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Author:Lee, Donggyu 

Income Inequality and Job Creation

We propose a novel channel through which rising income inequality affects job creation and macroeconomic outcomes. High-income households save relatively more in stocks and bonds but less in bank deposits. A rising top income share thereby increases the relative financing costs for bank-dependent firms, which in turn create fewer jobs. Exploiting variation across U.S. states and an IV strategy, we provide evidence for the channel. Calibrating a general equilibrium model to our cross-regional estimates, we show that rising inequality increases the employment share of large firms, reduces the ...
Staff Reports , Paper 1021

Discussion Paper
Does Income Inequality Affect Small Firms?

The share of income going to high-income households has increased significantly in the United States in recent decades. In 1980, the average income share of earners in the top 10 percent was around 30 percent. However, by 2015, it had surpassed 45 percent. The employment share of small firms has also declined, with a decrease of approximately 5 percentage points over the same period. In this post, we use variation across states to show a correlation between these two developments, with states having the greatest increase in the upper income share also tending to be those with the biggest job ...
Liberty Street Economics , Paper 20231005

The New York Fed DSGE Model: A Post-Covid Assessment

We document the real-time forecasting performance for output and inflation of the New York Fed dynamic stochastic general equilibrium (DSGE) model since 2011. We find the DSGE's accuracy to be comparable to that of private forecasters before Covid, but somewhat worse thereafter.
Staff Reports , Paper 1082

Estimating HANK for Central Banks

We provide a toolkit for efficient online estimation of heterogeneous agent (HA) New Keynesian (NK) models based on Sequential Monte Carlo methods. We use this toolkit to compare the out-of-sample forecasting accuracy of a prominent HANK model, Bayer et al. (2022), to that of the representative agent (RA) NK model of Smets and Wouters (2007, SW). We find that HANK’s accuracy for real activity variables is notably inferior to that of SW. The results for consumption in particular are disappointing since the main difference between RANK and HANK is the replacement of the RA Euler equation with ...
Staff Reports , Paper 1071

Discussion Paper
The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy

This post uses the New York Fed DSGE model to ask the question: What would have happened to interest rates, output, and inflation had the Federal Reserve been following an average inflation targeting (AIT)-type reaction function since 2021:Q2, when inflation began to rise—as opposed to keeping the federal funds rate at the zero lower bound (ZLB) until March 2022, and then raising it aggressively thereafter? We show that actual policy was more accommodative in 2021 than implied by the AIT reaction function and then more contractionary in 2022 and beyond. On net, the lagged effect of monetary ...
Liberty Street Economics , Paper 20231121b

Discussion Paper
A Bayesian VAR Model Perspective on the Lagged Effect of Monetary Policy

Over the last few years, the U.S. economy has experienced unusually high inflation and an unprecedented pace of monetary policy tightening. While inflation has fallen recently, it remains above target, and the economy continues to expand at a robust pace. Does the resilience of the U.S. economy imply that monetary policy has been ineffectual? Or does it reflect that policy acts with “long and variable lags” and so we haven’t yet observed the full effect of the monetary tightening that has already taken place? Using a Bayesian vector autoregressive (BVAR) model, we show that economic ...
Liberty Street Economics , Paper 20231121a

Discussion Paper
The New York Fed DSGE Model Forecast— September 2023

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since June 2023. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.
Liberty Street Economics , Paper 20230922

Discussion Paper
How Are They Now? A Checkup on Homeowners Who Experienced Foreclosure

The end of the Great Recession marked the beginning of the longest economic expansion in U.S. history. The Great Recession, with its dramatic housing bust, led to a wave of home foreclosures as overleveraged borrowers found themselves unable to meet their payment obligations. In early 2009, the New York Fed’s Research Group launched the Consumer Credit Panel (CCP), a foundational data set of the Center for Microeconomic Data, to monitor the financial health of Americans as the economy recovered. The CCP, which is based on anonymized credit report data from Equifax, gives us an opportunity ...
Liberty Street Economics , Paper 20240508




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