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Author:Hornstein, Andreas 

Working Paper
The replacement problem in frictional economies : a near equivalence result

We examine how technological change affects wage inequality and unemployment in a calibrated model of matching frictions in the labor market. We distinguish between two polar cases studied in the literature: a "creative destruction" economy where new machines enter chiefly through new matches and an "upgrading" economy where machines in existing matches are replaced by new machines. Our main results are: (i) these two economies produce very similar quantitative outcomes, and (ii) the total amount of wage inequality generated by frictions is very small. We explain these findings in light ...
Working Paper , Paper 05-01

Journal Article
Monetary policy with interest on reserves

Since the fall of 2008, the amount of outstanding reserves on the Federal Reserve's balance sheet has increased from about 100 billion dollars to more than 1 trillion dollars. There is some concern that the magnitude of outstanding reserves might affect the ability of the Federal Reserve to conduct monetary policy through an interest rate policy. In this article I argue that the ability of the Federal Reserve to pay interest on reserves, also introduced in the fall of 2008, should lessen this concern. For an appropriately modified baseline model of money, I show that, with the payment of ...
Economic Quarterly , Volume 96 , Issue 2Q , Pages 153-177

Working Paper
The role of real wages, productivity, and fiscal policy in Germany's Great Depression, 1928-37

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy was procyclical. We use the neoclassical growth model to investigate how much these factors contribute to the depression. We find that real wages, which were significantly above their market clearing levels, were the most important factor for the economic decline in the depression. Changes in productivity and fiscal policy were also important for the decline and recovery. Even though ...
Working Paper , Paper 01-07

Working Paper
Quarantine, Contact Tracing, and Testing: Implications of an Augmented SEIR Model

I incorporate quarantine, contact tracing, and random testing in the basic SEIR model of infectious disease diffusion. A version of the model that is calibrated to known characteristics of the spread of COVID-19 is used to estimate the transmission rate of COVID-19 in the United States in 2020. The transmission rate is then decomposed into a part that reflects observable changes in employment and social contacts and a residual component that reflects disease properties and all other factors that affect the spread of the disease. I then construct counterfactuals for an alternative ...
Working Paper , Paper 21-08

Briefing
Will a Surge in Labor Force Participation Impede Unemployment Rate Improvement?

The labor force participation rate has been falling since 2000, a trend that accelerated somewhat during the recession of 2007-09. Some economists and journalists have questioned whether recent improvements in the labor market will cause non-participants to re-enter the labor force at a faster rate, thus offsetting job growth and impeding further declines in the unemployment rate. But recent worker-flow research suggests that this scenario is unlikely.
Richmond Fed Economic Brief , Issue Aug

Journal Article
Introduction to the New Keynesian Phillips curve

In most industrialized economies inflation tends to be pro-cyclical; that is, inflation is high during times of high economic activity. When economic activity is measured by the unemployment rate this statistical relationship is known as the Phillips curve.
Economic Quarterly , Volume 94 , Issue Fall , Pages 301-309

Journal Article
The business cycle and industry comovement

Economic Quarterly , Issue Win , Pages 27-48

Journal Article
Trend inflation, firm-specific capital, and sticky prices

Economic Quarterly , Volume 91 , Issue Fall , Pages 57-83

Journal Article
Introduction to the special issue on modern macroeconomic theory

An introduction to the special issue on modern macroeconomic theory.
Economic Quarterly , Volume 97 , Issue 3Q , Pages 189-193

Discussion Paper
(S,s) inventory policies in general equilibrium

We study the aggregate implications of (S,s) inventory policies in a dynamic general equilibrium model. Firms in the model's retail sector face idiosyncratic demand risk, and (S,s) inventory policies are optimal because of fixed order costs. The model economy replicates salient features of the business cycle and reconciles evidence that orders are more volatile than sales, and that inventory investment is positively correlated with sales. There are two main results. First, we find that general equilibrium effects and the optimal order size are important for the economy's response to exogenous ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 104

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