A Monetarist View of the Fed’s Balance Sheet Normalization Period
The Federal Reserve currently holds over $4 trillion in fixed-income assets. However, since the fall of 2017 the Fed has been in a ?balance sheet normalization period,? during which the size of its balance sheet is gradually shrinking over time. In particular, the Federal Open Market Committee (FOMC) has been instructing the Federal Reserve trading desk to reduce its security holdings by reinvesting principal payments only to the extent that these payments exceed gradually raising caps. These caps on redemptions will be maintained until the Fed considers that its balance sheet has reached a ...
Corruption and innovation
In this article, the author illustrates how corruption can affect an industry's rate of innovation. An interesting result of analysis is that, under certain parameter ranges, small increases in the penalties to corruption or the effectiveness of detection can result in large increases in product innovation.
Business Cycle Fluctuations in Mirrlees Economies: The case of i.i.d. shocks
I consider a real business cycle model in which agents have private information about the i.i.d. realizations of their value of leisure. For the case of logarithmic preferences I provide an analytical characterization of the solution to the associated mechanism design problem. Moreover, I show a striking irrelevance result: That the stationary behavior of all aggregate variables are exactly the same in the private information economy as in the full information case. Numerical simulations indicate that the irrelevance result approximately holds for more general CRRA preferences.
Establishments dynamics, vacancies and unemployment: a neoclassical synthesis
This paper develops a Walrasian equilibrium theory of establishment dynamics and matching frictions and uses it to analyze business cycle fluctuations. Two scenarios are considered: one in which the matching process is subject to congestion externalities and another in which it is not. The paper finds that the scenario with congestion externalities replicates U.S. business cycle dynamics much better than the scenario with efficient matching. Reallocation shocks improve the empirical behavior of the model in terms of microeconomic adjustments but have little consequences for aggregate dynamics.
Plant level irreversible investment and equilibrium business cycles
This paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a general equilibrium approach. To this end a real business cycle model of establishment level dynamics is formulated and analyzed. Investments decisions are subject to irreversibility constraints and consequently, are of the (S,s) variety. This complicates the analysis since the state of the economy is described by an endogenous distribution of agents. The paper develops a computational strategy that makes this class of (S,s) economies fully tractable. Contrary to what the previous literature ...
Seasonal monetary policy
The aggregate effects of advance notice requirements
This article analyzes the effects of advance notice requirements on aggregate output, wages, employment, and welfare levels. The author finds that, contrary to firing taxes, advance notice requirements do not lead to reduction in employment. However, they can reduce welfare levels considerably more than firing taxes.
Labor market policies in an equilibrium search model
We explore to what extent differences in employment and unemployment across economies can be generated by differences in labor market policies. We use a version of the Lucas-Prescott equilibrium search model with undirected search and endogenous labor-force participation. Minimum wages, degree of unionization, firing taxes, and unemployment benefits are introduced and their effects analyzed. When the model is calibrated to US observations it reproduces several of the elasticities of employment and unemployment with respect to changes in policies reported in the empirical literature. We find ...
The role of housing in labor reallocation
This paper builds a dynamic general equilibrium model of cities and uses it to analyze the role of local housing markets and moving costs in determining the character and extent of labor reallocation in the US economy. Labor reallocation in the model is driven by idiosyncratic city-specific productivity shocks, which we measure using a dataset that we compile using more than 350 U.S. cities for the years 1984 to 2008. Based on this measurement, we find that our model is broadly consistent with the city-level evidence on net and gross population flows, employment, wages and residential ...
On the cyclical behavior of employment, unemployment and labor force participation
In this paper I evaluate to what extent a real business cycle (RBC) model that incorporates search and leisure decisions can simultaneously account for the observed behavior of employment, unemployment and out-of-the-labor-force. This contrasts with the previous RBC literature, which analyzed employment or hours fluctuations by either lumping together unemployment and out-of-the-labor-force into a single non-employment state or assuming a fixed labor force participation. Once the three employment states are explicitly introduced I find that the RBC model generates highly counterfactual labor ...