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Author:Acharya, Sushant 

Replacement hiring and the productivity-wage gap

A large and growing share of hires in the United States are replacement hires. This increase coincides with a growing productivity-wage gap. We connect these trends by building a model where firms post long-lived vacancies and engage in on-the-job search for more productive workers. These features improve a firm's bargaining position while raising workers' job insecurity and the wedge between hiring and meeting rates. All three channels lower wages while raising productivity. Quantitatively, increased replacement hiring explains half the increase in the productivity-wage gap. The socially ...
Staff Reports , Paper 860

Asset price effects of peer benchmarking: evidence from a natural experiment

We estimate the effects of peer benchmarking by institutional investors on asset prices. To identify trades purely due to peer benchmarking as separate from those based on fundamentals or private information, we exploit a natural experiment involving a change in a government-imposed underperformance penalty applicable to Colombian pension funds. This change in regulation is orthogonal to stock fundamentals and only affects incentives to track peer portfolios, allowing us to identify the component of demand that is caused by peer benchmarking. We find that these peer effects generate excess ...
Staff Reports , Paper 727

Costly information, planning complementarities and the Phillips Curve

Standard sticky information pricing models successfully capture the sluggish movement of aggregate prices in response to monetary policy shocks but fail at matching the magnitude and frequency of price changes at the micro level. This paper shows that in a setting where firms choose when to acquire costly information about different types of shocks, strategic complementarities in pricing generate planning complementarities. This results in firms optimally updating their information about monetary policy shocks less frequently than about idiosyncratic shocks. When calibrated to match frequent ...
Staff Reports , Paper 698

Working Paper
The Financial Origins of Non-Fundamental Risk

We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes the economy to self-fulfilling fire sales. Policy can eliminate nonfundamental risk by (i) increasing the supply of publicly backed safe assets, through issuing government debt or bailing out intermediaries, or (ii) reducing the ...
Working Paper Series , Paper 2023-20

Estimating HANK for Central Banks

We provide a toolkit for efficient online estimation of heterogeneous agent (HA) New Keynesian (NK) models based on Sequential Monte Carlo methods. We use this toolkit to compare the out-of-sample forecasting accuracy of a prominent HANK model, Bayer et al. (2022), to that of the representative agent (RA) NK model of Smets and Wouters (2007, SW). We find that HANK’s accuracy for real activity variables is notably inferior to that of SW. The results for consumption in particular are disappointing since the main difference between RANK and HANK is the replacement of the RA Euler equation with ...
Staff Reports , Paper 1071

Discussion Paper
Natural Experiment Sheds Light on the Market Effects of Herding

Pension funds are expected to behave in a patient, countercyclical manner, making the most of low valuations over the business cycle to achieve high returns. Such behavior provides liquidity and stability to the financial system. However, this belief has come under question. A large theoretical literature has emerged which looks at how short-term considerations affecting these institutional investors might arise from relative performance concerns or from the influence of other incentives introduced by market and regulatory monitoring. Such considerations might incentivize fund managers to ...
Liberty Street Economics , Paper 20150930

Discussion Paper
Escaping Unemployment Traps

Economic activity has remained subdued following the Great Recession. One interpretation of the listless recovery is that recessions inflict permanent damage on an economy’s productive capacity. For example, extended periods of high unemployment can lead to skill losses among workers, reducing human capital and lowering future output. This notion that temporary recessions have long-lasting consequences is often termed hysteresis. Another explanation for sluggish growth is the influential secular stagnation hypothesis, which attributes slow growth to long-term changes in the economy’s ...
Liberty Street Economics , Paper 20161116

Liquidity traps, capital flows

Motivated by debates surrounding international capital flows during the Great Recession, we conduct a positive and normative analysis of capital flows when a region of the global economy experiences a liquidity trap. Capital flows reduce inefficient output fluctuations in this region by inducing exchange rate movements that reallocate expenditure toward the goods it produces. Restricting capital mobility hampers such an adjustment. From a global perspective, constrained efficiency entails subsidizing capital flows to address an aggregate demand externality associated with exchange rate ...
Staff Reports , Paper 765

Discussion Paper
Revisiting the Case for International Policy Coordination

Prompted by the U.S. financial crisis and subsequent global recession, policymakers in advanced economies slashed interest rates dramatically, hitting the zero lower bound (ZLB), and then implemented unconventional policies such as large-scale asset purchases. In emerging economies, however, the policy response was more subdued since they were less affected by the financial crisis. As a result, capital flows from advanced to emerging economies increased markedly in response to widening interest rate differentials. Some emerging economies reacted by adopting measures to slow down capital ...
Liberty Street Economics , Paper 20160601

Optimal Monetary Policy According to HANK

We study optimal monetary policy in a heterogeneous agent new Keynesian economy. A utilitarian planner seeks to reduce consumption inequality, in addition to stabilizing output gaps and inflation. The planner does so both by reducing income risk faced by households, and by reducing the pass-through from income to consumption risk, trading off the benefits of lower inequality against productive inefficiency and higher inflation. When income risk is countercyclical, policy curtails the fall in output in recessions to mitigate the increase in inequality. We uncover a new form of time ...
Staff Reports , Paper 916



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