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Working Paper
Approximating Multisector New Keynesian Models
Nechio, Fernanda; Carvalho, Carlos (2017-06-08)
We show that a calibrated three-sector model with a suitably chosen distribution of price stickiness can closely approximate the dynamic properties of New Keynesian models with a much larger number of sectors. The parameters of the approximate three-sector distribution are such that both the approximate and the original distributions share the same (i) average frequency of price changes, (ii) cross-sectional average of durations of price spells, (iii) cross-sectional standard deviation of durations of price spells, (iv) the cross-sectional skewness of durations of price spells, and (v) ...
Working Paper Series , Paper 2017-12

Working Paper
Do Multisectoral New Keynesian Models Match Sectoral Data?
Andrade, Philippe; Sheremirov, Viacheslav (2022-09-01)
We document empirical regularities of disaggregated inflation and consumption and study whether multisectoral New Keynesian models can explain them. We focus on higher moments of the inflation and consumption growth distributions as well as on the contemporaneous comovement of these two variables. We find that the sectoral distributions of inflation and consumption growth are asymmetric, with inflation skewed negatively and consumption growth positively. Both distributions are highly leptokurtic. In the full sample, from the mid-1980s through 2021, sectoral inflation and consumption growth ...
Working Papers , Paper 22-14

Working Paper
Discretion Rather than Rules: Equilibrium Uniqueness and Forward Guidance with Inconsistent Optimal Plans
Campbell, Jeffrey R.; Weber, Jacob P. (2018-09-07)
New Keynesian economies with active interest rate rules gain equilibrium determinacy from the central bank?s incredible off-equilibrium-path promises (Cochrane, 2011). We suppose instead that the central bank sets interest rate paths and occasionally has the discretion to change them. Private agents taking future central bank actions and their own best responses to them as given reduces the scope for self-fulfilling prophecies. With empirically-reasonable frequencies of central-bank reoptimization, the monetary-policy game has a unique Markov-perfect equilibrium wherein forward guidance ...
Working Paper Series , Paper WP-2018-14

Working Paper
Labor Market Shocks and Monetary Policy
Birinci, Serdar; Karahan, Fatih; Mercan, Yusuf; See, Kurt (2023-09)
We develop a heterogeneous agent New Keynesian model featuring a frictional labor market with on-the-job search to quantitatively study the positive and normative implications of employer-to-employer (EE) transitions for inflation. We find that EE dynamics played an important role in shaping the differential inflation dynamics observed during the Great Recession and the COVID-19 recoveries, with the former exhibiting subdued EE transitions and inflation despite both episodes sharing similar unemployment dynamics. The optimal monetary policy prescribes a strong positive response to EE ...
Working Papers , Paper 2022-016

Journal Article
The Case of the Reappearing Phillips Curve: A Discussion of Recent Findings
Bharadwaj, Asha; Dvorkin, Maximiliano (2020-07)
The Phillips curve seems to have flattened over time. In this article, we use a simple New Keynesian model to analyze potential pitfalls in the estimation of the slope of the structural Phillips curve.
Review , Volume 102 , Issue 3 , Pages 313-337

Discussion Paper
On the Distributional Consequences of Responding Aggressively to Inflation
Del Negro, Marco; Dogra, Keshav; Gundam, Pranay; Lee, Donggyu; Pacula, Brian (2024-07-03)
This post discusses the distributional consequences of an aggressive policy response to inflation using a Heterogeneous Agent New Keynesian (HANK) model. We find that, when facing demand shocks, stabilizing inflation and real activity go hand in hand, with very large benefits for households at the bottom of the wealth distribution. The converse is true however when facing supply shocks: stabilizing inflation makes real outcomes more volatile, especially for poorer households. We conclude that distributional considerations make it much more important for policy to take into account the ...
Liberty Street Economics , Paper 20240703

Working Paper
Downward Price Rigidities and Inflationary Relative Demand Shocks
Hobijn, Bart; Bonam, Dennis (2024-04-12)
We show that a negative relative demand shock in a sector with downwardly rigid prices, like the service sector, can generate substantial inflation. Such a shock induces an equilibrium decline in the relative price of services. If price adjustment costs are non-existent or symmetric, then this takes place through a simultaneous decline in services prices and increase in goods prices, resulting in, on net, little inflation. If prices in the services sector are downwardly rigid, however, this takes place mostly through an increase in goods prices, resulting in inflation. To illustrate the ...
Working Paper Series , Paper WP 2024-11

Working Paper
The Transmission of Monetary Policy under the Microscope
Tischbirek, Andreas; Holm, Martin; Paul, Pascal (2020-01-31)
We investigate the transmission of monetary policy to household consumption using detailed administrative data on the universe of households in Norway. Based on a novel series of identified monetary policy shocks, we estimate the dynamic responses of consumption, income, and saving along the liquid asset distribution of households. We find that low-liquidity but also high-liquidity households show strong responses, interest rate changes faced by borrowers and savers feed into consumption, and indirect effects of monetary policy outweigh direct effects, albeit with a delay. Overall, the ...
Working Paper Series , Paper 2020-03

Working Paper
Asset Pledgeability and Endogenously Leveraged Bubbles
Phan, Toan; Bengui, Julien (2018-04-19)
We develop a simple model of defaultable debt and rational bubbles in the price of an asset, which can be pledged as collateral in a competitive credit pool. When the asset pledgeability is low, the down payment is high, and bubble investment is unleveraged, as in a standard rational bubble model. When the pledgeability is high, the down payment is low, making it easier for leveraged borrowers to invest in the bubbly asset. As loans are packaged together into a competitive pool, the pricing of individual default risk may facilitate risk-taking. In equilibrium, credit-constrained borrowers may ...
Working Paper , Paper 18-11

Working Paper
Monetary policy through production networks: evidence from the stock market
Weber, Michael; Ozdagli, Ali K. (2017-10-01)
Monetary policy shocks have a large impact on stock prices during narrow time windows centered around press releases by the FOMC. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and a network effect. We attribute 50 to 85 percent of the overall impact to network effects. The decomposition is a robust feature of the data, and we confirm large network effects in realized cash-flow fundamentals. A simple model with intermediate inputs allows a structural interpretation of our empirical strategy. Our findings indicate that production ...
Working Papers , Paper 17-15

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