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Working Paper
To What Degree and through Which Channel Do Central Banks Other Than the Federal Reserve Cause Spillovers?
Spillovers play a crucial role in driving monetary policy around the world. The literature focuses predominantly on spillovers from the Federal Reserve. Less attention has been paid to spillovers from other central banks. I measure the degree to which 20 central banks cause spillovers. I show that central banks in medium- to high-income countries cause spillovers to medium- to long-term interest rates in similar countries through a bond-pricing channel. These effects are narrower than spillovers from the Federal Reserve, which also affect emerging markets, short-term interest rates, and other ...
Report
Forecasting CPI Shelter under Falling Market-Rent Growth
Shelter (housing) costs constitute a large component of price indexes, including 42 percent of the widely followed core Consumer Price Index (CPI). The shelter prices measured in the CPI capture new and existing renters and tend to lag market rents. This lag explains how in recent months the shelter-price index (CPI shelter) has accelerated while market rents have pulled back. We construct an error correction model using data at the metropolitan statistical area level to forecast how CPI shelter will evolve. We forecast that CPI shelter will grow 5.88 percent from September 2022 to September ...
Report
Debt, Deficits, and Interest Rates
This paper identifies how a rise in the deficit/debt impacts interest rates by looking at the high-frequency response of interest rates to fiscal surprises. The fiscal surprises are the unexpected components of deficit releases and the changes in official forecasts by the Congressional Budget Office and by the Office of Management and Budget. The paper estimates that a rise in the deficit-to-GDP ratio of 1 percentage point raises the 10-year nominal rate by 8.1 basis points. This is quantitatively similar for other Treasury maturities and for corporate debt interest rates. The paper also ...
Working Paper
Consumption Heterogeneity by Occupation: Understanding the Impact of Occupation on Personal Consumption during the COVID-19 Pandemic
This paper exploits the variation in the unemployment rate of different occupations in the first part of the COVID-19 pandemic to analyze the response of consumption spending to unemployment risk. We find that earlier in the pandemic, higher unemployment risk did not reduce relative spending. However, as the pandemic proceeded, higher unemployment risk reduced relative spending. This pattern held across both essential and nonessential spending categories. We find that “high-risk” occupations had three common characteristics: lower ability to be performed from home, higher physical ...
Working Paper
The Pass‐Through of Gaps between Market Rent and the Price of Shelter
The gap between market rent and the price of shelter was 6.6 percent larger in December 2023 relative to December 2019. Because shelter prices comprise 36 percent of the Consumer Price Index and therefore influence monetary policy decisions, it is vital to understand the pass‐through of this difference, or “market‐shelter gap.” I use MSA‐level variation to answer this question. When there is a positive market–shelter gap, the price of shelter grows faster and market rent grows slower until the gap closes, which takes about five years. Faster shelter‐price growth and slower ...
Working Paper
The Role of Industrial Composition in Driving the Frequency of Price Change
We analyze the impact of shifts in the industrial composition of the economy on the distribution of the frequency of price change and its consequences for the slope of the Phillips curve for the United States. By combining product-level microdata on the frequency of price change with data on industry shares from 1947 through 2019, we document that shifts in industrial composition led to a gradual reduction in the median monthly frequency of price change from 9.2 percent in 1947 to 6.9 percent in 2019. Other percentiles of the distribution of the frequency of price change show similar ...
Report
What Is Driving Inflation—Besides the Usual Culprits?
The prices of services associated with low-skill workers have been a key driver of “supercore” inflation, which excludes food, energy prices, and shelter prices. Low-skill-services inflation seems to be tied to faster wage growth in those industries coming out of the COVID-19 pandemic. Wage growth in low-skill services has begun to decline, suggesting that there may be lower inflation in these industries going forward. At the same time, wage growth in high-skill services has recently accelerated, suggesting that there may be higher inflation in these industries in the near future.
Report
Consumption Spending during the COVID-19 Pandemic
We use a novel empirical approach to decompose the impact of different economic, demographic, and COVID-19–related factors (such as lockdowns, case counts, and vaccination rates) on consumption spending on a week-by-week basis during the pandemic. This allows us to study how demographic and economic groups were differentially affected by the pandemic while crucially controlling for other factors. Our results imply that Hispanic and college-educated populations showed particularly large and persistent declines in relative spending. We also compute the relative importance of factors in ...
Report
A Faster Convergence of Shelter Prices and Market Rent: Implications for Inflation
The Federal Reserve currently faces a “last-mile” problem in bringing inflation back to its 2 percent target. Following the series of federal funds rate hikes that began in March 2022 and ended in July 2023, core (excluding food and energy) Personal Consumption Expenditure (PCE) inflation dropped from a year-over-year peak of 5.6 percent in February 2022 to 2.9 percent in December 2023. At the end of 2023, hopes were high that falling inflation would allow the Fed to cut interest rates several times in 2024. However, the disinflation process slowed noticeably in early 2024, prompting ...
Working Paper
The Pass‐through of Gaps between Market Rent and the Price of Shelter
The gap between market rent and the price of shelter was 6.6 percent larger in December 2023 relative to December 2019. Because shelter prices comprise 36 percent of the Consumer Price Index and therefore influence monetary policy decisions, it is vital to understand the pass‐ through of this difference, or “market‐shelter gap.” I use MSA‐level variation to answer this question. When there is a positive market–shelter gap, the price of shelter grows faster and market rent grows slower until the gap closes, which takes about five years. Faster shelter‐price growth and slower ...