Research

Abstract: We use the high-frequency, decentralized implementation of Stay-at-Home orders in the U.S. to disentangle the labor market effects of SAH orders from the general economic disruption wrought by the COVID-19 pandemic. We find that each week of SAH exposure increased a state's weekly initial unemployment insurance (UI) claims by 1.9% of its employment level relative to other states. A back-of-the-envelope calculation implies that, of the 17 million UI claims between March 14 and April 4, only 4 million were attributable to SAH orders. We present a currency union model to provide conditions for mapping this estimate to aggregate employment losses.

Abstract: We provide a guide to using autoregressive distributed lag models for impulse response estimations with an identified structural shock or an external instrument for the shock. We illustrate how specifications widely used in practice can lead to inconsistent and inefficient estimators. We further review empirical results from previous papers and show that some results appear to be statistical artifacts. We propose a simple method to avoid such a false conclusion from biases or large standard errors and obtain consistent and precise estimates.

Abstract: We study how workers form inflation expectations and incorporate them into labor supply decisions using experimental evidence from the U.S. online labor market. Exploiting exogenous variation in expectations from randomized information provision, we find that higher price inflation expectations do not raise reservation wages. Instead, workers lower reservation wages for multi-period contracts, even after controlling for wage growth and unemployment expectations. These patterns are consistent with a labor search model in which higher inflation expectations increase perceived real income risk and induce a precautionary reduction in reservation wages. Overall, the findings suggest a limited risk of wage-price spirals in the U.S. in 2022.

Abstract: This paper shows that more procyclical returns to scale in recent decades have flattened the Phillips curve when conventional activity measures, such as the output gap, labor gap, and labor share, are used as forcing variables. In contrast, the marginal cost Phillips curve remains steep. Using a simple, intuitive model with a potentially nonhomothetic production function, we illustrate a novel channel linking input complementarity and procyclical returns to scale to the identified slopes of the Phillips curves. By utilizing the estimated production functions and quantitative models, we emphasize the importance of our mechanism for rationalizing the US inflation data.

Abstract: We study why seemingly similar inflation surprises generate different financial and real responses. Between 1995 and 2019, 37 percent of U.S. CPI announcements generated equity price movements inconsistent with conventional wisdom. We argue that these responses reflect different market interpretations of inflation news. Using high-frequency comovement between CPI surprises and S&P 500 futures around announcement releases as sign restrictions, we identify supply- and demand-driven inflation surprises within a Bayesian SVAR framework. Supply-driven news predicts weaker real activity, higher uncertainty, and tighter financial conditions. Demand-driven news predicts milder real effects and lower uncertainty. These findings imply that inflation and real economic variables are connected: the real consequences of inflation news depend on how markets interpret the underlying state of the economy.

Abstract: The costs of business cycles are unevenly distributed across workers, yet monetary policy targets aggregate labor market indicators. I study how the composition of employment, the allocation between regular and irregular jobs, shapes these costs and the design of policy. Using CPS microdata, I show that recessions, and contractionary monetary policy itself, shift workers toward irregular jobs. I develop a tractable New Keynesian model with imperfect insurance in which workers at the two labor-market margins are most exposed to business cycles. A rule stabilizing employment composition protects these least-insured workers and lowers welfare costs relative to a conventional unemployment-gap rule.

Abstract: Recent work suggests that when central bank releases information, they could alter expectations and spending in directions that potentially reverse the expected effect of policy changes. In this paper, we estimate the extent to which expectations changes depend on explicit information given by central banks. We compare impulse responses to high-frequency monetary policy surprises during announcements when the Bank of England also releases a detailed inflation report to those where a simple press statement is released. We find that when a simple press statement is released policy has conventional signs: output and inflation fall following a surprise tightening. However, when a detailed inflation report is released, surprise tightening raise GDP and inflation suggesting the information effect can be controlled by central banks.