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Working Paper
Shocks and Adjustments
Nechio, Fernanda; Fernald, John G.; Daly, Mary C.; Jordà, Òscar (2013)
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 ...
Working Paper Series , Paper 2013-32

Working Paper
Human capital and technology diffusion
Spiegel, Mark M.; Benhabib, Jess (2002)
This paper generalizes the Nelson-Phelps catch-up model of technology diffusion. We allow for the possibility that the pattern of technology diffusion can be exponential, which would predict that nations would exhibit positive catch-up with the leader nation, or logistic, in which a country with a sufficiently small capital stock may exhibit slower total factor productivity growth than the leader nation. ; We derive a nonlinear specification for total factor productivity growth that nests these two specifications. We estimate this specification for across-section of nations from 1960 through ...
Working Paper Series , Paper 2003-02

Working Paper
Productivity Slowdown: Reducing the Measure of Our Ignorance
Li, Huiyu; Boppart, Timo (2021-08-22)
Growth accounting suggests that the bulk of the post-2004 slowdown in output growth in the U.S. is attributed to a residual called TFP. In this paper we provide a tractable accounting framework with firm heterogeneity to link this residual to innovations, markup dispersion, and potential measurement errors. Theories of creative destruction offer rich testable predictions of how the quality upgrading of products, the process efficiency of different firms, and markup dispersion in the market interact and therefore constitute a key approach to shed light on the slowdown in TFP growth. Surveying ...
Working Paper Series , Paper 2021-21

Working Paper
Imperfect knowledge and the pitfalls of optimal control monetary policy
Williams, John C.; Orphanides, Athanasios (2008)
This paper examines the robustness characteristics of optimal control policies derived under the assumption of rational expectations to alternative models of expectations formation and uncertainty about the natural rates of interest and unemployment. We assume that agents have imperfect knowledge about the precise structure of the economy and form expectations using a forecasting model that they continuously update based on incoming data. We also allow for central bank uncertainty regarding the natural rates of interest and unemployment. We find that the optimal control policy derived under ...
Working Paper Series , Paper 2008-09

Working Paper
Monetary policy shocks, inventory dynamics, and price-setting behavior
Yun, Tack; Jung, Yongseung (2005)
In this paper, we estimate a VAR model to present an empirical finding that an unexpected rise in the federal funds rate decreases the ratio of sales to stocks available for sales, while it increases finished goods inventories. In addition, dynamic responses of these variables reach their peaks several quarters after a monetary shock. In order to understand the observed relationship between monetary policy and finished goods inventories, we allow for the accumulation of finished goods inventories in an optimizing sticky price model, where prices are set in a staggered fashion. In our model, ...
Working Paper Series , Paper 2006-02

Working Paper
In Search of Dominant Drivers of the Real Exchange Rate
Miyamoto, Wataru; Nguyen, Thuy Lan; Oh, Hyunseung (2022-04-13)
We uncover the major drivers of each macroeconomic variable and the real exchange rate at the business cycle frequency in G7 countries. In each country, the main drivers of key macro variables resemble each other and none of those account for a large fraction of the real exchange rate variances. We then estimate the dominant driver of the real exchange rate and find that (i) the shock is largely orthogonal to macro variables and (ii) the shock generates a significant deviation of the uncovered interest parity condition. We analyze international business cycle models that are consistent with ...
Working Paper Series , Paper 2022-09

Working Paper
Convergence and anchoring of yield curves in the Euro area
Fratzscher, Marcel; Swanson, Eric T.; Ehrmann, Michael; Gürkaynak, Refet S. (2007)
We study the convergence of European bond markets and the anchoring of inflation expectations in euro area countries using high-frequency bond yield data for France, Germany, Italy and Spain. We find that Economic and Monetary Union (EMU) has led to substantial convergence in euro area sovereign bond markets in terms of interest rate levels, unconditional daily fluctuations, and conditional responses to major macroeconomic data announcements. Our findings also suggest a substantial increase in the anchoring of long-term inflation expectations since EMU, particularly for Italy and Spain, which ...
Working Paper Series , Paper 2007-24

Working Paper
What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices
Williams, John C.; Mertens, Thomas M. (2020-09-02)
This paper analyzes the effects of the lower bound for interest rates on the distributions of inflation and interest rates. We study a stylized New Keynesian model where the policy instrument is subject to a lower bound to motivate the empirical analysis. Two equilibria emerge: In the “target equilibrium,” policy is unconstrained most or all of the time, whereas in the “liquidity trap equilibrium,” policy is mostly or always constrained. We use options data on future interest rates and inflation to study whether the decrease in the natural real rate of interest leads to forecast ...
Working Paper Series , Paper 2018-03

Working Paper
Beyond Kuznets: persistent regional inequality in China
Candelaria, Christopher; Hale, Galina; Daly, Mary C. (2009)
Regional inequality in China appears to be persistent and even growing in the past two decades. We study potential offsetting factors and interprovincial migration to shed light on the sources of this persistence. We find that some of the inequality could be attributed to differences in quality of labor, industry composition, and geographical location of provinces. We also demonstrate that interprovincial migration, while driven in part by wage differences across provinces, does not offset these differences. Finally, we find that interprovincial redistribution did not help offset regional ...
Working Paper Series , Paper 2009-07

Working Paper
The impact of financial frictions on a small open economy: when current account borrowing hits a limit
Valderrama, Diego (2002)
The evidence of the last 20 years of recurring output busts and rapid reversals of the current account in emerging markets indicates that domestic agents may not be able to borrow in international capital markets to fully insure themselves against internal and external shocks. This paper models this phenomenon as a form of excess volatility by introducing a financial friction into a stochastic model of a small open economy. The financial friction limits the current account deficit to a fixed fraction of gross domestic product. The paper shows that conditional volatility and asymmetry are ...
Working Paper Series , Paper 2002-15

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