Jacob Weber

Publications

1. "How Powerful Is Unannounced, Sterilized Foreign Exchange Intervention?" 
   Journal of Money, Credit and Banking  (2023) with Alain Naef
   [article] [working paper version] [older Banque de France working paper] [executive summary]
   Though most central banks actively intervene on the foreign exchange market, the literature offers mixed evidence on their effectiveness: particularly for unannounced interventions. We use new, declassified data from the archives of the Bank of England and the institutional features of the Bretton Woods era to estimate the effects of intervention on the exchange rate. We find that a purchase of pounds equivalent to 1% of the money supply causes a statistically significant, 4-5 basis point appreciation in the pound.

2. "Discretion Rather than Rules: Equilibrium Uniqueness and Forward Guidance with Inconsistent Optimal Plans"
   Review of Economic Dynamics (2021) with Jeffrey Campbell
   [article] [working paper version]
   New Keynesian economies with active interest rate rules gain equilibrium determinacy from the central bank's incredible off-equilibrium-path promises (Cochrane, 2011). We suppose instead that the central bank sets interest rate paths and occasionally has the discretion to change them. Private agents taking future central bank actions and their own best responses to them as given reduces the scope for self-fulfilling prophecies. With empirically-reasonable frequencies of central-bank reoptimization, the monetary-policy game has a unique Markov-perfect equilibrium wherein forward guidance influences current outcomes without displaying a forward-guidance puzzle. 

Working Papers

1. “Do Cost-of-Living Shocks Pass Through to Wages?” (2024) with Justin Bloesch and Seung Joo Lee   

[working paper]

We develop a tractable New Keynesian model where firms post wages and workers search on the job, motivated by microeconomic evidence on wage setting. Because firms set wages to avoid costly turnover, the rate that workers quit their jobs features prominently in the model’s wage Phillips curve, matching U.S. evidence that wage growth tightly correlates with workers’ quit rate. We then examine the response of wages to cost-of-living shocks, i.e., shocks that raise the price of household’s consumption goods but do not affect the marginal product of labor. Such shocks pass through to wages only to the extent that higher cost of living improves worker’s outside options, such as competing jobs or unemployment, relative to their current job. However, higher cost of living lowers real wages at all jobs evenly, and unemployment is rarely a credible outside option. Cost-of-living shocks thus have little to no effect on relative outside options and therefore wages. We conclude that wage posting and on-the-job search, which are prevalent in labor markets such as the United States, limit the scope for pass through from prices to wages and elevate voluntary quits as the primary predictor of nominal wage growth. 

2. “Who Collaborates with the Soviets? Financial Distress and Technology Transfer during the Great Depression ” (2024) with Jerry Jiang

[working paper]

We provide evidence that financial distress induces firms to sell their technology to foreign competitors. To do so, we construct a novel, spatial panel dataset by individually researching and locating U.S. firms who signed Technology Transfer Agreements (TTAs) with the Soviet Union during the 1920s and 1930s in various U.S. counties. By relating the number of TTAs signed in each county to the number of bank failures, we establish a significant, positive relationship between financial distress and the number of firms signing TTAs with the Soviet Union. Our findings suggest that banking panics may create opportunities for foreign countries to acquire affected firms' technology.

3. "The Countercyclical Benefits of Regulatory Costs" (2024) with Alexander Mechanick
   [working paper]  (Conditionally accepted at  the Journal of Legal Analysis)
   Legal academics, journalists, and senior executive branch officials alike have assumed that the economic costs of regulatory requirements go up in severe recessions that drive interest rates to zero. But this is not correct; the aggregate costs of regulatory requirements decrease, not increase, during severe economic contractions that push interest rates to the zero lower bound (i.e., a liquidity trap). While this prediction arises in conventional macroeconomic models and is empirically supported in the econometrics literature, surprisingly no scholarship has noted this fact. This paper remedies this oversight by analyzing the effect of regulations in the now-standard New Keynesian model of the business cycle. But it also argues that scholars and policymakers have likely missed the countercyclical benefits of regulatory costs because of informal, ad hoc macroeconomic assumptions embedded in regulatory analysis. Accordingly, formally integrating business-cycle macroeconomic dynamics into benefit-cost analyses would lead to better regulatory analysis and decisionmaking.

4.  "Railroads of the Reich" (2024) with Matthew Suandi
   [working paper]
   Can new governments legitimize themselves through infrastructure spending? To answer this question, we study the influence of transportation infrastructure improvements on turnout in elections for the lower-house of Imperial Germany's (1871 - 1918) newly formed national parliament, the Reichstag. Because the improvements we measure either stem from new rail and canal construction, largely motivated by military considerations, or aggregate technological improvements, they constitute shocks to trade exposure which are plausibly exogenous with regards to local political conditions. Using a novel panel dataset synthesizing constituency-level data on voting, population, wages, and inter-constituency trade costs to discipline a canonical spatial general equilibrium model, we find that infrastructure improvements raised welfare by 3-5% and increased turnout in national elections by about 0.25%. Buying legitimacy through infrastructure spending works, but it is expensive.  

5. “Congestion in Onboarding Workers and Sticky R&D” (2023) with Justin Bloesch

[working paper]

R&D investment spending exhibits a delayed and hump-shaped response to shocks. We show in a simple partial equilibrium model that rapidly adjusting R&D investment is costly if the probability of converting new hires into productive R&D workers (“onboarding”) is decreasing in the number of new hires (“congestion”). Congestion thus causes R&D producing firms to slowly hire new workers in response to good shocks and hoard workers in response to bad shocks, providing a microfoundation for convex adjustment costs in R&D investment. Using novel, high-frequency productivity data on individual software developers collected from GitHub, a popular online collaboration platform, we provide quantitative evidence for such congestion. Calibrated to this evidence, a sticky-wage new Keynesian model with heterogeneous investment-producing firms subject to congestion in onboarding and no other frictions yields hump-shaped responses of R&D investment to monetary policy shocks.

6. "Structural Changes in Investment and the Waning Power of Monetary Policy" (2021) with Justin Bloesch
   [working paper]
   We argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy.

7. "Open Mouth Operations" (Revised, 2019) with Jeffrey Campbell
   [working paper]
   We examine the standard New Keynesian economy's Ramsey problem written in terms of instrument settings instead of allocations. Its standard formulation makes two instruments available: the path of current and future interest rates, and an "open mouth operation" which selects one of the many equilibria consistent with the chosen interest rates. Removing the open mouth operation by imposing a finite commitment horizon yields pathological policy advice that relies on the model's forward guidance puzzle.