Working Papers:
Technology News and Business Cycles (November 2024)
Abstract: I analyze the effects of technology news shocks on the US business cycle. I construct a new frequency-based index about the technology news from a major US news outlet for the period 1948Q1 to 2018Q4. Technology news shocks are identified within a structural vector autoregressive framework as innovations to the index that do not affect productivity on impact but are unrestricted to do so in the long run. A positive technology news shock has no effect on productivity in the short run but is correlated with strong productivity growth in the longer run. Positive technology news leads to an immediate and persistent increase in consumption, hours worked, investment, and output, consistent
with models featuring variable capacity utilization, investment adjustment costs, and small short-run wealth effects. News shocks account for a major share of output fluctuations at business cycle frequencies.
The Dynamics of Unemployment and Hours with Rigid Wage Contracts (with Karl Harmenberg and Erik Öberg)
Abstract: Do wage-contract rigidity and variable pay matter for the Diamond-Mortensen-Pissarides theory of unemployment dynamics? Hagedorn and Manovskii (2008) suggested using the volatility of real wages and steady-state level of tightness to infer the worker bargaining weight and outside option, and found that with this strategy, the DMP model does explain the observed volatility of unemployment. We assess whether this finding is robust to amending the model with rigid variable-pay contracts, following Broer, Harmenberg, Krusell, and Öberg (2023). For given parameters, neither contract rigidity nor variable pay affect unemployment dynamics, but they do affect wage volatility in response to a productivity shock. With a realistic degree of contract rigidity, and variable-pay contracts calibrated to explain intensivemargin fluctuations in hours worked, the calibrated model cannot explain the observed volatility of unemployment.
Work in progress:
Revaluing Government Output: Implications for the Fiscal Multiplier (Draft coming soon)
Abstract: This paper examines whether traditional fiscal multipliers are misestimated due to how government output is valued in the U.S. National Income and Product Accounts (NIPA). Conventional methods value public services at their input costs, thus neglecting the broader economic benefits households derive from these services. To address this issue, I compare the government spending multipliers estimated under two alternative methods for valuing government output. The baseline method follows the standard national accounting practices, while the alternative method imputes government output with a utility-based price index that reflects households' marginal valuation of public services. Theoretically, I show that if a market analog is a close substitute for a government-provided service, its market price can reliably proxy the unobserved households' willingness to pay for that service. Building on these insights, I focus the empirical analysis on public education-a sector with a close market counterpart. I construct an adjusted government education output series using market-based proxies and estimate cumulative spending multipliers under both valuation approaches - the traditional input-cost-based and the market-based valuation. Under the baseline method, the multiplier peaks at 5.93, whereas the market-based approach yields multipliers that are 26-44% higher across all horizons. These findings highlight the limitations of traditional cost-based valuations for assessing the impact of government spending, as they systematically misestimate fiscal multipliers. This insight has implications for fiscal policy design, suggesting that alternative valuation methods may reveal a substantially different economic impact of public spending than currently recognized.
The Propagation of Fiscal Policy Shocks through Production Networks