Search Results
Working Paper
The Distributional Effects of COVID-19 and Mitigation Policies
This paper develops a quantitative life cycle model in which economic decisions impact the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to measure the welfare costs of the pandemic across the age, income and wealth distribution and to study the effectiveness of various mitigation policies. In the absence of mitigation, young workers engage in too much economic activity relative to the social optimum, leading to higher rates of infection and death in the aggregate. The paper considers a subsidy-and-tax policy that imposes a tax on ...
Report
Real Interest Rates, Inflation, and Default
This paper argues that the comovement between inflation and economic activity is an important determinant of real interest rates over time and across countries. First, we show that for advanced economies, periods with more procyclical inflation are associated with lower real rates, but only when there is no risk of default on government debt. Second, we present a model of nominal sovereign debt with domestic risk-averse lenders. With procyclical inflation, nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. In the absence of default risk, procyclical ...
Working Paper
On the Distributional Effects of International Tariffs
We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the US and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce distortionary taxes on consumption, labor, and capital income, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth households, while only wealthy ...
Working Paper
The Postpandemic U.S. Immigration Surge: New Facts and Inflationary Implications
The U.S. experienced an extraordinary postpandemic surge in unauthorized immigration. This paper combines administrative data on border encounters and immigration court records with household survey data to document two new facts about these immigrants: They tend to be hand-to-mouth consumers and low-skilled workers that complement the existing workforce. We build these features into a model with capital, household heterogeneity and population growth to study the inflationary effects of this episode. Contrary to the popular view, we find little effect on inflation, as the increase in supply ...
Working Paper
The Postpandemic U.S. Immigration Surge: New Facts and Inflationary Implications
The U.S. experienced an extraordinary surge in immigration from 2021 to 2024, which triggered widespread discussions about its macroeconomic impact, particularly on inflation. To determine the impact of the immigration surge, we first document the salient features of these new immigrants: they are primarily low-skilled relative to the existing workforce and more likely to be hand-to-mouth consumers. We then incorporate these features into a heterogeneous agent model with capital-skill complementarity. We find that the supply- and demand-side effects of the immigration surge roughly cancel ...
Working Paper
On the Distributional Effects of International Tariffs
We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the U.S. and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth and labor skill. When tariff revenues are used to reduce labor and capital income taxes and increase transfers, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth and low-income workers, while only ...
Working Paper
On the Heterogeneous Welfare Gains and Losses from Trade
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income households. Second, we build a trade model with nonhomothetic preferences?to generate the documented relationship between tradable expenditure shares, income, and wealth?and uninsurable earnings risk?to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth ...
Working Paper
Unequal Climate Policy in an Unequal World
We study climate policy in an economy with heterogeneous households, two types of goods (clean and dirty), and a climate externality from the dirty good. Using household expenditure and emissions data, we document that low-income households have higher emissions per dollar spent than high-income households, making a carbon tax regressive. We build a model that captures this fact and study climate policies that are neutral with respect to the income distribution. A central feature of these policies is that resource transfers across consumers are ruled out. We show that the constrained optimal ...
Journal Article
Lessons on the Economics of Pandemics from Recent Research
The spread of the COVID-19 pandemic has resulted in a dual public health and economic crisis. Many economic studies in the past few months have explored the relationship between the spread of disease and economic activity, the role for government intervention in the crisis, and the effectiveness of testing and containment policies. This Commentary summarizes the methods and findings of a number of these studies. The economic research conducted to date shows that adequate testing and selective containment measures can be effective in fighting the COVID-19 pandemic, and in the absence of ...
Working Paper
Inflation, Debt, and Default
We study how the co-movement of inflation and economic activity affects real interest rates and the likelihood of debt crises. First, we show that for advanced economies, periods with procyclical inflation are associated with lower real interest rates. Procyclical inflation implies that nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. However, such procyclicality also increases sovereign default risk when the economy deteriorates, since the government needs to make larger (real) payments. In order to evaluate both effects, we develop a model of ...