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Author:Van Zandweghe, Willem 

Working Paper
Price Dispersion and Inflation Persistence

Persistent responses of inflation to monetary policy shocks have been difficult to explain by existing models of the monetary transmission mechanism without embedding controversial intrinsic inertia of inflation. Our paper addresses this issue using a staggered price model with trend inflation, a smoothed-off kink in demand curves, and a fixed cost of production. In this model, inflation exhibits a persistent response to a policy shock even in the absence of its intrinsic inertia, because the kink causes a measure of price dispersion, which is intrinsically inertial, to become a key source of ...
Research Working Paper , Paper RWP 16-9

Working Paper
Kinked demand curves, the natural rate hypothesis, and macroeconomic stability

In the presence of staggered price setting, high trend inflation induces a large deviation of steady-state output from its natural rate and indeterminacy of equilibrium under the Taylor rule. This paper examines the implications of a ''smoothed-off'' kink in demand curves for the natural rate hypothesis and macroeconomic stability using a canonical model with staggered price setting, and sheds light on the relationship between the hypothesis and the Taylor principle. An empirically plausible calibration of the model shows that the kink in demand curves mitigates the influence of price ...
Research Working Paper , Paper RWP 13-08

Working Paper
Output-Inflation Trade-offs and the Optimal Inflation Rate

In staggered price models, a non-CES aggregator of differentiated goods generates empirically plausible short- and long-run trade-offs between output and inflation: lower trend inflation flattens the Phillips curve and decreases steady-state output by increasing markups. We show that the aggregator reduces both the steady-state welfare cost of higher trend inflation and the inflation-related weight in a model-based welfare function for higher trend inflation. Consequently, optimal trend inflation is moderately positive even without considering the zero lower bound on nominal interest rates. ...
Working Papers , Paper 20-20

Journal Article
Monetary Policy Shocks and Aggregate Supply

Willem Van Zandweghe examines whether monetary policy has had long-lasting effects on labor productivity and potential output.
Economic Review , Issue Q III , Pages 31-56

Working Paper
On-the-job search, sticky prices, and persistence

Models of the monetary transmission mechanism often generate empirically implausible business fluctuations. This paper analyzes the role of on-the-job search in the propagation of monetary shocks in a sticky price model with labor market search frictions. Such frictions induce long-term employment relationships, such that the real marginal cost is determined by real wages and the cost of an employment relationship. On-the-job search opens up an extra channel of employment growth that dampens the response of these two components. Because real marginal cost rigidity induces small price ...
Research Working Paper , Paper RWP 09-03

Working Paper
Monetary policy, trend inflation, and the Great Moderation: an alternative interpretation: comment based on system estimation

What caused the U.S. economy's shift from the Great Inflation era to the Great Moderation era? {{p}} A large literature shows that the shift was achieved by the change in monetary policy from a passive to an active response to inflation. However, Coibion and Gorodnichenko (2011) attribute the shift to a fall in trend inflation along with the policy change, based on a solely estimated Taylor rule and a calibrated staggered-price model. We estimate the Taylor rule and the staggered-price model jointly and demonstrate that the change in monetary policy responses to inflation and other variables ...
Research Working Paper , Paper RWP 15-17

Journal Article
Monetary policy and firm entry and exit

Yoonsoo Lee and Willem Van Zandweghe find unusually accommodative monetary policy reduces the reallocation of capital and workers from exiting firms to new ones, potentially slowing productivity growth.
Macro Bulletin

Journal Article
The weakened influence of low interest rates on durable goods spending

Despite record-low interest rates, the pace of the current economic recovery has been only moderate. One reason is that the positive impact of lowered interest rates on consumer purchases of durable goods has diminished
Macro Bulletin

Journal Article
Wage Leaders and Laggards: Decomposing the Growth in Average Hourly Earnings

Wage growth has accelerated gradually over the past two years, largely due to a pickup in wage growth in a few industries ? the wage leaders. {{p}} Another, larger group of industries ? the wage laggards ? has not contributed at all to the acceleration. But the wage laggards have seen relatively strong growth in hours worked over the past two years, indicating rising labor demand that could lead to a further acceleration in overall wage growth.
Macro Bulletin

Working Paper
The Cyclical Behavior of Labor Force Participation

We document that labor force participation declines in the short run following a positive technology shock. The countercyclical response of labor force participation to a technology shock contrasts with the well documented mild procyclical behavior of labor force participation in the business cycle. In a search model of the labor market that incorporates a participation choice, we show that a positive technology shock reduces labor force participation in the short run under a reasonable calibration. In the calibrated model, discount factor shocks induce a procyclical response of labor force ...
Research Working Paper , Paper RWP 18-8



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