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Working Paper
Measuring Labor-Force Participation and the Incidence and Duration of Unemployment
The underlying data from which the U.S. unemployment rate, labor-force participation rate, and duration of unemployment are calculated contain numerous internal contradictions. This paper catalogs these inconsistencies and proposes a reconciliation. We find that the usual statistics understate the unemployment rate and the labor-force participation rate by about two percentage points on average and that the bias in the latter has increased since the Great Recession. The BLS estimate of the average duration of unemployment overstates by 50% the true duration of uninterrupted spells of ...
Discussion Paper
Research Data Series: Index of Common Inflation Expectations
In an earlier FEDS Note, "Index of Common Inflation Expectations," we introduced the Index of Common Inflation Expectations, or "CIE", which summarizes the comovement of a wide variety of inflation expectations measures based on a dynamic factor model.
Working Paper
Heterogeneity and Unemployment Dynamics
This paper develops new estimates of flows into and out of unemployment that allow for unobserved heterogeneity across workers as well as direct effects of unemployment duration on unemployment-exit probabilities. Unlike any previous paper in this literature, we develop a complete dynamic statistical model that allows us to measure the contribution of different shocks to the short-run, medium-run, and long-run variance of unemployment as well as to specific historical episodes. We find that changes in the inflows of newly unemployed are the key driver of economic recessions and identify an ...
Working Paper
Heterogeneity in the Dynamics of Disaggregate Unemployment
This paper explores the role that unobserved heterogeneity within an observed category plays in the dynamics of disaggregate unemployment and in the cross-sectional differences across individuals of the duration of unemployment spells. The distribution of unobserved heterogeneity is characterized as a mixture of two distributions with each mean and weight determined by the inflows and outflows of workers with unobserved types H and L, which are identified based on the nonlinear state-space model of Ahn and Hamilton (2016). I found that the contribution of each factor to the dynamics of ...
Working Paper
Relative prices and pure inflation since the mid-1990s
This paper decomposes consumer price inflation into pure inflation, relative price inflation, and idiosyncratic inflation by estimating a dynamic factor model รก la Reis and Watson (2010) on a data set of 146 monthly disaggregated prices from 1995 to 2019. We find that pure inflation is the trend around which PCE price inflation fluctuates, while relative price inflation and idiosyncratic inflation drive the fluctuation of PCE price inflation around the trend. Unlike Reis and Watson, we find that labor market slack is the main driver of pure inflation and that energy prices account for ...
Working Paper
Precautionary On-the-Job Search over the Business Cycle
This paper provides new evidence for cyclicality in the job-search effort of employed workers, on-the-job search (OJS) intensity, in the United States using American Time Use Survey and various cyclical indicators. We find that OJS intensity is countercyclical along both the extensive and intensive margins, with the countercyclicality of extensive margin stronger than the other. An increase in the layoffs rate and the deterioration in expectations about future personal financial situation are the primary factors that raise OJS intensity. Our findings suggest that the precautionary motive in ...
Discussion Paper
Factors in Unemployment Dynamics
The U.S. unemployment rate averaged 8.4% during the first five years of recovery from the Great Recession of 2007-2009, the weakest recovery on record. But as the expansion continued, unemployment continued to decline and by 2018 reached the lowest levels in almost half a century. In this Note, we explore why unemployment remained so high for so long, and what factors contributed to the recent lows.
Discussion Paper
Index of Common Inflation Expectations
Data that are potentially informative about the inflation expectations of economic agents have grown over recent years and now include information from a wide variety of surveys as well as from financial instruments. These data differ along several key dimensions, including the type of economic agent, the horizon of the expectation, the source of data (survey versus market-based measures), and the associated inflation concept, which can make the co-movement of various expectations measures difficult to discern.
Working Paper
Revealing Cluster Structures Based on Mixed Sampling Frequencies
This paper proposes a new nonparametric mixed data sampling (MIDAS) model and develops a framework to infer clusters in a panel regression with mixed frequency data. The nonparametric MIDAS estimation method is more flexible and substantially simpler to implement than competing approaches. We show that the proposed clustering algorithm successfully recovers true membership in the cross-section, both in theory and in simulations, without requiring prior knowledge of the number of clusters. This methodology is applied to a mixed-frequency Okun's law model for state-level data in the U.S. and ...
Working Paper
Dynamic Beveridge Curve Accounting
We develop a dynamic decomposition of the empirical Beveridge curve, i.e., the level of vacancies conditional on unemployment. Using a standard model, we show that three factors can shift the Beveridge curve: reduced-form matching efficiency, changes in the job separation rate, and out-of-steady-state dynamics. We find that the shift in the Beveridge curve during and after the Great Recession was due to all three factors, and each factor taken separately had a large effect. Comparing the pre-2010 period to the post-2010 period, a fall in matching efficiency and out-of-steady-state dynamics ...