Search Results
Working Paper
Estimates of Cost-Price Passthrough from Business Survey Data
We examine businesses' price-setting practices via open-ended interviews and in a quantitative survey module with business contacts from the Federal Reserve Banks of Atlanta, Cleveland, and New York in December 2022 and January 2023. Businesses indicated that their prices were strongly influenced by demand, a desire to maintain steady profit margins, and wages and labor costs. Survey respondents expected reduced growth in costs and prices of about 5 percent on average over the next year. Backward-looking, forward-looking, and hypothetical scenarios reveal average cost-price passthrough of ...
Working Paper
Estimates of Cost-Price Passthrough from Business Survey Data
We examine businesses' price-setting practices via open-ended interviews and in a quantitative survey module with business contacts from the Federal Reserve Banks of Atlanta, Cleveland, and New York in December 2022 and January 2023. Businesses indicated that their prices were strongly influenced by demand, a desire to maintain steady profit margins, and wages and labor costs. Survey respondents expected reduced growth in costs and prices of about 5 percent on average over the next year. Backward-looking, forward-looking, and hypothetical scenarios reveal average cost-price passthrough of ...
Working Paper
Estimates of Cost-Price Passthrough from Business Survey Data
We examine businesses' price-setting practices via open-ended interviews and in a quantitative survey module with business contacts from the Federal Reserve Banks of Atlanta, Cleveland, and New York in December 2022 and January 2023. Businesses indicated that their prices were strongly influenced by demand, a desire to maintain steady profit margins, and wages and labor costs. Survey respondents expected reduced growth in costs and prices of about 5 percent on average over the next year. Backward-looking, forward-looking, and hypothetical scenarios reveal average cost-price passthrough of ...
Working Paper
The Financial Origins of Non-Fundamental Risk
We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes the economy to self-fulfilling fire sales. Policy can eliminate nonfundamental risk by (i) increasing the supply of publicly backed safe assets, through issuing government debt or bailing out intermediaries, or (ii) reducing the ...
Discussion Paper
Is Monetary Policy Still Seasonal?
A 2012 Liberty Street Economics post noted that U.S. monetary policy exhibits a surprising degree of seasonal behavior: over the 1987-2008 period, the Federal Reserve was much more likely to lower interest rates (or abstain from raising rates) in the first month of each quarter than in the two subsequent months. Thirteen years later, we revisit that analysis to investigate whether the seasonal pattern in monetary policy still holds today, in the wake of a rate hiking cycle, a pandemic, a surge in inflation, and a second round of rate hikes. We find that the pattern has indeed continued; ...
Discussion Paper
How Businesses Set Prices—In Their Own Words
There has been a lot of interest in firms’ pricing decisions in the past few years—both during the inflation surge of 2021-23 and in the more recent rounds of tariff increases. In this post, we let firms speak for themselves about what factors they consider when adjusting prices in response to various shocks. The analysis is based on an ongoing research project, joint with the Atlanta and Cleveland Federal Reserve Banks, on how businesses set prices and the extent of passthrough of cost increases. In particular, we leverage the qualitative portion of the study based on open-ended ...
Discussion Paper
Escaping Unemployment Traps
Economic activity has remained subdued following the Great Recession. One interpretation of the listless recovery is that recessions inflict permanent damage on an economy’s productive capacity. For example, extended periods of high unemployment can lead to skill losses among workers, reducing human capital and lowering future output. This notion that temporary recessions have long-lasting consequences is often termed hysteresis. Another explanation for sluggish growth is the influential secular stagnation hypothesis, which attributes slow growth to long-term changes in the economy’s ...
Discussion Paper
Understanding Heterogeneous Agent New Keynesian Models: Insights from a PRANK
In recent years there has been a lot of interest in the effect of income inequality (heterogeneity) on the economy, from both academics and policymakers. Researchers have developed Heterogeneous Agent New Keynesian (HANK) models that incorporate heterogeneity and uninsurable idiosyncratic risk into the New Keynesian models that have become a cornerstone of monetary policy analysis. This research has argued that heterogeneity and idiosyncratic risk change many features of New Keynesian models – the transmission of conventional monetary policy, the forward guidance puzzle, fiscal multipliers, ...
Discussion Paper
The Effect of Monetary and Fiscal Policy on Inequality
How does accounting for households’ heterogeneity—and in particular inequality in income and wealth—change our approach to macroeconomics? What are the effects of monetary and fiscal policy on inequality, and what did we learn in this regard from the COVID-19 pandemic? What are the implications of inequality for the transmission of monetary policy, and its ability to stabilize the economy? These are some of the questions that were debated at a recent symposium on “Heterogeneity in Macroeconomics: Implications for Policy” organized by the new Applied Macroeconomics and Econometrics ...
Discussion Paper
The Effect of Inequality on the Transmission of Monetary and Fiscal Policy
Monetary policy can have a meaningful impact on inequality, as recent theoretical and empirical studies suggest. In light of this, how should policy be conducted? And how does inequality affect the transmission of monetary policy? These are the topics covered in the second part of the recent symposium on “Heterogeneity in Macroeconomics: Implications for Policy,” hosted by the new Applied Macroeconomics and Econometrics Center (AMEC) of the New York Fed on November 12.