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Report
Productivity Improvements and Markup Normalization Can Support Further Wage Gains without Inflationary Pressures
Wage inflation remains higher than it was before the onset of the COVID-19 pandemic, raising concerns that it could hinder progress toward a return of price inflation to the Federal Reserve’s 2 percent target. The impact of wage inflation on price inflation, however, cannot be considered independently of the behavior of productivity and firms’ markups. In that context, there are scenarios in which wage inflation could stay above trend for a few more quarters without contributing to higher price inflation.
Working Paper
Assessing Central Bank Commitment to Inflation Targeting: Evidence from Financial Market Expectations in India
We propose a novel framework to gauge the credibility of central banks’ commitment to an inflation-targeting regime. Our framework combines survey data on macroeconomic forecasts with high-frequency financial market data to understand how inflation targeting makes economic agents change their perception about central bank decisions. Specifically, using the Reserve Bank of India’s adoption of inflation targeting in 2015 as a laboratory, we apply two different approaches to estimate a market-perceived monetary policy rule and analyze how it changed with the implementation of inflation ...
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 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 ...
Working Paper
Fiscal Expansions in the Era of Low Real Interest Rates
Low natural real interest rates limit the power of monetary policy to revive the economy due to the zero lower bound (ZLB) on the nominal interest rate. Fiscal stabilization via higher government debt is frequently recommended as a policy to raise the natural real interest rate. This paper builds a non-Ricardian framework to study the tradeoffs associated with a debt-financed fiscal expansion and show that even in a low real interest rate environment, higher debt doesn’t necessarily raise the real interest rate. The effect of the expansion is non-monotonic: Increasing debt raises the ...
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
The Roles of Mobility and Masks in the Spread of COVID-19
This policy brief analyzes the effects of COVID-19 mitigation policies, those that restrict movement and activity and those that advocate public health best practices. The analysis uses US state-level data to estimate the effects of mobility, mask mandates, and compliance with these mandates on the numbers of COVID-19 cases and deaths. A one-standard-deviation increase in mobility is associated with an 11 to 20 basis points greater rate of growth in case counts; a mask mandate can offset about half of this increase. Slower growth in case counts ultimately translates into slower growth in ...
Report
The Distribution of Sectoral Price Changes and Recent Inflation Developments
Inflation has declined across many sectors so far in 2023, but the distribution of sectoral price changes still shows atypical features, such as bimodality in which substantial masses of sectors record price changes both below and above the Federal Reserve’s 2 percent inflation target. Such bimodality was not typical before the pandemic, suggesting that sector-specific price adjustments are now playing a more important role in inflation developments. The recent slowdown in inflation was partly caused by a larger-than-normal share of the consumption basket being located in the left tail of ...
Working Paper
Impact of Occupational Unemployment Risk on Household Spending
The life-cycle consumption and permanent income hypotheses predict that if workers face greater likelihood of unemployment in the future that lowers expected future income, they will save more today. In this paper, we test this hypothesis by looking at the expenditure response of workers to the change in unemployment risk measured at the occupational level. We find that occupational unemployment risk does not have a large impact on consumption expenditure. However, despite investigating multiple forms of occupational unemployment risk for multiple expenditure categories in two expenditure ...