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Working Paper
Using Brexit to Identify the Nature of Price Rigidities
Using price quote data that underpin the official U.K. consumer price index (CPI), we analyze the effects of the unexpected passing of the Brexit referendum to the dynamics of price adjustments. The sizable depreciation of the British pound that immediately followed Brexit works as a quasi-experiment, enabling us to study the transmission of a large common marginal cost shock to inflation as well as the distribution of prices within granular product categories. A large portion of the inflationary effect is attributable to the size of price adjustments, implying that a time-dependent ...
Journal Article
How Do Banks Cope with Loss?
When lenders experience unexpected losses, the supply of credit to borrowers can be disrupted. Researchers and policymakers have long sought estimates of how the availability of loans changes following a shock. The sudden oil price decline in 2014 offers an opportunity to observe precisely how affected lenders altered their portfolios. Banks that were involved with oil and gas producers cut back on some types of lending?consistent with traditional views of bank behavior. However, they expanded other types of lending and asset holdings with a bias towards less risky securities.
Working Paper
The effects of competition on price dispersion in the airline industry: a panel analysis
This paper analyzes the effects of market structure on price dispersion in the airline industry, using panel data from 1993 through 2006. The results found in this paper contrast with those of Borenstein and Rose (1994), who found that price dispersion increases with competition. We find that competition has a negative effect on price dispersion, in line with the textbook treatment of price discrimination. Specifically, the effects of competition on price dispersion are most significant on routes that we identify as having consumers characterized by relatively heterogeneous elasticities of ...
Journal Article
Can the News Drive Inflation Expectations?
How households expect inflation to evolve plays an important role in explaining overall inflation dynamics. Household expectations rose dramatically over the past year or so, much faster than professional forecasters’ inflation expectations. News coverage can explain part of this growing gap. Analyzing the volume and sentiment of daily news articles on inflation suggests that one-fourth of the increased gap between household and professional expectations can be attributed to heightened negative media coverage. These results highlight the important impact of the content and tone of economic ...
Journal Article
How Much Do Labor Costs Drive Inflation?
Tight labor markets have raised concerns about the role of labor costs in persistently high inflation readings. Policymakers are paying particular attention to nonhousing services inflation, which is considered most closely linked to wages. Analysis shows that higher labor costs are passed along to customers in the form of higher nonhousing services prices, however the effect on overall inflation is very small. Labor-cost growth has no meaningful effect on goods or housing services inflation. Overall, labor-cost growth is responsible for only about 0.1 percentage point of recent core PCE ...
Journal Article
The Rise and Fall of Pandemic Excess Wealth
U.S. households accumulated significantly more wealth following the pandemic onset than would have been expected without the pandemic shock. Overall excess household wealth—measured as households’ inflation-adjusted net worth beyond pre-pandemic projections—peaked in late 2021 at $13 trillion, then rapidly fell to zero in late 2022, where it broadly remained through the third quarter of 2023. This rise and fall can be attributed mainly to financial assets, particularly equity holdings. Similarly, real liquid asset holdings currently sit below pre-pandemic projections despite a ...
Journal Article
Has Inflation Sustainably Reached Target?
A key measure of inflation finally reached the Fed?s 2% target in July after remaining persistently below that for years after the end of the last recession. Analysis shows that most of the increase in personal consumption expenditures price inflation towards the Fed?s target can be attributed to acyclical factors and are not due to a strengthening economy. While risks to the outlook for inflation appear broadly balanced, they include the considerable possibility that inflation has not yet sustainably reached target.
Journal Article
Monitoring the Inflationary Effects of COVID-19
Inflation fell dramatically following the onset of the COVID-19 pandemic. Dividing the underlying price data according to spending category reveals that a majority of the drop in core personal consumption expenditures inflation comes from a large decline in consumer demand. This demand effect far outweighs upward price pressure from COVID-related supply constraints. A new monthly data page from the San Francisco Fed tracks how sensitivity to the economic disruptions of COVID-19 affects different categories of inflation over time.
Report
The impact of competition on technology adoption: an apples-to-PCs analysis
We study the effect of market structure on a personal computer manufacturer?s decision to adopt new technology. This industry is unusual because there exist two horizontally segmented retail markets with different degrees of competition: the IBM-compatible (or PC) platform and the Apple platform. We first document that, relative to Apple, producers of PCs typically have more frequent technology adoption, shorter product cycles, and steeper price declines over the product cycle. We then develop a parsimonious vintage-capital model that matches the prices and sales of PC and Apple products. The ...
Working Paper
De-leveraging or De-risking? How Banks Cope with Loss
We use variation in banks’ loan exposure to industries adversely affected by the oil price declines of 2014 to explore how they respond to a net worth shock. Using granular data obtained under the Fed's stress testing programs we show that exposed banks tightened credit on corporate lending and on mortgages that they would ultimately hold on their balance sheet. However, they expanded credit for mortgages to be securitized, particularly those that are government-backed. Thus, banks re-balance their portfolio so as to lower their average risk weight, rather than scaling back the size of ...