Search Results
Working Paper
Firm Entry and Macroeconomic Dynamics: A State-level Analysis
Using an annual panel of U.S. states over the period 1982-2014, we estimate the response of macroeconomic variables to a shock to the number of new firms (startups). We find that these shocks have significant effects that persist for many years on real gross domestic product, productivity and population. This is consistent with simple models of firm dynamics where a ?missing generation? of firms affects productivity persistently.
Briefing
Secular Trends in Macroeconomics and Firm Dynamics: A Conference Recap
How does declining population growth affect firm dynamics? Is income growth volatility decreasing in the U.S.? How do changes in housing prices affect young businesses? Have investments in artificial intelligence improved productivity? These were among the questions addressed by economists during a recent Richmond Fed research conference.
Discussion Paper
Drivers of Inflation: The New York Fed DSGE Model’s Perspective
After a sharp decline in the first few months of the COVID-19 pandemic, inflation rebounded in the second half of 2020 and surged through 2021. This post analyzes the drivers of these developments through the lens of the New York Fed DSGE model. Its main finding is that the recent rise in inflation is mostly accounted for by a large cost-push shock that occurred in the second quarter of 2021 and whose inflationary effects persist today. Based on the model’s reading of historical data, this shock is expected to fade gradually over the course of 2022, returning quarterly inflation to close to ...
Speech
Challenges that the Recent Financial Market Turmoil Places on our Macroeconomic Toolkit
Remarks by Charles L. Evans, President and Chief Executive Officer, Federal Reserve Bank of Chicago Swiss National Bank Research Conference Zurich, Switzerland
Report
A unified approach to measuring u*
This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators, such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach, which employs reduced-form models and DSGE models, relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a ...
Briefing
How Important Are Asset Price Fluctuations for Business Investment?
Previous recessions in the U.S. revealed to economists and policymakers that weak macroeconomic conditions may have been worsened by financial distress. Economists have theorized that this association is explained by a decline in physical asset prices that often precede recessions. When physical asset prices decline, firms pledge less-valuable assets to banks, which leads banks to reduce lending. Consequently, firms are not able to finance their investments, which reduces overall economic activity. In this article, we review more recent literature that may indicate that this mechanism is ...
Discussion Paper
Disinflation Policies with a Flat Phillips Curve
Yesterday’s post analyzed the drivers of the surge in inflation over the course of 2021 through the lens of the New York Fed DSGE model. In today’s post, we use the model to study how alternative monetary policy strategies might contribute to bringing inflation back down to 2 percent. Our main finding is that there is no monetary silver bullet. Due to a flat Phillips curve—a well–documented feature of the economic environment of the last three decades—monetary policy can only achieve faster disinflation at a considerable cost in terms of forgone economic activity. This is true ...
Working Paper
An Interview with Neil Wallace
A few years ago we sat down with Neil Wallace and had two lengthy, free-ranging conversations about his career and, generally speaking, his views on economics. What follows is a distillation of these conversations.
Journal Article
Real Wage Growth at the Micro Level
This article investigates patterns in real wage growth in 2022 to determine whether wages have kept up with rising price levels and how this differs among labor market participants. Using the consumer price index for wages and imputing expenditure data from the Consumer Expenditure Survey, we separately measure nominal wage growth and inflation rates at the micro level. We find that there is more heterogeneity in the former, meaning that when we combine them, an individual's real wage growth is primarily driven by their nominal wage growth. In 2022, 57 percent of individuals experienced ...
Newsletter
The Recent Steepening of Phillips Curves
The Phillips curve captures the empirical inverse relationship between the level of inflation and unemployment. The reciprocal of its slope, sometimes referred to as the “sacrifice ratio,” represents the increase in the unemployment rate associated with a 1 percentage point reduction in the inflation rate. In this Chicago Fed Letter, we provide evidence that the Phillips curve has steepened in many industrialized countries since the start of the recovery from the Covid-19 pandemic. This suggests a lower sacrifice ratio now than before 2020.