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Journal Article
Unconventional monetary policy and the dollar
Although the Federal Reserve does not target the dollar, its announcements about monetary policy changes can affect the dollar?s exchange value. Before the 2007-09 financial crisis, the dollar?s value generally fell when the Fed lowered its target for the federal funds rate. Since the crisis, the Fed?s announcements of monetary policy easing through unconventional means have had similar effects on the dollar?s exchange rate.
Journal Article
Highway grants: roads to prosperity?
Federal highway grants to states appear to boost economic activity in the short and medium term. The short-term effects appear to be due largely to increases in aggregate demand. Medium-term effects apparently reflect the increased productive capacity brought by improved roads. Overall, each dollar of federal highway grants received by a state raises that state?s annual economic output by at least two dollars, a relatively large multiplier.
Journal Article
Has the Wage Phillips Curve Gone Dormant?
Although the labor market has steadily strengthened, wage growth has remained slow in recent years. This raises the question of whether the wage Phillips curve?the traditional relationship between labor market slack and wage growth?has weakened. Estimating a causal link from slack to wage growth using national data is difficult. However, using city-level data over the past 25 years shows that the cross-city relationship has weakened since the Great Recession. Explanations consistent with this timing suggest that the Phillips curve may return to a steeper curve in the future.
Working Paper
On exchange rate regimes, exchange rate fluctuations, and fundamentals
The authors develop a two-country, two-sector general equilibrium business cycle model with nominal rigidities featuring deviations from the law of one price. The paper shows that a model with these features can quantitatively account for the empirical fact that of the statistical properties of most macroeconomic variables, only the volatility of the real and nominal exchange rates has dramatically changed after the fall of the Bretton Woods system. In particular, the authors replicate some explicit nonstructural tests proposed in the literature with simulated data from their artificial ...
Journal Article
Why Is the Fed’s Balance Sheet Still So Big?
The Federal Reserve?s balance sheet is significantly larger today than it was before the financial crisis of 2008?2009. Rising demand for currency due to greater economic activity is partly responsible for this increase. The balance sheet will also need to remain large because the Federal Reserve now implements monetary policy in a regime of ample reserves, using a different set of tools than in the past to achieve its interest rate target.
Journal Article
The Uncertainty Channel of the Coronavirus
The outbreak of the novel coronavirus, or COVID-19, has severely disrupted economic activity through various supply and demand channels. The pandemic can also have pervasive economic impact by raising uncertainty. In the past, sudden and outsized spikes in uncertainty have led to large and protracted increases in unemployment and declines in inflation. These effects are similar to those resulting from declines in aggregate demand. Monetary policy accommodation, such as interest rate cuts, can help cushion the economy from such uncertainty shocks.
Journal Article
Does slower growth imply lower interest rates?
Over the past two years, both monetary and fiscal policy projections have been based on the view that declines in the long-run potential growth rate of the economy will in turn push down interest rates. In contrast, examination of private-sector professional forecasts and historical data provides little evidence of such a linkage. This suggests a greater risk that future interest rates may be higher than expected.
Working Paper
Should transportation spending be included in a stimulus program? a review of the literature
Transportation spending often plays a prominent role in government efforts to stimulate the economy during downturns. Yet, despite the frequent use of transportation spending as a form of fiscal stimulus, there is little known about its short- or medium-run effectiveness. Does it translate quickly into higher employment and economic activity or does it impact the economy only slowly over time? This paper reviews the empirical findings in the literature for the United States and other developed economies and compares the effects of transportation spending to those of other types of government ...
Working Paper
Exchange-rate puzzles in a model with arbitrage.
This paper documents the implications of arbitrage costs on the behavior of exchange rates in an open-economy liquidity model. The main motivation behind the paper is the growing evidence that the well-documented departures from purchasing power parity are due to a failure of the law of one price. The paper quantifies the importance of arbitrage costs for the variability, persistence, and autocorrelation of real and nominal exchange rates and compares the results with those of a model with nominal rigidities and firms pricing to market; second, the paper studies the impact of currency risk ...