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Working Paper
Downward nominal wage rigidity: evidence from the employment cost index
We examine the extent of downward nominal wage rigidity using the microdata underlying the BLS employment cost index--an extensive, establishment-based dataset with detailed information on wage and benefit costs. We find stronger evidence of downward nominal wage rigidity than did previous studies using panel data on individuals. Firms appear able to circumvent part, but not all, of this rigidity by varying benefits: Total compensation displays modestly less rigidity than do wages alone. Given our estimated amount of rigidity, a simple model predicts that the disinflation over the 1980s would ...
Working Paper
Fiscal rules and monetary policy
Working Paper
Economic performance under price stability
Working Paper
Measurement error in the consumer price index: where do we stand?
We survey the evidence bearing on measurement error in the CPI and provide our best estimate of the magnitude of CPI bias. We also identify a "weighting" bias in the CPI that has not been previously discussed in the literature. In total, we estimate that the CPI overstates the change in the cost of living by about 0.6 percentage point per year, with a confidence interval that ranges from 0.1 to 1.2 percentage points. Roughly half of this bias is accounted for by the CPI's inability to fully capture the welfare improvement from quality change and the introduction of new items. Our bias ...
Working Paper
Is the shift toward employment in services stabilizing?
Discussion Paper
Inflation Perceptions and Inflation Expectations
In this note, we discuss new data on consumers' perceptions of recent inflation from the University of Michigan Surveys of Consumers (MSC). Our preliminary results show that survey responses indicate inflation perceptions differ widely across individuals (with a slightly wider distribution than for inflation expectations) but the bulk of responses are between zero and five percent.
Working Paper
An analysis of the welfare implications of alternative exchange rate regimes: an intertemporal model with an application
We construct a two-period model of an open economy and use the model to analyze the welfare implications of fixed and floating exchange regimes. Consumers have perfect foresight and save by holding domestic and foreign bonds, which are chosen according to relative interest rates, deflated by the rate of devaluation of the domestic currency. The government produces a pure public good and finances its deficits by issuing money, domestic bonds, and by foreign borrowing. The government's bonds compete with private investment, which is entirely debt financed. Foreign exchange, i.e., foreign bonds, ...