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Working Papers

Fed Logo Leonardo Melosi
Senior Economist
Federal Reserve Bank of Chicago
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Working Papers





Abstract: In a dynamic general equilibrium model with a job ladder, inflation rises when most workers are employed in high-productivity jobs because in this case, poaching leads to wage increases that are not backed by changes in productivity. The model predicts that the post-Great Recession drop in the job-to-job flow rate has significantly slowed the pace at which the U.S. labor market turns low-productivity jobs into high-productivity ones. As a result, inflation has fallen below trend for an entire decade, despite the marked decline in the unemployment rate. The impaired process of reallocation over the job ladder accounts for a one-percentage-point reduction in U.S. labor productivity relative to trend, contributing to explain the stagnant productivity of the current economic recovery.


The Limits of Forward Guidance with J.R. Campbell, F. Ferroni, and J.D.M. Fisher Download pdf-   CEPR Working Paper

Abstract: The viability of forward guidance as a monetary policy tool depends on the horizon over which it can be communicated and its influence on expectations over that horizon. We develop and estimate a model of imperfect central bank communications and use it to measure how effectively the Fed has managed expectations about future interest rates and the influence of its communications on macroeconomic outcomes. Standard models assume central banks have perfect control over expectations about the policy rate up to an arbitrarily long horizon and this is the source of the so-called "forward guidance puzzle.'' Our estimated model suggests that the Fed's ability to affect expectations at horizons that are sufficiently long to give rise to the forward guidance puzzle is substantially limited. We also find that imperfect communication has a significant impact on the propagation of forward guidance. Finally, we develop a novel decomposition of the response of the economy to forward guidance and use it to show that empirically plausible imperfect forward guidance has a quantitatively important role bringing forward the effects of future rate changes and that poor communications have been a source of macroeconomic volatility.



Abstract: Low-frequency variations in current and expected unemployment rates are important to identify TFP news shocks and to allow a general equilibrium rational expectations model to generate Pigouvian cycles: a large fraction of the comovement of output, consumption, investment, employment, and real wages is explained by changes in expectations unrelated to TFP fundamentals. The model predicts that the start (end) of most U.S. recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met.


The Macroeconomic Effects of the 2018 Bipartisan Budget Act with J. R. Campbell, F. Ferroni, and J.D.M. Fisher Download pdf





  Works in Progress


Central Bank Communications and Their Perils, with S.Brave, F.Ferroni, and A.Justiniano

Deflationary Bias in a Low Interest Rates Environment, with F. Bianchi (Coming Soon)

Endogenous News, with B. Giannini and F. Zanetti

What Do Forecasters Pay Attention to?, with R. Pancrazi and M. Vukotic






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