Search Results
Briefing
Putting the Beveridge Curve Back to Work
After the recession of 2007-09, the Beveridge curve seemed to shift significantly outward as the job-vacancy rate increased with no corresponding decrease in the unemployment rate. A new time-varying analysis of the Beveridge curve from the early 1950s through 2011 could lend support to the idea that skill mismatch due to technological change is the most likely driver of the curve's outward shifts, including its most recent movement. This analysis suggests that expansionary monetary policy has done little in recent years to reduce the unemployment rate.
Briefing
Public and Private Debt after the Pandemic and Policy Normalization
As a result of the COVID-19 pandemic, public debt has increased dramatically and private debt seems likely to increase as well. High indebtedness could influence the effectiveness of monetary policy and lead to political pressure for the Federal Reserve to maintain low interest rates for an extended period of time.
Working Paper
The time-varying Beveridge curve
We use a Bayesian time-varying parameter structural VAR with stochastic volatility to investigate changes in both the reduced-form relationship between vacancies and the unemployment rate, and in their relationship conditional on permanent and transitory output shocks, in the post-WWII United States. Evidence points towards similarities and differences between the Great Recession and the Volcker disinflation, and wide-spread time variation along two key dimensions. First, the slope of the Beveridge curve exhibits a large extent of variation from the mid-1960s on. It is also notably ...
Journal Article
Does Intra-Firm Bargaining Matter for Business Cycle Dynamics?
We analyze the implications of intra-firm bargaining for business cycle dynamics in models with large firms and search frictions. Intra-firm bargaining implies a feedback from the marginal revenue product to wage setting, which leads firms to over-hire in order to reduce workers' bargaining position within the firm. The keys to this effect are decreasing returns and/or downward-sloping demand. We show that equilibrium wages and employment are higher in steady state compared with a bargaining framework in which firms neglect this feedback effect. However, the effects of intra-firm bargaining ...
Briefing
Examining the Differences in r* Estimates
With inflation declining over the course of the year and the Federal Open Market Committee (FOMC) seemingly in the process of normalizing policy, a key question is: What is the natural real rate of interest (denoted r*)? In this article, we will shed light on what r* means, what models are used to estimate it and what the benefits and drawbacks are for these models.
Working Paper
Inventories, inflation dynamics, and the New Keynesian Phillips curve
We introduce inventories into an otherwise standard New Keynesian model and study the implications for inflation dynamics. Inventory holdings are motivated as a means to generate sales for demand-constrained firms. We derive various representations of the New Keynesian Phillips curve with inventories and show that one of these specifications is observationally equivalent to the standard model with respect to the behavior of inflation when the model's cross-equation restrictions are imposed. However, the driving variable in the New Keynesian Phillips curve - real marginal cost - is ...
Working Paper
What Inventory Behavior Tells Us About How Business Cycles Have Changed
Beginning in the mid-1980s, the nature of U.S. business cycles changed in important ways, as made evident by distinctive shifts in the comovement and relative volatilities of key economic aggregates. These include labor productivity, hours, output, and inventories. Unlike the widely documented change in absolute volatility over that period, known as the Great Moderation, these shifts in comovement and relative volatilities persist into the Great Recession. To understand these changes, we exploit the fact that inventory data are informative about sources of business cycles. Specifically, they ...
Briefing
MMT and Government Finance: You Can't Always Get What You Want
During the past 25 years, low interest rates and highly expansionary monetary policy with little apparent inflation have created the illusion that a government can simply print money to fund exorbitant deficit spending with no repercussions. This core tenet of so-called "modern monetary theory" ignores the fact that deficit spending is constrained in the long run by a government's ability to satisfy creditors.
Briefing
How Likely Is a Return to the Zero Lower Bound?
The likelihood of returning to near-zero interest rates is relevant to policymakers in considering the path of future interest rates. At the zero lower bound, the Fed can no longer lower rates and thus can respond to a contraction only through alternative policy measures, such as quantitative easing. Recent research at the Richmond Fed has used repeated simulations of the U.S. economy to estimate the probability of such an occurrence over the next ten years. The estimated probability of returning to the zero lower bound one or more times during this period is approximately one chance in four.