Search Results
Report
A Measure of Trend Wage Inflation
We extend time-series models that have so far been used to study price inflation (Stock and Watson [2016a]) and apply them to a micro-level dataset containing worker-level information on hourly wages. We construct a measure of aggregate nominal wage growth that (i) filters out noise and very transitory movements, (ii) quantifies the importance of idiosyncratic factors for aggregate wage dynamics, and (iii) strongly co-moves with labor market tightness, unlike existing indicators of wage inflation. We show that our measure is a reliable real-time indicator of wage pressures and a good ...
Working Paper
Time-varying Persistence of House Price Growth: The Role of Expectations and Credit Supply
High persistence is a prominent feature of price movements in U.S. housing markets, i.e., house prices grow faster this period if they grew faster last period. This paper provides two additional new insights to the literature on U.S. house price movements. First, there exists a significant time variation in the persistence of house price growth, both at the national and city level. Second, there is considerable heterogeneity in the time-varying persistence across different regions, particularly in areas that were historically less persistent, such as the capital-poor regions in the Midwest ...
Journal Article
The puzzling persistence of place
Jeffrey Lin explores the remarkable persistence of urban development patterns over decades, centuries, or even millennia. Is such extreme persistence desirable? What does it imply about today's "place-making" policies?
Discussion Paper
A Turning Point in Wage Growth?
The surge in wage growth experienced by the U.S. economy over the past two years is showing some tentative signs of moderation. In this post, we take a closer look at the underlying data by estimating a model designed to isolate the persistent component—or trend—of wage growth. Our central finding is that this trend may have peaked in early 2022, having experienced an earlier rise and subsequent moderation that were broad-based across sectors. We also find that wage growth seems to be moderating more slowly than the trend in services inflation.
Discussion Paper
Where Is Inflation Persistence Coming From?
Elevated inflation continues to be a top-of-mind preoccupation for households, businesses, and policymakers. Why has the post-pandemic inflation proved so persistent? In a Liberty Street Economics post early in 2022, we introduced a measure designed to dissect the buildup of the inflationary pressures that emerged in mid-2021 and to understand where the sources of its persistence are. This measure, that we labeled Multivariate Core Trend (MCT) inflation analyzes whether inflation is short-lived or persistent, and whether it is concentrated in particular economic sectors or broad-based.
Working Paper
State Capacity and Public Goods: Institutional Change, Human Capital, and Growth in Early Modern Germany
What are the origins and consequences of the state as a provider of public goods? We study legal reforms that established mass public education and increased state capacity in German cities during the 1500s. These fundamental changes in public goods provision occurred where ideological competition during the Protestant Reformation interacted with popular politics at the local level. We document that cities that formalized public goods provision in the 1500s began differentially producing and attracting upper tail human capital and grew to be significantly larger in the long-run. We study ...
Working Paper
Excess Persistence in Employment of Disadvantaged Workers
We examine persistence in employment-to-population ratios in excess of that implied by persistence in aggregate labor market conditions, among less-educated individuals using state-level data for the United States. Dynamic panel regressions and local projections indicate a moderate degree of excess persistence, which dissipates within three years. We find no significant asymmetry between the excess persistence of high vs. low employment rates. The cumulative effect of excess persistence in the business cycle surrounding the 2001 recession was mildly positive, while the effect in the cycle ...
Working Paper
Expectations as a source of macroeconomic persistence: an exploration of firms' and households' expectation formation
While there is little question that expectations lie at the heart of much economic decision-making, and therefore at the heart of models of the macroeconomy that hope to reflect such decision-making, how such expectations are formed is an open research question. In earlier work, Fuhrer (2015) showed that empirical estimates of a standard dynamic stochastic general equilibrium (DSGE) model preferred inertia in expectations over price indexation or habit formation as a mechanism to explain the persistence of aggregate time series for output, inflation, and interest rates. A question left open ...
Working Paper
All Fluctuations Are Not Created Equal: The Differential Roles of Transitory versus Persistent Changes in Driving Historical Monetary Policy
The historical analysis of FOMC behavior using estimated simple policy rules requires the specification of either an estimated natural rate of unemployment or an output gap. But in the 1970s, neither output gap nor natural rate estimates appear to guide FOMC deliberations. This paper uses the data to identify the particular implicit unemployment rate gap (if any) that is consistent with FOMC behavior. While its ability appears to have improved over time, our results indicate that, both before the Volcker period and through the Bernanke period, the FOMC distinguished persistent movements in ...
Report
The Drivers of Inflation Dynamics during the Pandemic: (Early) Evidence from Disaggregated Consumption Data
What explains inflation dynamics during the COVID-19 pandemic? This brief focuses on the relative roles of demand and supply factors. Prices and quantities of consumed goods and services are positively correlated following demand changes and negatively correlated in response to supply disturbances. Employing disaggregated indexes from personal consumption expenditures data, this brief documents a positive relationship between prices and quantities during the early stages of the pandemic, followed by a negative relationship in the later period. Thus, while the short deflation episode in March ...