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Working Paper
The Optimal Monetary Policy Response to Belief Distortions: Model-Free Evidence
Data suggest that monetary policy should ease to offset inflation over-pessimism among households.
Working Paper
Sticky Prices for Inflationary Economies: A Tractable Linear Approximation to Menu Cost Models with Trend Inflation
When inflation is low, the Calvo model is a good approximation of sticky prices. But when inflation is high, menu costs matter for macroeconomics. Drawing from recent work on mean field games, I derive an analytical solution to the menu cost model with trend inflation in response to small shocks. The solution includes dynamics of the value function, distribution of price gaps, and aggregate variables. Then, I consider a discrete time approximation that is tractable enough for use in standard DSGE models. Menu costs modify the usual Calvo Phillips curve with a single variable: the frequency of ...
Working Paper
The Rise of AI Pricing: Trends, Driving Forces, and Implications for Firm Performance
We document key stylized facts about the time-series trends and cross-sectional distributions AI pricing and study its implications for firm performance, both on average and in response to monetary policy shocks. We use the online job postings data from Lightcast to measure the adoption of AI pricing. We infer that a firm is adopting AI pricing if it posts a job that requires AI-related skills and contains the keyword “pricing.” At the aggregate level, the share of AI pricing jobs in all pricing jobs has increased more than tenfold since 2010. The rise of AI pricing jobs has been ...
Working Paper
What Are Empirical Monetary Policy Shocks? Estimating the Term Structure of Policy News
Empirical monetary policy shocks (EMPS) mix information about both current andfuture policy. Policy news shocks at different horizons have different macroeconomic effects, so quantifying this mix is essential to use EMPS to evaluate theory. To disentanglethese shocks, we develop an IV method to estimate the term structure of monetary policy news, which captures how an EMPS affects policy residuals at each future horizon.Applying our method to popular monetary policy shocks, we learn that they do not represent textbook surprises Instead, they mix information about policy at many horizons,and ...
Working Paper
Incomplete Information and Irreversible Investment
How do information frictions and investment frictions interact? We use a continuous-time model to analytically characterize how incomplete information distorts firms’ decision rules and stationary distribution when investment is irreversible. The two frictions interact in rich and substantial ways. At the firm level, noisier information shrinks a firm’s inaction region and reduces the elasticity of investment to productivity. In the aggregate, incomplete information increases steady-state capital, exacerbates capital misallocation, and mitigates the impact of productivity shocks on ...
Working Paper
How Ricardian Are We?
Estimates with new time series methods suggest households act as if they will bear only a fraction of outstanding government debt.
Journal Article
Who Uses AI for Pricing?
Firms are increasingly using artificial intelligence (AI)-enabled algorithms to help set prices. While firms do not typically disclose whether they use AI for price-setting, we can measure their use of this technology through their public postings for jobs related to AI pricing. We find that larger, more productive firms are more likely to adopt AI pricing technology. This adoption, in turn, allows these firms to grow faster and become more profitable.