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Journal Article
Household expectations and monetary policy
Helping the public understand how monetary policy is conducted is an important goal for the Federal Reserve. One way to measure people?s understanding is through surveys that show household expectations for the economy. Responses from the Michigan survey show some groups of households appear to hold beliefs consistent with basic features of U.S. policy. In particular, households with higher incomes and more education appear to better grasp how interest rates relate to inflation and unemployment, particularly during times of labor market weakness.
Working Paper
Labor Markets in the Global Financial Crisis: The Good, the Bad and the Ugly
This note examines labor market performance across countries through the lens of Okun?s Law. We find that after the 1970s but prior to the global financial crisis of the 2000s, the Okun?s Law relationship between output and unemployment became more homogenous across countries. These changes presumably reflected institutional and technological changes. But, at least in the short term, the global financial crisis undid much of this convergence, in part because the affected countries adopted different labor market policies in response to the global demand shock.
Journal Article
The Bell Curve of Global CO2 Emission Intensity
Countries’ commitments to reduce carbon dioxide (CO2) emissions can have important implications for their economies. Data since the 1800s reveal that the amount of CO2 emissions generated for a given level of output follows a bell-shaped curve. Pairing this with projections of future economic growth can help in predicting future overall emissions. Comparing actual data with past projections for levels of emission intensity reveals that reductions have been slower than predicted over the past 40 years. This divergence highlights the challenges many countries may face in reaching their ...
Journal Article
Labor markets in the global financial crisis
The impact of the global financial crisis on labor markets varied widely from country to country. In the United States, the unemployment rate nearly doubled from its pre-recession level. The rate rose much less in the United Kingdom and barely changed in Germany, despite larger declines in gross domestic product. Institutional and technological changes since the 1970s had previously made relationships between output and unemployment more homogeneous across countries. But the global financial crisis undid much of this convergence as countries adopted different labor market policies to adjust ...
Journal Article
Has the Fed Fallen behind the Curve This Year?
At the end of 2015, many forecasters, including some Fed policymakers, projected four hikes in the federal funds rate in 2016. Instead, there have been no increases so far this year. While this shift in Fed policy has puzzled some observers, such a course correction is not unusual from a historical perspective. In addition, given recent changes in economic conditions, the reduced federal funds rate path this year is completely consistent with past Fed behavior.
Journal Article
Inflation: Stress-Testing the Phillips Curve
The well-known Phillips curve describes inflation as a persistent process that depends on public expectations of future inflation and economic slack, a measure of how stretched the economy?s resources are. The role of each component has changed over time. In particular, maintaining the public?s expectations that the Federal Reserve is committed to an inflation target of 2% has grown in importance over the slack component, in part because realigning expectations is costly to undo. Such considerations are important as the Federal Reserve evaluates its future policy options.
Working Paper
Aggregation and the PPP puzzle in a sticky-price model
We study the purchasing power parity (PPP) puzzle in a multi-sector, two-country, sticky- price model. Across sectors, firms differ in the extent of price stickiness, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, this leads sectoral real exchange rates to have heterogeneous dynamics. We show analytically that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent than in a counterfactual one-sector world economy that features the same average frequency of price changes, and ...
Working Paper
Shocks and Adjustments
We develop a multisector model in which capital and labor are free to move across firms within each sector, but cannot move across sectors. To isolate the role of sectoral specificity, we compare our model with otherwise identical multisector economies with either economy-wide factor markets (as in Chari et al. 2000) or firm-specific factor markets (as in Woodford 2005). Sectoral specificity induces within-sector strategic substitutability and across-sector strategic complementarity in price setting. Our model can produce either more or less monetary non-neutrality than those other two ...
Journal Article
Fed tapering news and emerging markets
In 2013, the Federal Reserve publicly described conditions for scaling back and ultimately ending its highly accommodative monetary policy. Some emerging market countries subsequently experienced sharp reversals of capital inflows, resulting in sizable currency depreciation. But others did not. Variations in financial market reactions from one country to another appear to have been related to differences in economic conditions, which partly reflected a country?s policies before the Fed?s tapering comments.
Journal Article
Fed Communication: Words and Numbers
In response to the global financial crisis, the Federal Reserve relied more heavily on communication to shape expectations. Since 2012 the Fed has released the Summary of Economic Projections reflecting the range of expectations from FOMC meeting participants. Policymakers also deliver speeches to further clarify their views. Using textual analysis to quantify the content of those speeches reveals a somewhat diverse set of views among policymakers. Regardless of the broad range of views, there is a positive relationship between the content of the centermost speech and the median projection ...