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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
The real business cycle: intermediate inputs and sectoral comovement
We describe the postwar U.S. business cycle for the durable and nondurable goods producing sector. The business cycle is characterized by positive comovement of output, employment, and investment across the two sectors. We develop a two sector growth model to explain the observed pattern of comovements, and suggest that intermediate inputs produced by the nondurable goods sector for the durable goods sector play a crucial role.
Working Paper
The role of real wages, productivity and fiscal policy in Germany's Great Depression 1928-1937
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 were 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 ...
Conference Paper
Vintage capital as an origin of inequalities
Does capital-embodied technological change play an important role in shaping labor market inequalities? This paper addresses the question in a model with vintage capital and search / matching frictions where costly capital investment leads to large heterogeneity in productivity among vacancies in equilibrium. The paper first demonstrates analytically how both technology growth and institutional variables affect equilibrium wage inequality, income shares and unemployment. Next, it applies the model to a quantitative evaluation of capital as an origin of wage inequality: at the current rate of ...
Working Paper
Why Is Current Unemployment So Low?
Current unemployment, as of 2019Q4, is so low not because of unusually high job finding rates out of unemployment, but because of unusually low entry rates into unemployment. The unusually low entry rates, both from employment and from out of the labor force, reflect a long-run downward trend, and have lowered the unemployment rate trend over the recent decade. In fact, the difference between the current unemployment rate and unemployment rates at the two previous cyclical peaks in 2000 and 2007 is more than fully accounted for by the decline in its trend. This suggests that the current low ...
Working Paper
Estimating Matching Efficiency with Variable Search Effort
We introduce a simple representation of endogenous search effort into the standard matching function with job-seeker heterogeneity. Using the estimated augmented matching function, we study the sources of changes in the average employment transition rate. In the standard matching function the contribution of market tightness (matching efficiency) is increasing (decreasing) in the matching function elasticity. For our augmented matching function search effort is pro-cyclical for small matching elasticity and accounts for most of the transition rate volatility, with small contributions from ...
Working Paper
Aggregate Labor Force Participation and Unemployment and Demographic Trends
We estimate trends in the labor force participation (LFP) and unemployment rates for demographic groups differentiated by age, gender, and education, using a parsimonious statistical model of age, cohort and cycle effects. Based on the group trends, we construct trends for the aggregate LFP and unemployment rate. Important drivers of the aggregate LFP rate trend are demographic factors, with increasing educational attainment being important throughout the sample and ageing of the population becoming more important since 2000, and changes of groups' trend LFP rates, e.g. for women prior to ...
Working Paper
Generalized Matching Functions and Resource Utilization Indices for the Labor Market
In the U.S. labor market unemployed individuals that are actively looking for work are more than three times as likely to become employed as those individuals that are not actively looking for work and are considered to be out of the labor force (OLF). Yet, on average, every month twice as many people make the transition from OLF to employment than do from unemployment. Based on these observations we have argued in Hornstein, Kudlyak, and Lange (2014) for an alternative measure of resource utilization in the labor market, a non-employment index, which is more comprehensive than the standard ...
Working Paper
Aggregate Implications of Changing Sectoral Trends
We fi nd disparate trend variation in TFP and labor growth across major U.S. production sectors over the post-WWII period. When aggregated, these sector-specif c trends imply secular declines in the growth rate of aggregate labor and TFP. We embed this sectoral trend variation into a dynamic multi-sector framework in which materials and capital used in each sector are produced by other sectors. The presence of capital induces important network effects from production linkages that amplify the consequences of changing sectoral trends on GDP growth. Thus, in some sectors, changes in TFP and ...
Working Paper
(S, s) inventory policies in general equilibrium
We study the aggregate implications of (S,s) inventory policies in a dynamic general equilibrium model with aggregate uncertainty. Firms in the model's retail sector face idiosyncratic demand risk, and (S,s) inventory policies are optimal because of fixed order costs. The distribution of inventory holdings affects the aggregate outcome in two ways: variation in the decision to order and variation in the rate of sale through the pricing decisions of retailers. We find that both mechanisms must operate to reconcile observations that orders are more volatile than, and inventory investment is ...