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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. 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, but there is substantial heterogeneity in the size of shocks across sectors. We show that our estimates of supply shocks are correlated ...
Working Papers , Paper 2020-011

Working Paper
Nonlinear Unemployment Effects of the Inflation Tax
Ait Lahcen, Mohammed; Baughman, Garth; Rabinovich, Stanislav; van Buggenum, Hugo (2021-06-29)
We argue that long-run inflation has nonlinear and state-dependent effects on unemployment, output, and welfare. Using panel data from the OECD, we document three correlations. First, there is a positive long-run relationship between anticipated inflation and unemployment. Second, there is also a positive correlation between anticipated inflation and unemployment volatility. Third, the long-run inflation-unemployment relationship is not only positive, but also stronger when unemployment is higher. We show that these correlations arise in a standard monetary search model with two shocks – ...
Finance and Economics Discussion Series , Paper 2021-040

Working Paper
Supply Chain Constraints and Inflation
Comin, Diego; Johnson, Robert C.; Jones, Callum J. (2023-11-22)
We develop a multisector, open economy, New Keynesian framework to evaluate how potentially binding capacity constraints, and shocks to them, shape inflation. We show that binding constraints for domestic and foreign producers shift domestic and import price Phillips Curves up, similar to reduced-form markup shocks. Further, data on prices and quantities together identify whether constraints bind due to increased demand or reductions in capacity. Applying the model to interpret recent US data, we find that binding constraints explain half of the increase in inflation during 2021-2022. In ...
Finance and Economics Discussion Series , Paper 2023-075

Working Paper
Price Setting and Volatility: Evidence from Oil Price Volatility Shocks
Klepacz, Matthew (2021-04-30)
How do changes in aggregate volatility alter the impulse response of output to monetary policy? To analyze this question, I study whether individual prices in Producer Price Index micro data are more likely to change and to move in the same direction when aggregate volatility is high, which would increase aggregate price exibility and reduce the effectiveness of monetary policy. Taking advantage of plausibly exogenous oil price volatility shocks and heterogeneity in oil usage across industries, I find that price changes are more dispersed and less frequent, implying that prices are less ...
International Finance Discussion Papers , Paper 1316

Working Paper
Sudden Stops and Optimal Foreign Exchange Intervention
Davis, J. Scott; Devereux, Michael B.; Yu, Changhua (2020-11-10)
This paper shows how foreign exchange intervention can be used to avoid a sudden stop in capital flows in a small open emerging market economy. The model is based around the concept of an under-borrowing equilibrium defined by Schmitt-Grohe and Uribe (2020). With a low elasticity of substitution between traded and non-traded goods, real exchange rate depreciation may generate a precipitous drop in aggregate demand and a tightening of borrowing constraints, leading to an equilibrium with an inefficiently low level of borrowing. The central bank can preempt this deleveraging cycle through ...
Globalization Institute Working Papers , Paper 405

Working Paper
Measuring Labor Supply and Demand Shocks during COVID-19
Duarte, Joao B.; Faria-e-Castro, Miguel; Brinca, Pedro (2021-07)
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. Most sectors were subject to large negative labor supply and demand shocks in March and April, with substantial heterogeneity in the size of shocks across sectors. Our estimates suggest that two-thirds of the drop in the aggregate growth rate of hours in March and April 2020 are attributable to labor supply. We validate our estimates of supply shocks by showing that they are correlated with ...
Working Papers , Paper 2020-011

Working Paper
Industry Effects of Oil Price Shocks: Re-Examination
Karnizova, Lilia; Jo, Soojin; Reza, Abeer (2017-07-31)
Sectoral responses to oil price shocks help determine how these shocks are transmitted through the economy. Textbook treatments of oil price shocks often emphasize negative supply effects on oil importing countries. By contrast, the seminal contribution of Lee and Ni (2002) has shown that almost all U.S. industries experience oil price shocks largely through a reduction in their respective demands. Only industries with very high oil intensities face a supply-driven reduction. In this paper, we re-examine this seminal findings using two additional decades of data. Further, we apply updated ...
Working Papers , Paper 1710

Working Paper
Beliefs, Aggregate Risk, and the U.S. Housing Boom
Jacobson, Margaret M. (2022-09-23)
Endogenously optimistic beliefs about future house prices can account for the path and standard deviation of house prices in the U.S. housing boom of the 2000s. In a general equilibrium model with incomplete markets and aggregate risk, agents form beliefs about future house prices in response to shocks to fundamentals. In an income expansion with looser credit conditions, agents are more likely to underpredict house prices and revise up their beliefs. Matching the standard deviation and steady rise in house prices results in homeownership becoming less affordable later in the boom as well as ...
Finance and Economics Discussion Series , Paper 2022-061

Working Paper
Aging and deflation from a fiscal perspective
Katagiri, Mitsuru; Ueda, Kozo; Konishi, Hideki (2014-11-01)
Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of ...
Globalization Institute Working Papers , Paper 218

Working Paper
Trade Exposure and the Evolution of Inflation Dynamics
Gilchrist, Simon; Zakrajšek, Egon (2019-02)
The diminished sensitivity of inflation to changes in resource utilization that has been observed in many advanced economies over the past several decades is frequently linked to the increase in global economic integration. In this paper, we examine this "globalization" hypothesis using both aggregate U.S. data on measures of inflation and economic slack and a rich panel data set containing producer prices, wages, output, and employment at a narrowly defined industry level. Our results indicate that the rising exposure of the U.S. economy to international trade can indeed help explain a ...
Finance and Economics Discussion Series , Paper 2019-007

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