Search Results
Working Paper
Endogenous Labor Supply in an Estimated New-Keynesian Model: Nominal versus Real Rigidities
The deep deterioration in the labor market during the Great Recession, the subsequent slow recovery, and the missing disinflation are hard to reconcile for standard macroeconomic models. We develop and estimate a New-Keynesian model with financial frictions, search and matching frictions in the labor market, and endogenous intensive and extensive labor supply decisions. We conclude that the estimated combination of the low degree of nominal wage rigidities and high degree of real wage rigidities, together with the small role of pre-match costs relative to post-match costs, are key in ...
Journal Article
Consumer Inflation Expectations Across Surveys and over Time
Different survey-based measures of consumer inflation expectations have diverged in recent months. This Economic Commentary compares these measures and the survey questions underlying them. Our analysis suggests that the divergences across survey-based measures of inflation expectations can be attributed to various features and sample characteristics specific to each survey.
Working Paper
Pricing decisions in an experimental dynamic stochastic general equilibrium economy
We construct experimental economies, populated with human subjects, with a structure based on a nonlinear version of the New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. We analyze the behavior of firms' pricing decisions in four different experimental economies. We consider how well the experimental data conform to a number of accepted empirical stylized facts. Pricing patterns mostly conform to these patterns. Most price changes are positive, and inflation is strongly correlated with average magnitude, but not the frequency, of price changes. Prices are affected negatively ...
Working Paper
Inflation and Deflationary Biases in the Distribution of Inflation Expectations: Theory and Empirical Evidence from Nine Countries
We explore the consequences of losing confidence in the price stability objective of central banks by studying the resulting inflation and deflationary biases in medium-run inflation expectations. In a model with heterogeneous household perceptions of an occasionally binding zero-lower-bound constraint and of monetary policy objectives, we show that the estimated model-implied distribution of households' inflation expectations matches several characteristics of the empirical distribution when featuring both inflation and deflationary biases. We then directly identify these biases using unique ...
Working Paper
Are Survey Expectations Theory-Consistent? The Role of Central Bank Communication and News
In this paper we analyze whether central bank communication can facilitate the understanding of key economic concepts. Using survey data for consumers and professionals, we calculate how many of them have expectations consistent with the Fisher Equation, the Taylor rule and the Phillips curve and test, by accounting for three different communication channels, whether central banks can influence those. A substantial share of participants has expectations consistent with the Fisher equation, followed by the Taylor rule and the Phillips curve. We show that having theory-consistent expectations ...
Working Paper
The Causal Effects of Tariff Uncertainty on Consumers' Macroeconomic Expectations and Spending Plans
We use a large-scale randomized controlled trial to study the causal effects of tariff beliefs on US consumers' macroeconomic expectations and spending plans. We find that it is important to distinguish between the first- and second-moment effects of tariff rate changes. Exogenous variation in tariff-level expectations and perceived future tariff uncertainty differentially affects consumers' expectations and perceived uncertainty about inflation, GDP growth, and unemployment. Furthermore, higher expectations of tariff rates induce an intertemporal substitution effect, increasing consumers' ...
Working Paper
Households' Preferences Over Inflation and Monetary Policy Tradeoffs
We document novel facts about U.S. household preferences over inflation and monetary policy. Many households are highly attentive to news about monetary policy and to interest rates. The median household perceives the Federal Reserve's inflation target to be three percent, but would prefer it to be lower. Quantifying the tradeoff between inflation and unemployment, we find an average acceptable sacrifice ratio of 0.6, implying that households are likely to find disinflation costly. Average preferences are well represented by a non-linear loss function with near equal weights on inflation and ...
Journal Article
Expanding the Survey of Firms’ Inflation Expectations
The Survey of Firms’ Inflation Expectations (SoFIE) is a quarterly survey of chief executive officers and other top business executives in the United States that collects information about their inflation expectations. This Economic Commentary presents questions newly introduced to SoFIE—some related to inflation and others examining expectations for prices, costs, employment, and wages—and provides initial analysis of the collected responses. The expanded set of survey results will be updated on a quarterly basis on the Federal Reserve Bank of Cleveland’s website at clefed.org/SoFIE.
Working Paper
Endogenous Labor Supply in an Estimated New-Keynesian Model: Nominal versus Real Rigidities
Standard macroeconomic models find it difficult to reconcile slow recoveries and missing disinflations after deep deteriorations in the labor market. We develop and estimate a New-Keynesian model with search and matching frictions in the labor market, endogenous intensive and extensive labor supply decisions, and financial frictions. We conclude that the estimated combination of a low degree of nominal wage rigidities and a high degree of real wage rigidities, together with a small role for pre-match costs relative to post-match costs, is key in successfully forecasting slow recoveries in ...