Abstract

I present empirical evidence that U.S. workers with low liquid wealth face significantly higher cyclical employment risk. This finding cannot be fully explained by skills, socio-demographics, or past income. I propose a framework that generates a negative correlation between wealth and employment risk in equilibrium, through job sorting based on wealth. Job search provides an insurance mechanism for liquidity constrained and risk-averse unemployed workers. Asset-poor unemployed sort into relatively lower wage and lower security jobs, because these jobs offer a relatively higher job finding probability. I build a quantitative model to study the implications of wealth sorting for wages and job transitions over the business cycle, as well as its consequence for long-term inequalities. The interaction between employment risk and wealth accumulation generates a "poverty trap" which is amplified in bad times. The cost of entering unemployment during a recession amounts to 3% of lifetime consumption for the poorest, more than twice that of the wealthiest. 

Abstract

This paper explores the role of firms in the transmission of monetary policy to individual labor income. Using German matched employer-employee administrative data, we study the effects of monetary policy shocks on individual employment and labor income conditioning on the firm type. First, we find that the employment of workers in young firms are especially sensitive to monetary policy shocks. Second, wages of workers in large firms react relatively more. The effects are strongly asymmetric, with differences between large and small firms more exacerbated in easings. The differential wage response is driven by above-median workers and cannot be fully explained by a worker component. We find evidence that larger firms adjust their wages more, even though they are not differently affected in terms of investment and turnover. Firm age does not stand out as a relevant determinant of wage responses to monetary policy shocks. Overall, monetary policy tightenings hurt low-skilled and low-wage earners relatively more. The effect of monetary policy on inequalities is however larger in easings, driven by a large increase in wages for top earners.

Abstract

This paper shows that different income insurance mechanisms are effective at reducing the exposure of high-MPC individual labor income to aggregate fluctuations. We carry out a reduced form analysis using the PSID data. Savings, transfers, taxes and spousal labor together imply an amplification of business cycles that is about 2.5 times smaller than implied by labor income only. Moreover, we separately quantify the stabilizing role of each component of earnings. Savings and welfare programs are most effective at mitigating the effect of labor market inequalities on the multipliers. Besides unemployment benefits, food stamps and other transfers matter. Taxes also act as stabilization channel, although to a smaller extent. Spousal labor, on the other hand, does not have a significant role.

Abstract

We study how monetary policy shapes the aggregate and distributional effects of an energy price shock. Based on the observed heterogeneity in consumption exposures to energy and household wealth, we build a quantitative small open-economy HANK model that matches salient features of the Euro Area data. Our model incorporates energy as both a consumption good for households with non-homothetic preferences as well as a factor input into production with input complementarities. Independently of policy energy price shocks always reduce aggregate consumption. Households with little wealth are more adversely affected through both a decline in labor income as well as negative direct price effects. Active policy responses raising rates in response to inflation amplifies aggregate outcomes through a reduction in aggregate demand, but speeds up the recovery by enabling households to rebuild wealth through higher returns on savings. However, low-wealth households are further adversely affected as they have little savings to rebuild wealth from and instead loose due to further declining labor income.

Abstract

We build a weighted network of business cycle similarities across countries and assess its main quantitative properties. Business cycle similarity is measured at the annual frequency using the Euclidean distance. Network analysis is well suited to map the full set of pairwise similarities at an annual frequency. We find that the global business cycle network has become more dense and more homogeneous over time, reflecting global trends such as rising trade and financial integration. At the same time, similarity exhibits a jagged pattern, underscoring the importance of also taking into account short-term factors to explain the dynamics of global business cycle interdependence. Unlike earlier studies focused on aggregate measures of similarity, our empirical approach is able to uncover and assess both the long-term trend rise and the short-term pattern of business cycle similarity.

Abstract

We investigate the relationship between deviations from the covered interest rate parity (CIP) and Swiss capital outflows since the great financial crisis. While the CIP held tightly before the crisis, it has been failing for most currencies vis-à-vis the US dollar ever since. We expect CIP deviations to adversely affect outflows, as they generally result in additional costs for Swiss investors. We find empirical support for our hypothesis. Our results show that with increasing CIP deviations, Swiss portfolio investment debt outflows decrease significantly. This decrease could have implications for the demand for domestic currency investments.