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Market Rents and CPI Shelter Inflation (with Laurence Ball) (NBER Working Paper 31413) (NBER Digest, October 2025)
Recent research finds that the shelter component of CPI inflation responds with a lag to movements in market rents - the rents that tenants pay when they move into a new dwelling. This paper seeks to improve our understanding of this fact. We start by identifying three sources of lags between market rents and CPI shelter: the rents of most tenants are set in long-term leases; rents are smoothed for continuing tenants who renew leases; and CPI shelter inflation is measured with rent changes over six months. We incorporate these lags in a model of shelter inflation and compare the model to monthly data since 2015, using the Zillow Observed Rent Index to measure market rents. We find that the model performs fairly well, suggesting that it may be useful for understanding and forecasting inflation.
JEL Codes: E31, R21.
Resolving the Fiscal Price Puzzle: The Role of General Equilibrium Effects and Sectoral Composition of Government Spending (with Sangyup Choi)
Does government spending raise prices? While standard models predict an inflationary effect, empirical findings are vastly mixed—a puzzle known as the "fiscal price puzzle." Using MSA-level federal procurement data from 1989 to 2023 and a shift-share IV strategy, we find that regional spending shocks increase local prices under partial equilibrium, but lower prices once general equilibrium (GE) forces are allowed. To explain this, we build a multi-region New Keynesian DSGE model where local fiscal expansions have stronger effects on regional than aggregate prices due to monetary policy responses. We further extend the model to two sectors, showing that government consumption shocks raise regional and sectoral prices more than investment shocks, but induce smaller aggregate price effects. These results reconcile the conflicting empirical literature and emphasize the need to account for GE mechanisms and spending composition, thereby providing implications for fiscal policy design.
JEL Codes: E31, E52, E58, E62, F33.
Seeing the Economy with Colored Glasses: Partisanship in Macro and (not in) Micro Expectations (with Adrian Monninger and Tao Wang)
Political views affect households' macroeconomic expectations, but personal economic circumstances and self-interested motives remain the dominant factors shaping their beliefs. Using an expanded dataset covering 11 U.S. Presidential elections from 1980 to 2020, we show that households' personal finance expectations exhibit significantly less partisan bias than their macroeconomic expectations, as households are more directly informed about their own situations. By linking microeconomic beliefs to corresponding macroeconomic expectations, we differentiate between partisan bias, political sentiment, and differences in belief extrapolation. An empirically estimated factor model quantifies the time-varying importance of partisanship and microeconomic disparity in driving polarized views of the macroeconomy. Finally, we show that households "cheerlead" for policies to be beneficial to the broader economy often not because such policies are enacted by their favored winning party, but because they expect to personally gain from them.
JEL Codes: E21, E71.
I propose an estimation method, the panel Kalman filter, to estimate the slope of the regional Phillips curve (RPC) given unbalanced panel data of regional unemployment and inflation in a monetary union. I demonstrate, through Monte Carlo simulations, that estimates of the RPC slope through the panel Kalman filter are less biased and more consistent than estimates from fixed effects panel data methods. I compare these estimation methods on U.S. city-level data.
JEL Codes: C32, E30.
Works in Progress
Works in Progress
Tracing the Footprints of Macroeconomic Shocks: Evidence from Perceived Job Risks (with Tao Wang and William Du)
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