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Working Paper
The Persistent Employment Effects of the 2006-09 U.S. Housing Wealth Collapse
We show that the housing wealth collapse of 2006-09 had a persistent impact on employment across counties in the U.S. In particular, localities that had a larger loss in housing net worth during that period had more depressed employment as late as 2016, without a commensurate population response. The use of IV's and controls to identify the causal impact of the wealth shock amplifies those results, leading to an estimate that a 10 percent change in housing net worth between 2006 and 2009 causes a 4.5 percent decline in local employment by 2016, as compared with a 2006 baseline. We do not find ...
Journal Article
How Can Consumption-Based Asset-Pricing Models Explain Low Interest Rates?
The real interest rate is at historically low levels following the Great Recession. This article examines under which conditions the leading consumption-based asset-pricing models can give rise to such a reduction. In particular, we examine implications of standard constant relative risk aversion preference models with Gaussian shocks, models with consumption disaster, models with long-run risk, and models with habit formation. Given the models reviewed, the high-risk premium suggests that low interest rates in the recent period are likely to be either a consequence of a perception that ...
Working Paper
Financial Conditions and Capital Investment Choices
We show, both theoretically and empirically, that tight financial conditions shift investment toward cheaper but less energy-efficient capital. In a small open-economy model with vintage capital, higher financing costs reduce the present value of future energy savings, tilting firms’ choices along a cost efficiency frontier. Using 150 years of macroeconomic and energy data from 17 advanced economies, we find that tighter financial conditions reduce output, capital, and total energy consumption, but raise the amount of energy per unit of capital (energy intensity), a composition effect that ...
Working Paper
Pandemic and War Inflation: Lessons from the International Experience
This paper examines the drivers of the 2020-23 inflation surge, with an emphasis on the similarities and differences across countries, as well as the role that monetary policy frameworks might have played in shaping central banks' responses. The inflation surge in the U.S. and abroad was set in motion by two global events: the COVID-19 pandemic and Russia's invasion of Ukraine. Pandemic-related supply disruptions, a rotation of consumer spending toward goods, and commodity price increases exacerbated by Russia's invasion of Ukraine resulted in unusually large relative price increases, which ...
Working Paper
Minority Inflation, Unemployment, and Monetary Policy
Our paper addresses the heterogeneous effects of monetary policy on households of different races. The cyclical volatility of real income differs significantly for households of different races and income levels, reflecting differential exposure to fluctuations in employment and consumer prices. All Black households are disproportionately affected by employment fluctuations, whereas price volatility is only particularly pronounced for Black households with income above the national median. The latter face 40 percent higher price volatility than both poorer households of the same race and ...
Journal Article
The Heterogeneous Business-Cycle Behavior of Industrial Production
This paper collects stylized facts about the cyclical properties of industry-level data. Those can provide a window into the sources of business cycles as well as propagation mechanisms. We find (i) goods that are more durable or that have higher wealth elasticity are more cyclical, (ii) sectors tied to the government tend to lag business cycles, (iii) sectors with nominal frictions tend to lag business cycles, (iv) sectors in which financial frictions are likely to be important tend to lag business cycles, and (v) industries that are highly integrated tend to lead business cycles.
Working Paper
Does Redistribution Increase Output? The Centrality of Labor Supply
The aftermath of the recent recession has seen numerous calls to use transfers to poorer households as a means to enhance aggregate activity. We show that the key to understanding the direction and size of such interventions lies in labor supply decisions. We study the aggregate impact of short-term redistributive economic policy in a standard incomplete-markets model. We characterize analytically conditions under which redistribution leads to an increase or decrease in effective hours worked, and hence, output. We then show that under the parameterization that matches the wealth distribution ...
Briefing
Using Inventories to Help Explain Post-1984 Business Cycles
Real business cycle (RBC) models have been highly successful at explaining business cycles that occurred before 1984. But since then, shifts in comovements and relative volatilities of key economic aggregates have challenged their preeminence. One possible refinement of the standard RBC model is to include multiple stages of production. This extension allows researchers to use inventory data to estimate the discount rate that firms use to assess future income streams. The results indicate that variations in the discount rate reflect financial frictions that have become significant drivers of ...
Briefing
Does Redistribution Increase Output?
According to conventional wisdom, wealth redistribution boosts output by increasing aggregate consumption. However, while redistributive policies can have a short-run stimulative effect on consumption, their effect on output depends, potentially quite importantly, on the nature of household labor supply.
Journal Article
When do credit frictions matter for business cycles?
Since the Great Recession there has been renewed interest in introducing credit frictions in business cycle models. However, in order for credit frictions to be quantitatively meaningful and qualitatively realistic in business cycles, it is necessary to depart from conventional assumptions about production technology or preferences and/or add additional frictions. This article reviews some of those departures and additions.