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Working Paper
A Macroeconomic Model of Central Bank Digital Currency
Paul, Pascal; Ulate, Mauricio; Wu, Jing Cynthia (2024-04-08)
We develop a quantitative New Keynesian DSGE model to study the introduction of a central bank digital currency (CBDC): government-backed digital money available to retail consumers. At the heart of our model are monopolistic banks with market power in deposit and loan markets. When a CBDC is introduced, households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed. However, deposits also flow out of the banking system and bank lending contracts. We assess this welfare trade-off for a wide range of economies that differ in their ...
Working Paper Series , Paper 2024-11

Working Paper
Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects
Marsh, Fred; Shoemaker, Owen; Verbrugge, Randal J.; Poole, Robert; Dorfman, Alan; Johnson, William (2015-08-05)
We study 2001-2004 and 2004-2007 rent growth of 18,000 rental units, ending our study prior to the Great Recession. Which variables correlate with rent growth: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market, help statistical agencies make decisions about sample stratification and substitution, and expose coverage problems. We document significant rent stickiness. Initial relative rent level is the best predictor, though mainly due to mean reversion. "Location" comes in second, though often not statistically significantly: ...
Working Papers (Old Series) , Paper 1511

Working Paper
Micro price dynamics during Japan's lost decades
Ueda, Kozo; Watanabe, Kota; Sudo, Nao (2013)
We study micro price dynamics and their macroeconomic implications using daily scanner data from 1988 to 2013. We provide five facts. First, posted prices in Japan are ten times as flexible as those in the U.S. scanner data. Second, regular prices are almost as flexible as those in the U.S. and Euro area. Third, the heterogeneity of frequency and size of price change across products is sizable and maintained throughout the sample period. Fourth, during Japan's lost decades, temporary sales have played an increasingly important role in households' consumption expenditure. Fifth, the frequency ...
Globalization Institute Working Papers , Paper 159

Report
Slow recoveries and unemployment traps: monetary policy in a time of hysteresis
Dogra, Keshav; Wee, Shu Lin; Bengui, Julien; Acharya, Sushant (2017-11-01)
We analyze monetary policy in a model where temporary shocks can permanently scar the economy's productive capacity. Unemployed workers? skill losses generate multiple steady-state unemployment rates. When monetary policy is constrained by the zero bound, large shocks reduce hiring to a point where the economy recovers slowly at best?at worst, it falls into a permanent unemployment trap. Since monetary policy is powerless to escape such traps ex post, it must avoid them ex ante. The model quantitatively accounts for the slow U.S. recovery following the Great Recession, and suggests that lack ...
Staff Reports , Paper 831

Working Paper
Monetary Tightening, Inflation Drivers and Financial Stress
Manea, Cristina; Shapiro, Adam Hale; Collard, Fabrice; Boissay, Frederic (2023-12-15)
The paper explores the state–dependent effects of a monetary tightening on financial stress, focusing on a novel dimension: the nature of supply versus demand inflation at the time of policy rate hikes. We use local projections to estimate the effect of high frequency identified monetary policy surprises on a variety of financial stress measures, differentiating the effects based on whether inflation is supply–driven (e.g. due to adverse supply or cost–push shocks) or demand–driven (e.g. due to positive demand factors). We find that financial stress flares up after a policy rate hike ...
Working Paper Series , Paper 2023-38

Working Paper
No Firm Is an Island? How Industry Conditions Shape Firms’ Expectations
Andrade, Philippe; Coibion, Olivier; Gautier, Erwan; Gorodnichenko, Yuriy (2020-08-01)
We study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions using a survey of French manufacturing firms. We document an important new stylized fact. In response to industry-level shocks that have no aggregate effects, firms’ aggregate expectations respond persistently. This is consistent with “island” models in which firms use the local prices they observe to make inferences about broader aggregate conditions. We then assess the extent to which these patterns are related to observable characteristics of firms and the industries in ...
Working Papers , Paper 20-17

Working Paper
Financial stress regimes and the macroeconomy
Owyang, Michael T.; Galvão, Ana B. (2014-07-24)
Some financial stress events lead to macroeconomic downturns, while others appear to be isolated to financial markets. We identify financial stress regimes using a model that explicitly links financial variables to macroeconomic outcomes. The stress regimes are identified using an unbalanced panel of financial variables with an embedded method for variable selection. Our identified stress regimes are associated with corporate credit tightening and with NBER recessions. An exogenous deterioration in our financial condition index has strong negative effects in economic activity, and negative ...
Working Papers , Paper 2014-20

Report
Pandemic-Era Inflation Drivers and Global Spillovers
Silva, Alvaro; Kalemli-Özcan, Ṣebnem; Yildirim, Muhammed A.; di Giovanni, Julian (2023-11-01)
We estimate a multi-country, multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–23 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/EUR exchange rate. The quantification exercise yields four key findings. ...
Staff Reports , Paper 1080

Working Paper
The Effects of Price Endings on Price Rigidity: Evidence from VAT Changes
Snir, Avichai; Knotek, Edward S.; Sayag, Doron (2019-11-12)
We document a causal role for price endings in generating micro and macro price rigidity. Based on micro price data underlying the consumer price index in Israel, we document that most stores have a favored price ending?a final digit, usually a zero or nine, used by a majority of prices in that store?and that these favored price endings are utilized extensively. Using changes to the VAT rate as exogenous cost shocks that affect prices regardless of ending, we find that the frequency of price adjustment for nonfavored endings increases by twice as much as the frequency of adjustment for ...
Working Papers , Paper 19-24

Working Paper
Are predictable improvements in TFP contractionary or expansionary? implications from sectoral TFP
Nam, Deokwoo; Wang, Jian (2012)
We document in the US data: (1) The dominant predictable component of investment-sector TFP is its long-run movements, and a favorable shock to predictable changes in investmentsector TFP induces a broad economic boom that leads actual increases in investment-sector TFP by almost two years, and (2) predictable changes in consumption-sector TFP occur mainly at short forecast horizons, and a favorable shock to such predictable changes leads to immediate reductions in hours worked, investment, and output as well as an immediate rise in consumption-sector TFP. We argue that these documented ...
Globalization Institute Working Papers , Paper 114

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