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Working Paper
Unemployment Insurance during a Pandemic
Nie, Jun; Xie, Zoe (2020-08-06)
The CARES Act implemented in response to the COVID-19 crisis dramatically increased the generosity of unemployment insurance (UI) benefits, triggering concerns about substantial effects on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of the CARES Act UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment but also reduce infection and save lives. Economic shutdown policies further amplify these effects of UI policies. Quantitatively, the CARES ...
Research Working Paper , Paper RWP 20-07

Working Paper
Measuring Sectoral Supply and Demand Shocks during COVID-19
Duarte, Joao B.; Faria-e-Castro, Miguel; Brinca, Pedro (2020-05)
We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak, by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages and applying the methodology proposed by Baumeister and Hamilton (2015). Our estimates suggest that two-thirds of the 16.24 percentage point drop in the growth rate of hours worked in April 2020 are attributable to supply. Most sectors were subject to historically large negative labor supply and demand shocks in March and April 2020, but there is substantial heterogeneity in the size of these ...
Working Papers , Paper 2020-011

Working Paper
Aging and the Real Interest Rate in Japan: A Labor Market Channel
Fujiwara, Ippei; Fujita, Shigeru (2021-06-08)
This paper explores a causal link between aging of the labor force and declining trends in the real interest rate in Japan. We develop a search/matching model that features heterogeneous workers with respect to their ages and firm-specific skills. Using the model, we examine the long-run implications of the sharp drop in labor force entry in the 1970s. We show that the changes in the demographic structure induce significant low-frequency movements in per capita consumption growth and the real interest rate. The model suggests that aging of the labor force accounts for 40 percent or more of ...
Working Papers , Paper 21-23

Working Paper
Labor Supply Shocks, Labor Force Entry, and Monetary Policy
Kurozumi, Takushi; Van Zandweghe, Willem (2022-05-24)
Should monetary policy offset the effects of labor supply shocks on inflation and the output gap? Canonical New Keynesian models answer yes. Motivated by weak labor force participation during the pandemic, we reexamine the question by introducing labor force entry and exit in an otherwise canonical model with sticky prices and wages. The entry decision generates an employment channel of monetary policy, and a labor supply shock to the value of nonparticipation in the labor market induces a policy trade-off between stabilization of the employment gap and wage growth. For an adverse labor ...
Working Papers , Paper 22-17

Working Paper
Optimal Monetary Policy in an Open Emerging Market Economy
Iyer, Tara (2016-06-20)
The majority of households across emerging market economies are excluded from the financial markets and cannot smooth consumption. I analyze the implications of this for optimal monetary policy and the corresponding choice of domestic versus external nominal anchor in a small open economy framework with nominal rigidities, aggregate uncertainty and financial exclusion. I find that, if set optimally, monetary policy smooths the consumption of financially excluded agents by stabilizing their income. Even though Consumer Price Index (CPI) inflation targeting approximates optimal monetary policy ...
Working Paper Series , Paper WP-2016-6

Working Paper
Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter
Braxton, John Carter; Herkenhoff, Kyle F.; Rothbaum, Jonathan; Schmidt, Lawrence (2021-12-15)
For whom has earnings risk changed, and why? To answer these questions, we develop a filtering method that estimates parameters of an income process and recovers persistent and temporary earnings for every individual at every point in time. Our estimation flexibly allows for first and second moments of shocks to depend upon observables as well as spells of zero earnings (i.e., unemployment) and easily integrates into theoretical models. We apply our filter to a unique linkage of 23.5m SSA-CPS records. We first demonstrate that our earnings-based filter successfully captures observable shocks ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 55

Working Paper
Digital Adoption, Automation, and Labor Markets in Developing and Emerging Economies
Shapiro, Alan Finkelstein; Mandelman, Federico S. (2019-12-02)
We document a strong negative link between self-employment and the rate of digital adoption by firms in developing and emerging economies. No link between digital adoption and the unemployment rate is found, however. To explain this evidence, we build a general equilibrium search-and-matching model with endogenous labor force participation, self-employment, endogenous firm entry, and information-and-communications technology adoption. The main finding is that changes in the cost of technology adoption per se cannot rationalize the evidence. Instead, changes in firms' barriers to entry ...
FRB Atlanta Working Paper , Paper 2019-22

Report
Demographic origins of the startup deficit
Karahan, Fatih; Sahin, Aysegul; Pugsley, Benjamin (2019-05-01)
We propose a simple explanation for the long-run decline in the U.S. startup rate. It originates from a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel can explain roughly 60 percent of the decline and why incumbent firm survival and average growth over the lifecycle have changed little. We show these results in a standard model of firm dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer entry rate series imputed using historical establishment tabulations rises over the ...
Staff Reports , Paper 888

Working Paper
The Impact of the Age Distribution on Unemployment: Evidence from US States
Fallick, Bruce; Foote, Christopher L. (2022-10-01)
Economists have studied the potential effects of shifts in the age distribution on the unemployment rate for more than 50 years. Most of this analysis uses a “shift-share” method, which assumes that the demographic structure has no indirect effects on age-specific unemployment rates. This paper uses state-level data to revisit the influence of the age distribution on unemployment in the United States. We examine demographic effects across the entire age distribution rather than just the youth share of the population—the focus of most previous work—and extend the date range of analysis ...
Working Papers , Paper 22-15

Working Paper
The Effects of the Saving and Banking Glut on the U.S. Economy
Justiniano, Alejandro; Tambalotti, Andrea; Primiceri, Giorgio E. (2013-11-29)
We use a quantitative equilibrium model with houses, collateralized debt and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one fourth and one third of the increase in U.S. house prices and household debt that preceded the financial crisis. The key to these findings is that the model generates the sustained low level of interest rates observed over that period.
Working Paper Series , Paper WP-2013-17

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