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Journal Article
Do Local Economic Conditions Influence FOMC Votes?
Monetary policy in the United States is determined by the Federal Open Market Committee (FOMC), a decisionmaking body that includes regional representation. Evidence shows that the economic conditions in their respective regions have influenced how presidents of the 12 regional Federal Reserve Districts voted at the FOMC meetings in past decades. Specifically, a 1 percentage point higher unemployment rate in a District relative to the national average is associated with a 9 percentage point higher probability of dissenting in favor of looser policy during the FOMC vote.
Journal Article
The Economic Implications of Tariff Increases
Trade policy in the United States has been in flux in recent months. A theoretical analysis of recent increases in U.S. tariffs, including potential retaliatory tariffs by other countries, suggests a resulting drop in overall U.S. employment, although manufacturing employment increases. Results also indicate a decline in overall real income for the United States of around 0.4%, although this number masks important variation across U.S. states.
Journal Article
Are Inflation Expectations Currently Well Anchored?
The response of market-based long-run inflation expectations to monetary policy is one measure of the perceived credibility of the central bank’s inflation target—its “nominal anchor.” The strength of the nominal anchor in the United States has varied over time between 1999 and 2026, with the post-2022 trajectory suggesting an increasingly strong anchor. This channel may support monetary policy in returning inflation to its 2% target.
Journal Article
How Do Low and Negative Interest Rates Affect Banks?
Developed countries have recently turned to very low—even negative—interest rates to try to stimulate their economies. Low or negative rates can affect banks in novel ways because they often base their retail rates on the policy rate. In particular, the rate banks pay households for deposits usually remains at zero during times of low or negative policy rates, rather than falling together with the policy rate, as it would during normal times. This can decrease banks’ net interest margins, negatively impacting their profitability, equity, and ability to lend.
Journal Article
Supply Chain Disruptions, Trade Costs, and Labor Markets
Global supply chain disruptions due to the COVID-19 pandemic have increased the costs of trade between countries. Given the interconnectedness of the U.S. economy with the rest of the world, higher trade costs can have important impacts on U.S. labor markets. A model of the U.S. economy that incorporates variation in industry concentrations across regions can help quantify these effects. The analysis suggests that recent global supply disruptions could cause a sizable and persistent reduction in labor force participation.
Working Paper
Going Negative at the Zero Lower Bound: The Effects of Negative Nominal Interest Rates
After the Great Recession several central banks started setting negative nominal interest rates in an expansionary attempt, but the effectiveness of this measure remains unclear. Negative rates can stimulate the economy by lowering the rates that commercial banks charge on loans, but they can also erode bank profitability by squeezing deposit spreads. This paper studies the effects of negative rates in a new DSGE model where banks intermediate the transmission of monetary policy. I use bank-level data to calibrate the model and find that monetary policy in negative territory is between 60% ...
Working Paper
Alternative Models of Interest Rate Pass-Through in Normal and Negative Territory
In the aftermath of the Great Recession, many countries used low or negative policy rates to stimulate the economy. These policies gave rise to a rapidly growing literature that seeks to understand and quantify their impact. A fundamental step when studying the effectiveness of low and negative policy rates is to understand their transmission to loan and deposit rates. This paper proposes two models of pass-through from policy rates to loan and deposit rates that can match important stylized facts while remaining parsimonious. These models can be used to study the transition between positive ...
Working Paper
New-Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks
There is a growing empirical consensus that trade shocks can have important effects on unemployment and nonemployment across local-labor markets within an economy. This paper introduces downward nominal wage rigidity to an otherwise standard quantitative trade model and shows how this framework can generate changes in unemployment and nonemployment that match those uncovered by the empirical literature studying the “China shock.” We also compare the associated welfare effects predicted by this model with those in the model without unemployment. We find that the China shock leads to ...
Working Paper
Making Sense of Negative Nominal Interest Rates
Several advanced economies implemented negative nominal interest rates in the middle of the last decade, seeking to provide further monetary accommodation once cuts in positive territory had been exhausted. Negative rates affect banks in novel ways, mostly because during times of negative policy rates the interest rate that banks pay households on their deposits usually remains close to zero. In this review, we analyze the large literature that studies the impact of negative nominal interest rates, proceeding in four steps. First, we explain the theoretical channels through which negative ...
Working Paper
Labor Market Effects of Global Supply Chain Disruptions
We examine the labor market consequences of recent global supply chain disruptions induced by COVID-19. Specifically, we consider a temporary increase in international trade costs similar to the one observed during the pandemic and analyze its effects on labor market outcomes using a quantitative trade model with downward nominal wage rigidities. Even omitting any health related impacts of the pandemic, the increase in trade costs leads to a temporary but prolonged decline in U.S. labor force participation. However, there is a temporary increase in manufacturing employment as the United ...