The U.S. flow of funds accounts and their uses
The U.S. flow of funds accounts compiled by the Board of Governors provide a broadly consistent set of time-series data for tracking funds as they move from economic sectors that serve as sources of capital to sectors that use the capital to acquire physical and financial assets. They present a wide range of data organized by financial instrument and by sector. With statistics extending back more than a half a century, the accounts document financial developments, provide means for studying macroeconomic behavior, and are used for policy purposes. This article briefly describes the accounts ...
We develop a tractable rational bubbles model with financial frictions, downward nominal wage rigidity, and the zero lower bound. The interaction of financial frictions and nominal rigidities leads to a "bubbly pecuniary externality," where competitive speculation in risky bubbly assets can result in excessive investment booms that precede inefficient busts. The collapse of a large bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent and inefficient recession. We evaluate a ...
Communicating Monetary Policy Rules
Despite the ubiquity of inflation targeting, central banks communicate their frameworks in a variety of ways. No central bank explicitly expresses their conduct via a policy rule, which contrasts with models of policy. Central banks often connect theory with their practice by publishing inflation forecasts that can, in principle, implicitly convey their reaction function. We return to this central idea to show how a central bank can achieve the gains of a rule-based policy without publicly stating a specific rule. The approach requires central banks to specify an inflation target, inflation ...
Regressive Welfare Effects of Housing Bubbles
We analyze the welfare effects of asset bubbles in a model with income inequality and financial friction. We show that a bubble that emerges in the value of housing, a durable asset that is fundamentally useful for everyone, has regressive welfare effects. By raising the housing price, the bubble benefits high-income savers but negatively affects low-income borrowers. The key intuition is that, by creating a bubble in the market price, savers' demand for the housing asset for investment purposes imposes a negative externality on borrowers, who only demand the housing asset for utility ...
Behavior and the Transmission of COVID-19
We show that a simple model of COVID-19 that incorporates feedback from disease prevalence to disease transmission through an endogenous response of human behavior does a remarkable job fitting the main features of the data on the growth rates of daily deaths observed across a large number countries and states of the United States from March to November of 2020. This finding, however, suggests a new empirical puzzle. Using an accounting procedure akin to that used for Business Cycle Accounting as in Chari et al. (2007), we show that when the parameters of the behavioral response of ...
A Parsimonious Behavioral SEIR Model of the 2020 COVID Epidemic in the United States and the United Kingdom
I present a behavioral epidemiological model of the evolution of the COVID epidemic in the United States and the United Kingdom over the past 12 months. The model includes the introduction of a new, more contagious variant in the UK in early fall and the US in mid December. The model is behavioral in that activity, and thus transmission, responds endogenously to the daily death rate. I show that with only seasonal variation in the transmission rate and pandemic fatigue modeled as a one-time reduction in the semi-elasticity of the transmission rate to the daily death rate late in the year, the ...
Search with wage posting under sticky prices
Forecasting China's Economic Growth and Inflation
Although macroeconomic forecasting forms an integral part of the policymaking process, there has been a serious lack of rigorous and systematic research in the evaluation of out-of-sample model-based forecasts of China's real gross domestic product (GDP) growth and consumer price index inflation. This paper fills this research gap by providing a replicable forecasting model that beats a host of other competing models when measured by root mean square errors, especially over long-run forecast horizons. The model is shown to be capable of predicting turning points and usable for policy analysis ...
Debt Limits and Credit Bubbles in General Equilibrium
We provide a novel characterization of self-enforcing debt limits in a general equilibrium framework of risk sharing with limited commitment, where defaulters are subject to recourse (a fractional loss of current and future endowments) and exclusion from future credit. We show that debt limits are exactly equal to the present value of recourse plus a credit bubble component. We provide applications to models of sovereign debt, private collateralized debt, and domestic public debt. Implications include an original equivalence mapping among distinct institutional arrangements, thereby ...
Pandemic Recessions and Contact Tracing
We study contact tracing in a new macro-epidemiological model in which infected agents may not show any symptoms of the disease and the availability of tests to detect these asymptomatic spreaders of the virus is limited. Contact tracing is a testing strategy aiming at reconstructing the infection chain of newly symptomatic agents. A coordination failure arises as agents fail to internalize that their individual consumption and labor decisions raise the number of traceable contacts to be tested, threatening the viability of the tracing system. The collapse of the tracing system considerably ...