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Journal Article
Social Security: are we getting our money's worth?
An examination of Social Security from an individual investment perspective, showing that continued delays in addressing the program's shortcomings will only increase the intergenerational inequities that now exist.
Journal Article
Forecasting growth over the next year with a business cycle index
The current economic recovery is proceeding at a tepid pace despite massive federal fiscal stimulus and extremely low interest rates. Forecasts derived from business cycle indicators produced by the Chicago and Philadelphia Federal Reserve Banks predict that real U.S. GDP growth through the first half of 2011 will remain at or below potential. If these forecasts prove accurate, then the historical relationship between real GDP growth and the labor market suggests that the unemployment rate could rise by as much as 0.5 percentage point during this period.
Journal Article
Reducing Inflation along a Nonlinear Phillips Curve
Inflation has climbed since 2021, as the labor market has tightened. Two historical data relationships can account for elevated inflation over the past two years: the Beveridge curve, which relates job vacancies and unemployment rates over the business cycle, and a nonlinear version of the Phillips curve, which links inflation to labor market slack. Combining estimates of the two curves implies that inflation can fall in conjunction with a “soft landing” for the economy if labor market easing is achieved mainly by reducing job vacancies rather than increasing unemployment.
Working Paper
Growth effects of a flat tax.
A presentation of a quantitative general equilibrium model showing that a revenue-neutral flat tax can permanently boost per capita growth by 0.18 to 0.85 percentage point annually, and that the lower marginal tax rate and the full investment write-off are both important contributors to the increased growth.
Working Paper
Rational and near-rational bubbles without drift
This paper derives a general class of intrinsic rational bubble solutions in a standard Lucas-type asset pricing model. I show that the rational bubble component of the price-dividend ratio can evolve as a geometric random walk without drift. The volatility of bubble innovations depends exclusively on fundamentals. Starting from an arbitrarily small positive value, the rational bubble expands and contracts over time in an irregular, wholly endogenous fashion, always returning to the vicinity of the fundamental solution. I also examine a near-rational solution in which the representative agent ...
Journal Article
Searching for value in the U.S. stock market
Working Paper
Leaning Against the Credit Cycle
How should a central bank act to stabilize the debt-to-GDP ratio? We show how the persistent nature of household debt shapes the answer to this question. In environments where households repay mortgages gradually, surprise interest hikes only weakly influence household debt, and tend to increase debt-to-GDP in the short run while reducing it in the medium run. Interest rate rules with a positive weight on debt-to-GDP cause indeterminacy. Compared to inflation targeting, debt-to-GDP stabilization calls for a more expansionary policy when debt-to-GDP is high, so as to deflate the debt burden ...
Working Paper
Replicating Business Cycles and Asset Returns with Sentiment and Low Risk Aversion
This paper develops a real business cycle model with eight fundamental shocks andone ìequity sentiment shockî that captures belief-driven áuctuations. I solve for thetime series of shock realizations that allow the model to exactly replicate the observedtime paths of U.S. macroeconomic variables and asset returns over the past six decades.The representative agentís perception that movements in equity value are partly drivenby sentiment is close to self-fulÖlling. The model-identiÖed sentiment shock is stronglycorrelated with other fundamental shocks and implies ìpessimismîrelative to ...
Working Paper
Speculative growth and overreaction to technology shocks
This paper develops a stochastic endogenous growth model that exhibits ?excess volatility? of equity prices because speculative agents overreact to observed technology shocks. When making forecasts about the future, speculative agents behave like rational agents with very low risk aversion. The speculative forecast rule alters the dynamics of the model in a way that tends to confirm the stronger technology response. For moderate levels of risk aversion, the forecast errors observed by the speculative agent are close to white noise, making it difficult for the agent to detect a ...
Conference Paper
Computable general equilibrium models and monetary policy advice