Research
October 2020
I propose a new approach to estimating the Federal Reserve’s unconventional monetary policy after the Great Recession. During the 2009-2015 U.S. zero lower bound period, the Federal Reserve resorted to unconventional policies like forward guidance and large-scale asset purchases. I quantify these policies by creating an unconventional monetary policy index using computational linguistics and machine learning on the FOMC meeting minutes. This index provides information on how much of the discussion during each meeting was pertaining to the large-scale asset purchase program and forward guidance. A positive shock to this measure can be interpreted as more discussion about this topics in particular meeting. Using such shocks as instruments in a in a factor-augmented vector auto-regression framework, I find that the Fed’s unconventional policy had its desired effects of stimulating the economy, by increasing output and reducing the unemployment rate. I also find significant, albeit less, effects on the financial markets.
updated May 2020
Labor market indicators such as unemployment rates and labor force participation show a significant amount of heterogeneity across demographic groups, which is often not incorporated in monetary policy analysis. In this paper, I build a dynamic stochastic general equilibrium model with skill heterogeneity in the U.S. labor market. Low-skilled workers have a higher elasticity of labor supply and labor demand, resulting in a flatter wage Phillips curve for low-skilled workers. A welfare improving optimal monetary policy with skill differentials can be implemented by a simple interest rate rule with unemployment rates for high and low-skill workers. Welfare improvement is twice that of a naive policy, where the central bank makes low-skill workers significantly better-off but high-skill workers are slightly worse-off.
updated January 2020
This paper studies the effect of monetary policy shocks on different demographic groups in the U.S. labor market. I look at the effect of a contractionary monetary policy shock on unemployment rates of high and low-skill workers, finding that the low-skill group is more sensitive to these shocks than the high-skill. Further breaking the skill groups down by gender and race, I find that female workers and non-White workers, regardless of their skill type, are more adversely affected by these shocks. Results suggest monetary policy shocks clearly have heterogeneous effects in the labor market, which should be taken into consideration while implementing monetary policy.
updated February 2018
This paper focuses on the heterogeneous aspects of the U.S. labor market and its implications for monetary policy. A New Keynesian model with rule-of-thumb consumers is reformulated to include household heterogeneity in terms of skill differences. Households can be of two types, high-skilled or low-skilled. This model is able to match the empirical finding that low-skill workers' wage inflation response is more sensitive to fluctuations in unemployment. A set of six structural shocks are included in the model to study aggregate dynamics of the U.S. economy. Key parameters of the model, that contribute towards the differences among high and low-skill workers, are estimated using data on GDP, inflation, federal funds rate and unemployment rates for the two skill groups. Estimation results show that heterogeneity exists among agents in the economy and are important for aggregate fluctuations. This framework does well in explaining key features of the U.S. labor market.