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Working Paper
Why Has the Stock Market Risen So Much Since the US Presidential Election?
This paper looks at the evolution of U.S. stock prices from the time of the Presidential elections to the end of 2017. It concludes that a bit more than half of the increase in the aggregate U.S. stock prices from the presidential election to the end of 2017 can be attributed to higher actual and expected dividends. A general improvement in economic activity and a decrease in economic policy uncertainty around the world were the main factors behind the stock market increase. The prospect and the eventual passage of the corporate tax bill nevertheless played a role. And while part of the rise ...
Discussion Paper
Global Inflation Uncertainty and its Economic Effects
Policymakers, including Federal Open Market Committee (FOMC) participants, have been stressing the elevated level of uncertainty, especially related to inflation, and the challenge this poses for monetary policy. As seen in Figure 1, with few exceptions, FOMC participants see the level of uncertainty around their forecasts for core PCE inflation as high, compared to the average over the past 20 years.
Discussion Paper
Understanding Global Volatility
In this note, we identify a global component of equity option-implied volatilities and address two questions: What are its fundamental drivers? And, given these drivers, are recent levels of volatility unexpectedly low?
Working Paper
Wage rigidity: a look inside the firm
This paper tests for nominal salary rigidity using panel data from two large service-sector firms. Distributions of the firms' salary changes exhibit nominal rigidity: few nominal pay cuts, a pile-up of observations at zero, and positive skewness and asymmetry. In addition, these characteristics become more pronounced in periods of low inflation. These results are much stronger than those found in the previous literature. Further analysis shows that the sizable measurement error in the PSID and the fact that establishment surveys typically follow average wages within jobs may bias the results ...
Discussion Paper
Global Inflation Uncertainty and its Economic Effects
Policymakers, including Federal Open Market Committee (FOMC) participants, have been stressing the elevated level of uncertainty, especially related to inflation, and the challenge this poses for monetary policy. As seen in Figure 1, with few exceptions, FOMC participants see the level of uncertainty around their forecasts for core PCE inflation as high, compared to the average over the past 20 years.
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 ...
Discussion Paper
The Third SNB-FRB-BIS High-Level Conference on Global Risk, Uncertainty, and Volatility: Monetary Policy and Banking Regulation under Elevated Uncertainty
The Swiss National Bank (SNB), the Division of International Finance of the Federal Reserve Board (FRB), and the Bank for International Settlements (BIS) jointly organized the third High-Level Conference on Global Risk, Uncertainty, and Volatility on November 14 and 15 of 2023. The conference brought academics and policymakers together to discuss the many sources of risk and uncertainty under which monetary policymakers and bank regulators operate, recent advances in measuring the multi-faceted nature of uncertainty, and how policymakers respond to these challenges.
Working Paper
Nominal wage rigidity and real wage cyclicality
We discuss the ability of standard estimates of the correlation of wages and employment to measure the relative strength of aggregate demand and supply shocks, given that the choice of time period, deflator, and explanatory variables inherently biases the estimated cyclical coefficients toward identifying labor supply or demand. We determine that a closer look at the standard wage/labor correlation shows that it can neither provide information on the relative strength of supply and demand shocks, nor give an indication of the response of wages to aggregate demand shocks. Following this, we ...
Discussion Paper
The Third SNB-FRB-BIS High-Level Conference on Global Risk, Uncertainty, and Volatility: Monetary Policy and Banking Regulation under Elevated Uncertainty
The Swiss National Bank (SNB), the Division of International Finance of the Federal Reserve Board (FRB), and the Bank for International Settlements (BIS) jointly organized the third High-Level Conference on Global Risk, Uncertainty, and Volatility on November 14 and 15 of 2023. The conference brought academics and policymakers together to discuss the many sources of risk and uncertainty under which monetary policymakers and bank regulators operate, recent advances in measuring the multi-faceted nature of uncertainty, and how policymakers respond to these challenges.
Working Paper
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 ...