Felipe Schwartzman

Minority Inflation, Unemployment, and Monetary Policy

(with Munseob Lee and Claudia Macaluso, December 2024)

Our paper addresses the heterogeneous effects of monetary policy on households of different races. Black households are disproportionately affected by employment fluctuations, whereas price volatility is only particularly pronounced for Black households with income above the national median. The latter face 40 percent higher price volatility than both poorer households of the same race and white households of similar income.  We find that an accommodative monetary stance generates asymmetric outcomes within race groups.  Reducing the volatility of unemployment by 1 percentage point engenders a 1.17 percentage point reduction in overall income volatility for poorer Black households but an increase of 0.6 percentage points in income volatility for richer Black households.

Estimating the Missing Intercept

(with Christian Matthes and Naoya Nagasaka, October 2024),

Microeconometric approaches to answer macroeconomic questions regularly use time fixed effects. This leads to the well-known ‘missing intercept’ problem because fixed effects soak up average aggregate effects. As such, these results cannot be used to directly address policy questions requiring knowledge of policies’ aggregate effects. We present a statistical approach that leverages knowledge of these microeconometric results to jointly identify aggregate and idiosyncratic effects of changes in policy. We then apply our methodology to study government spending multipliers (Nakamura and Steinsson, 2014).

Multilateral Comovement in a New Keynesian World: A Little Trade Goes a Long Way

(with Paul Ho and Pierre-Daniel Sarte, September 2024),

Appendix

International linkages and nominal rigidities result in a global system of Phillips curves tying each country’s inflation to a trade-weighted average of real activity abroad. Moreover, disturbances propagate across countries directly through pairwise trade and indirectly through knock-on network effects. We estimate that absent trade, the average cross-country correlation of output growth falls by 90 percent, while that of inflation, and of inflation and output growth, fall by 1/2. We show analytically that knock-on effects and nominal rigidities are key features underlying these findings. These features also help resolve the Backus-Kehoe-Kydland puzzle, producing lower cross-country correlations in consumption than output.

Cognitive Hubs and Spatial Redistribution  

(with Esteban Rossi-Hansberg and Pierre-Daniel Sarte, December 2023),

Conditionally Accepted - American Economic Journal: Macroeconomics

Appendix, NBER Working Paper 26267. See related summary for general audience, "Optimizing the geography of occupations across U.S. cities", and VOX-EU column "Optimal policy responses to the growing polarisation of occupations in space" 

In the U.S., cognitive non-routine (CNR) occupations are disproportionately represented in large cities. We propose and quantify a spatial equilibrium model with multiple industries employing CNR and non-CNR occupations. An optimal policy that benefits workers equally incentivizes the formation of cognitive hubs in the largest cities and higher overall activity and employment in smaller cities.

Climate Defaults and Financial Adaptation

(with Toan Phan, December 2023). Ungated version. Replication Code.

Forthcoming at European Economic Review (Special Edition on Economics of Climate Change)

We analyze the relationship between climate-related disasters and sovereign debt crises using a model with capital accumulation, sovereign default, and disaster risk. We find that disaster risk and default risk together lead to slow post-disaster recovery and heightened borrowing costs. Calibrating the model to Mexico, we find that the increase in cyclone risk due to climate change leads to a welfare loss equivalent to a permanent 1% consumption drop. However, financial adaptation via catastrophe bonds and disaster insurance can reduce these losses by about 25%. Our study highlights the importance of financial frictions in analyzing climate change impacts.

The Consumption Origins of Business Cycles: Lessons from Sectoral Dynamics 

(with Christian Matthes, June 2023)

Conditionally Accepted -  American Economics Journal: Macroeconomics

We use sectoral data to measure the impact of household consumption shocks on aggregate fluctuations. Shocks independently affecting household consumption demand have accounted for almost 40% of business cycle fluctuations since the mid-1970s, playing a central role in recessions within that period. 

Local Industrial Policy and Sectoral Hubs

(with  Esteban Rossi-Hansberg and Pierre-Daniel Sarte)  American Economic Review - Papers and Proceedings (Volume 111, May 2021, Pages 40-57).  Ungated version.

We study the desirability of industrial policies that generate sectoral hubs using a quantitative spatial model with cognitive non-routine and other occupations. We find that the optimal policy gives rise to national hubs in coastal cities in tradeable services, like Professional Services, and smaller regional hubs in less tradable services, like Health and Education. Manufacturing is developed in smaller towns. 

Local Scars of the US Housing Crisis

(with Saroj Bhattarai and Choongryul Yang), Journal of Monetary Economics (Volume 119, April 2021 Pages 40-57). FRB-Richmond Working Paper Version.  See related coverage in Richmond Fed's Economic Brief with Tim Sablik

We show that the 2006-09 U.S. housing crisis had scarring local effects. For a given county, a housing shock generating a 10 percent reduction in housing wealth from 2006 through 2009 led to a 4.4 percent decline in employment by 2018 and a commensurate decline in value added. Local wages did not respond, and convergence in the local labor market slack took place entirely through population losses in affected regions.

The Benefits of Commitment to a Currency Peg: Aggregate Lessons from the Regional Effects of the 1896 U.S. Presidential Election  

(with Scott Fulford)  Review of Economics and Statistics (July 2020), 102(3): 600-616  FRB-Richmond Working Paper Version. - Download Online Appendix - Download Replication Files.  Formerly "The Benefits of Commitment to a Currency Peg: The Gold Standard, National Banks and the 1896 U.S. Presidential Election". See related coverage in Richmond Fed's Economic Brief, with Karl Rhodes

We use the one-time cross-sectional impact of a cleanly identified shock to identify its aggregate impact. The U.S. presidential election in 1896 provides a cleanly identified positive shock to commitment to the gold standard. Full commitment would have reduced the volatility of real activity over two decades, and mitigate the 1893 economic depression,

Does Redistribution Increase Output? The Centrality of Labor Supply

(with Kartik Athreya and Andrew Owens) Quantitative Economics (November 2017), 8: 761–808. FRB-Richmond Working Paper Version. See related coverage in Richmond Fed's Economic Brief, with Jessie Romero.

The direction and size of the output effects of transfers to poorer households depend on labor supply decisions. In a quantitative incomplete‐markets model extended to allow for nominal rigidities, wealth redistribution leads to a temporary boom in consumption but negligeable output increase. Our results suggest substantial value in empirical research uncovering the distribution of marginal propensities to work.

Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models 

(with Carlos Carvalho). Journal of Monetary Economics (November 2015): 141-156. FRB-Richmond Working Paper Version- Download Technical Appendix. - Download Mathematica Files. 

For a given frequency of price adjustment, monetary non-neutrality is smaller if older prices are disproportionately more likely to change. Selection for older prices is weaker and non-neutralities are larger if the hazard function of price adjustment is less strongly increasing, if there is heterogeneity in price stickiness, and if durations of price spells are more variable. The Taylor (1979) model exhibits maximal selection for older prices, whereas the Calvo (1983) model exhibits no selection.

Time To Produce and Emerging Market Crises

 Journal of Monetary Economics 68 (November 2014): 37-52. Ungated final version. FRB-Richmond Working Paper Version

After emerging market crises, value added falls more in manufacturing industries that normally exhibit higher inventory/cost ratios, persisting years into the recovery. A shock to aggregate TFP cannot by itself match this pattern, but a persistent increase in the cost of foreign capital can. In the context of a calibrated multisector small open economy model, a shock to the cost of foreign capital consistent with the cross-industry data leads, 3–5 years afterwards, to an average reduction of output relative to a trend of 5.4 percent.