of a general equilibrium model with occupational choice and the estimated production technology, I document that the fall in relative price of equipment capital alone can explain 72 percent of the observed ...
Working Paper
Taxation, Social Welfare, and Labor Market Frictions
Taking inefficiencies from taxation as given, a well-known public finance literature shows that the elasticity of taxable income (ETI) is a sufficient statistic for assessing the deadweight loss (DWL) from taxing labor income in a static neoclassical framework. Using a theoretical approach, we revisit this result from the vantage point of a general equilibrium macroeconomic model with labor search frictions. We show that, in this context, and against the backdrop of inefficient taxation, DWL can be up to 38 percent higher than the ETI under a range of reasonable parametric assumptions. ...
Working Paper
Revisiting Capital-Skill Complementarity, Inequality, and Labor Share
This paper revisits capital-skill complementarity and inequality, as in Krusell, Ohanian, Rios-Rull and Violante (KORV, 2000). Using their methodology, we study how well the KORV model accounts for more recent data, including the large changes in the labor's share of income that were not present in KORV. We study both labor share of gross income (as in KORV), and income net of depreciation. We also use nonfarm business sector output as an alternative measure of production to real GDP. We find strong evidence for continued capital-skill complementarity in the most recent data, and we also find ...
Working Paper
The Income Share of Energy and Substitution: A Macroeconomic Approach
As the atmospheric concentration of CO2 emissions has grown to record levels, callshave grown for governments to make steeper emissions cuts, requiring to reduce an economy’s use of fossil energy dramatically. Meanwhile, in the U.S., fossil energy still met 80percent of the total energy demand as of 2019. This paper examines U.S. energy dependence, measured by its factor share, using a simple neoclassical framework in a systematicway. We find that with empirically plausible differences in substitution elasticities, particularly with a time-varying substitution elasticity between equipment ...
Working Paper
Technology and Energy Substitution: A Path toward Climate Change Mitigation*
Mitigating climate change is critically linked to reducing an economy’s reliance on fossil energy. This paper examines U.S. energy dependence, measured by its factor share, using a neoclassical framework systematically. We present the degree of substitution between different factors of production as a simple, explicit mechanism for climate change mitigation and for interpreting energy-saving technical change. With time varying capital equipment-energy substitutability, changes in observed factor quantities alone can account for most of the variations in the income share of energy over ...