Works in Progress

Federal Funds Rate and Year-over-year House Price Growth, ZIP Code

Beliefs, Aggregate Risk, and the U.S. Housing Boom

This paper investigates the quantitative importance of the interaction of beliefs with credit conditions in explaining the run-up of house prices during the U.S. housing boom in a general equilibrium macro model with household heterogeneity. To allow for interacting beliefs and credit conditions while maintaining computational tractability, I will introduce adaptive expectations into a life-cycle model with aggregate risk, incomplete markets and defaultable debt. I will compare results from the model solved under adaptive expectations derived from ZIP code level house price data to results solved under rational expectations. Although house prices grew by 40 percent relative to their pre-boom level in the data, looser credit conditions and positive income shocks only generate a 5 percent increase in house prices under rational expectations in the model.


With Ellis W. Tallman. Journal of Financial Stability. Volume 17, April 2015, Pages 22-34.

Caught between the end of the National Banking Era and the beginning of the Federal Reserve System, the crisis of 1914 provides an example of a banking panic avoided. We investigate how this outcome was achieved by examining data on the issues of Aldrich-Vreeland emergency currency and clearing house loan certificates to New York City institutions that identify the borrower and the quantity requested for each type of temporary liquidity measure. The extensive provision of temporary credit to a wide array of financial intermediaries was, in our opinion, essential to the successful alleviation of financial distress in 1914. Empirical results indicate an important role for clearing house loan certificates that is distinct from the influence of Aldrich-Vreeland emergency currency issues.

Working Papers

With Eric M. Leeper and Bruce Preston

When Roosevelt abandoned the gold standard in April 1933, he converted what had been effectively real government debt into nominal government debt to open the door to unbacked fiscal expansion. We argue that he followed a state-contingent fiscal rule that ran nominal-debt-financed primary deficits until the price level rose and economic activity recovered. Theory suggests that government spending multipliers can be substantially larger when fiscal expansions are unbacked than when they are tax-backed. VAR estimates find that primary deficits made quantitatively important contributions to raising both the price level and real GNP from 1933 through 1937. The evidence does not support the conventional monetary explanation that gold revaluation and gold inflows, which were permitted to raise the monetary base, drove the recovery independently of fiscal actions.

The Federal Reserve System and World War I: Designing Policies Without Precedent, with Ellis W. Tallman. Federal Reserve Bank of Cleveland, working paper no. 15-10.


Next Steps for the Fiscal Theory of the Price Level

Becker Friedman Institute at the University of Chicago

Federal Reserve Publications

"Do Forecasters Agree on a Taylor Rule?" with Charles Carlstrom. Economic Commentary, September 2015.

"New Rules for Credit Default Swap Trading: Can We Now Follow the Risk," with John Carlson. Economic Commentary, June 2014.

"The Overhang of Structures Before and Since the Great Recession," with Filippo Occhino. Economic Commentary, April 2014.

"Labor's Declining Share of Income and Rising Inequality," with Filippo Occhino. Economic Commentary, September 2012.

Over 30 Economic Trends pages on topics including the economic outlook, monetary policy, inflation, and labor markets.

Media mentions: The Wall Street Journal, FT Alphaville, Slate, Reuters, The Washington Post, CNN, Crain's Cleveland Business, Bloomberg View.