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Journal Article
The Long-Run Costs of Higher Inflation
This Economic Commentary provides an overview of several frictions and the channels through which they affect economic welfare under elevated trend inflation above 2 percent. These frictions, associated with financial transactions, price and wage stickiness, and cognitive limitations, suggest that inflation imposes significant costs on society. Higher inflation may lead to a steeper Phillips curve, a situation which increases the volatility of inflation and interest rates.
Journal Article
Postpandemic Nominal Wage Growth: Inflation Pass-Through or Labor Market Imbalance?
Measures of wage growth have increased substantially during and after the pandemic compared to their average levels in the decade before. Does higher wage growth reflect compensation for a higher cost of living, brought about by an increase in inflation in the past two years? Or has an imbalance between strong labor demand and restrained labor supply lifted wage growth? Using a new empirical wage Phillips curve model, we find that the increase in wage growth largely reflects the pass-through of higher inflation and does not reflect labor market imbalances. The model forecasts a decline in ...
Journal Article
US Labor Market after COVID-19: An Interim Report
Headline numbers have shown that the US labor market has recovered the jobs lost during the pandemic. Nevertheless, there is significant variation in the recovery across states and counties and across occupations and industries. Using the available data from the monthly Current Population Survey and the Bureau of Labor Statistics’ State and Metro Area Employment, Hours, and Earnings for January 2019 to August 2022, we present the changing patterns in the labor market. We also highlight some possible underlying reasons that are correlated with the varying patterns across groups and space. ...
Journal Article
Excess Savings and Consumer Behavior: Excess Compared to What?
How much accumulated savings do households hold, and what do these savings imply about future consumption? Economists typically consider excess savings when gauging the level of savings that households may use to maintain real consumption as costs rise. Economists have estimated strikingly different levels of currently held excess savings. We highlight the differences between measures of counterfactual savings—that is, the amount of savings households would be expected to hold barring unusual events—and their relevance in computing post pandemic excess savings. Furthermore, we show that, ...