Working Papers

The Macroeconomics of Net Zero

Abstract: This paper examines the macroeconomic cost and implications of transitioning to net zero emissions. The macroeconomic cost of achieving net zero is a combination of lower output due to higher energy prices and higher investment due to more costly technology. Along the transition path, a net zero target operates as both an anticipated negative productivity shock and a negative capital shock. Thus, for monetary policy, net zero is a negative aggregate demand shock that lowers the natural rate of interest. Using projected technology costs and net zero modeling scenarios, decarbonization of US electric power generation is estimated to cost less than 0.2% of steady state consumption.

Climate Reform Policy Options in 2025 (with John Bistline, Kimberly Clausing, Jim Stock and Catherine Wolfram)

Abstract: With the expiration of many tax cuts and unmet climate targets, 2025 could be a crucial year for climate policy in the United States. Using an integrated model of energy supply and demand, this paper aims to assess climate policies that the US federal government may consider in 2025 and to evaluate emissions reductions, fiscal costs and revenues, and household energy expenditures across a range of policy scenarios. Model results suggest that the emissions reductions of the Inflation Reduction Act are significantly augmented under scenarios that add a modest carbon fee or, to a lesser extent, that implement a clean electricity standard in the power sector. Second, net fiscal costs can be substantially reduced in scenarios that include a carbon fee, especially if fossil fuel exports are taxed. Third, expanding the IRA tax credits yields modest additional emissions reductions with higher fiscal costs. Finally, although none of the policy combinations across these scenarios achieve the US target of a 50-52% economy-wide emissions reduction by 2030 from 2005 levels, the carbon fee and clean electricity standard scenarios achieve these levels between 2030 and 2035.

Press Coverage: Heatmap News (March 4, 2024); Inside EPA (February 29, 2024); Politico (February 28, 2024)

Does the US Have an Infrastructure Cost Problem? Evidence from the Interstate Highway System (with Matthew Turner and Juan Pablo Uribe)

Conditionally accepted, Journal of Urban Economics

Abstract: Between 1984 and 2008, total public expenditure per Interstate vehicle mile travelled fell 10%, while the price of new lane miles and pavement quality more than doubled. To reconcile these trends, we describe an Interstate cost function for a planner who minimizes the cost required to deliver a given level of highway services. Using administrative data, we estimate prices for lane miles and pavement quality and evaluate the user cost of the Interstate. User costs fell by nearly half from 1994-2008 largely due to falling interest rates. In this sense, there is no problem with the cost of the Interstate.

Press Coverage: Vox (June 28, 2021), Governing (February 11, 2019)

Sectoral Shocks, The Beveridge Curve and Monetary Policy (with Dmitriy Sergeyev)

Abstract: The slow recovery of the US labor market and the observed shift in the Beveridge curve has prompted speculation that sector-specific shocks may be responsible for the current recession. We document a significant correlation between shifts in the US Beveridge curve in postwar data and periods of elevated sectoral shocks, relying on a factor analysis of sectoral employment to derive our sectoral shock index. We provide conditions under which sector-specific shocks in a multisector model augmented with labor market search generate outward shifts in the Beveridge curve and raise the natural rate of unemployment. Consistent with empirical evidence, our model also generates cyclical movements in aggregate matching function efficiency and mismatch across sectors. We calibrate a two-sector version of our model and demonstrate that a negative shock to construction employment calibrated to match employment shares can fully account for the outward shift in the Beveridge curve. We augment our standard multisector model with financial frictions to demonstrate that financial shocks or a binding zero lower bound can act like sectoral productivity shocks, generating a shift in the Beveridge curve that may be counteracted by expansionary monetary policy.

Press Coverage: Providence Journal (April 21, 2015); Brown Daily Herald (April 9, 2015); Providence Business News (March 23, 2015)

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