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Working Paper
Monetary Policy, Housing Rents and Inflation Dynamics
Working Paper
Monetary Policy and Homeownership: Empirical Evidence,Theory, and Policy Implications
We show that monetary policy affects homeownership decisions and argue that this effect is an important and overlooked channel of monetary policy transmission. We first document that monetary policy shocks are a substantial driver of fluctuations in the U.S. homeownership rate and that monetary policy affects households' housing tenure choices. We then develop and calibrate a two-agent New Keynesian model that can replicate the estimated transmission of monetary policy shocks to homeownership rates and housing rents. We find that the calibrated model provides an explanation to the "price ...
Working Paper
Financial Heterogeneity and Monetary Union
We analyze the economic consequences of forming a monetary union among countries with varying degrees of financial distortions, which interact with the firms' pricing decisions because of customer-market considerations. In response to a financial shock, firms in financially weak countries (the periphery) maintain{{p}}cashflows by raising markups--in both domestic and export markets--while firms in financially strong countries (the core) reduce markups, undercutting their financially constrained competitors to gain market share. When the two regions are experiencing different shocks, common ...
Working Paper
An Alternative Measure of Core Inflation: The Trimmed Persistence PCE Price Index
I introduce the "trimmed persistence PCE," a new measure of core inflation in which component prices are weighted according to the time-varying persistence of their price changes. The components of trimmed persistence personal consumption expenditures (PCE) display less tendency to mechanically pass-through the level of the prior period's inflation to the current period; thus, the impact of the current stance of monetary policy and real economic factors are more likely to be visible in recent trimmed persistence inflation compared to headline inflation. Trimmed persistence inflation performs ...
Working Paper
Perceptions and Expectations of Inflation by U.S. Households
To better understand inflation expectations, we examine newly available data on U.S. households' inflation perceptions-what people think inflation has been in the past. The overarching summary is that inflation perceptions look similar to inflation expectations. The central tendencies of the responses for perceived inflation over the past five to ten years are similar to those of expected inflation for the next five to ten years, and all are a little above official estimates of inflation. Thus, survey respondents overall do not expect long-term inflation to change in the future relative to ...
Working Paper
The Anatomy of Single-Digit Inflation in the 1960s
Recently, the experience of the 1960s—when the U.S. inflation rate rose rapidly and persistently over a comparatively short period—has been invoked as a cautionary tale for the present. An analysis of this period indicates that the inflation regime that prevailed in the 1960s was different in several key regards from the one that prevailed on the eve of the pandemic. Hence, there are few useable lessons to be drawn from this experience, save that monetary policymaking remains a difficult undertaking.
Working Paper
The Macroeconomic Effects of Excess Savings
We study the consequences of shocks to the household wealth distribution in dynamic general equilibrium by characterizing the rate at which excess wealth is depleted. Analytical results link the aggregate decumulation rate to the distribution of the additional balances, micro intertemporal marginal propensities to consume, and general equilibrium feedback. A quantitative heterogeneous agent New Keynesian model matches the depletion path of the excess savings built up during the COVID-19 pandemic across the income distribution. The model predicts a substantial but steadily waning boost to ...
Working Paper
Dynamic Identification Using System Projections on Instrumental Variables
We propose System Projections on Instrumental Variables (SP-IV) to estimate structural relationships using regressions of structural impulse responses obtained from local projections or vector autoregressions. Relative to IV with distributed lags of shocks as instruments, SP-IV imposes weaker exogeneity requirements and can improve efficiency and increase effective instrument strength relative to the typical 2SLS estimator. We describe inference under strong and weak identification. The SP-IV estimator outperforms other estimators of Phillips Curve parameters in simulations. We estimate the ...
Working Paper
The Shift to Remote Work Lessens Wage-Growth Pressures
The recent shift to remote work raised the amenity value of employment. As compensation adjusts to share the amenity-value gains with employers, wage-growth pressures moderate. We find empirical support for this mechanism in the wage-setting behavior of US employers, and we develop novel survey data to quantify its force. Our data imply a cumulative wage-growth moderation of 2.0 percentage points over two years. This moderation offsets more than half the real-wage catchup effect that Blanchard (2022) highlights in his analysis of near-term inflation pressures. The amenity-values gains ...
Working Paper
The Slope of the Phillips Curve
We review recent developments in the estimation and identification of the Phillips curve and its slope. We have three main objectives. First, we describe the econometric challenges faced by traditional approaches of estimating the Phillips curve, explain how new approaches address those challenges, and assess which limitations still remain. Second, we review the findings of those new approaches and examine the evidence regarding a potential flattening of the Phillipscurve in the pre-pandemic period. Third, we provide an account of inflation dynamics in the post-pandemic period with a ...