Working Papers

"Relative Price Shocks and Inflation," (revised: March 2024), with A. Wolman.

Inflation is determined by interaction between monetary policy and real factors, including shocks to supply and demand for different components of the consumption basket. We use a 15-sector New Keynesian model to quantify the contributions to inflation from sectoral supply and demand shocks, monetary policy shocks, and aggregate real shocks. The model is estimated by maximum likelihood on U.S. data from 1995 through 2019, when the policy regime appeared to be stable. Decomposing the 2012-2019 inflation shortfall, and its surge starting in 2021, we find that sectoral shocks were major contributors to the inflation deviations from target.

"The Macroeconomic Effects of Extreme Shocks," (April 2023), with J. Kim.

This paper uses extreme value theory to examine the effects of exceptionally large shocks on the U.S. economy. We construct and estimate a nonlinear multi-sector model where fluctuations are driven by shocks drawn from asymmetric extreme value distributions. The estimated model is used to evaluate a leaning-against-the-wind policy whereby the central bank responds directly to aggregate shocks, in addition to inflation and unemployment. Results show that this policy is effective in reducing the probability of worst-case outcomes after an extreme negative shock, but at the cost of temporarily high inflation.

"What Assets Should the Central Bank Purchase in a Quantitative Easing Program?" (October 2023), with H. Hui.

This paper studies large-scale asset purchases in an economy with heterogeneous production sectors and asks whether different asset purchases have different aggregate and sectoral effects. Sectors are heterogeneous in price rigidity, production function, and agency costs, and interact with each other in the market for intermediate goods. Results show that depending on the asset, purchases induce different sectoral responses from the interaction between price rigidity and agency costs.

"Using Generalized Impulse Response Functions to Estimate Nonlinear Dynamic Models," (April 2024).

This paper proposes the use of generalized impulse response functions (Koop, Pesaran, and Potter, 1996) as a natural solution to the issues that arise when estimating nonlinear dynamic general equilibrium models by impulse response matching. Using a small-scale New Keynesian model with downward nominal wage rigidity as testing ground, Monte-Carlo analysis shows that the proposed estimation strategy delivers more efficient parameter estimates than the matching of traditional impulses responses currently employed in the literature.