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Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohōku Earthquake
Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on ...
The Passthrough of Labor Costs to Price Inflation
We use a time-varying parameter/stochastic volatility VAR framework to assess how the passthrough of labor costs to price inflation has evolved over time in U.S. data. We find little evidence that changes in labor costs have had a material effect on price inflation in recent years, even for compensation measures where some degree of passthrough to prices still appears to be present. Our results cast doubt on explanations of recent inflation behavior that appeal to such mechanisms as downward nominal wage rigidity or a differential contribution of long-term and short-term unemployed workers to ...
Potential Output and Recessions: Are We Fooling Ourselves?
This paper studies the impact of recessions on the longer-run level of output using data on 23 advanced economies over the past 40 years. We find that severe recessions have a sustained and sizable negative impact on the level of output. This sustained decline in output raises questions about the underlying properties of output and how we model trend output or potential around recessions. We find little support for the view that output rises faster than trend immediately following recessions to close the output gap. Indeed, we find little evidence that growth is faster following recessions ...