Search Results
Journal Article
Does inflation reduce productivity?
Discussion Paper
Inflation Persistence: Dissecting the News in January PCE Data
This post presents updated estimates of inflation persistence, following the release of personal consumption expenditure (PCE) price data for January 2023. The estimates are obtained by the Multivariate Core Trend (MCT), a model we introduced on Liberty Street Economics last year and covered most recently here and here. The MCT is a dynamic factor model estimated on monthly data for the seventeen major sectors of the PCE price index. It decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory shock. ...
Discussion Paper
Inflation Persistence: How Much Is There and Where Is It Coming From?
The surge in inflation since early 2021 has sparked intense debate. Would it be short-lived or prove to be persistent? Would it be concentrated within a few sectors or become broader? The answers to these questions are not so clear-cut. In our view, one should ask how much of the inflation is persistent and how much of it is broad-based. In this post, we address this question through a quantitative lens. We find that the large ups and downs in inflation over the course of 2020 were largely the result of transitory shocks, often sector-specific. In contrast, sometime in the fall of 2021, ...
Discussion Paper
A Bird's Eye View of the FRBNY DSGE Model
Dynamic stochastic general equilibrium (DSGE) models provide a stylized representation of reality. As such, they do not attempt to model all the myriad relationships that characterize economies, focusing instead on the key interactions among critical economic actors. In this post, we discuss which of these interactions are captured by the FRBNY model and describe how we quantify them using macroeconomic data. For more curious readers, this New York Fed working paper provides much greater detail on these and other aspects of the model.
Discussion Paper
How Much Do Inflation Expectations Matter for Inflation Dynamics?
Inflation dynamics are often described by some form of the Phillips curve. Named after A. W. Phillips, the British economist whose study of U.K. wage and unemployment data laid the groundwork, the Phillips curve denotes an inverse relationship between inflation and some measure of economic slack. A much-discussed issue in the literature is how forward-looking this relationship is. In this post, we address this question using a flexible version of the New Keynesian Phillips curve (NKPC) to illustrate the key role that expectations play in inflation dynamics.
Discussion Paper
Reintroducing the New York Fed Staff Nowcast
“Nowcasts” of GDP growth are designed to track the economy in real time by incorporating information from an array of indicators as they are released. In April 2016, the New York Fed’s Research Group launched the New York Fed Staff Nowcast, a dynamic factor model that generated estimates of current quarter GDP growth at a weekly frequency. The onset of the COVID-19 pandemic sparked widespread economic disruptions—and unprecedented fluctuations in the economic data that flow into the Staff Nowcast. This posed significant challenges to the model, leading to the suspension of publication ...
Conference Paper
An optimizing model of U.S. wage and price dynamics
The objective of this paper is to provide an optimizing model of wage and price setting consistent with U.S. data. I first investigate the predictions of an optimizing labor supply model for the aggregate nominal wage, taking as given the evolution of prices and quantities. In this part I seek to determine whether a standard specification of households? preferences over consumption and leisure is consistent with the data, and to what extent nominal rigidities in the wage setting process improve the fit with the data. Then I combine the evolution of wages predicted by this model with the ...
Report
A search for a structural Phillips curve
The foundation of the New Keynesian Phillips curve (NKPC) is a model of price setting with nominal rigidities that implies that the dynamics of inflation are well explained by the evolution of real marginal costs. In this paper, we analyze whether this is a structurally invariant relationship. We first estimate an unrestricted time-series model for inflation, unit labor costs, and other variables, and present evidence that their joint dynamics are well represented by a vector autoregression (VAR) with drifting coefficients and volatilities. We then apply a two-step minimum distance estimator ...
Discussion Paper
Inflation Persistence—An Update with December Data
This post presents an updated estimate of inflation persistence, following the release of personal consumption expenditure (PCE) price data for December 2022. The estimates are obtained by the Multivariate Core Trend (MCT), a model we introduced on Liberty Street Economics last year and covered most recently in a January post. The MCT is a dynamic factor model estimated on monthly data for the seventeen major sectors of the PCE price index. It decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory ...