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Journal Article
The U.S. flow of funds accounts and their uses
The U.S. flow of funds accounts compiled by the Board of Governors provide a broadly consistent set of time-series data for tracking funds as they move from economic sectors that serve as sources of capital to sectors that use the capital to acquire physical and financial assets. They present a wide range of data organized by financial instrument and by sector. With statistics extending back more than a half a century, the accounts document financial developments, provide means for studying macroeconomic behavior, and are used for policy purposes. This article briefly describes the accounts ...
Working Paper
Social Distancing and Supply Disruptions in a Pandemic
Drastic public health measures such as social distancing or lockdowns can reduce the loss of human life by keeping the number of infected individuals from exceeding the capacity of the health care system but are often criticized because of the social and the economic cost they entail. We question this view by combining an epidemiological model, calibrated to capture the spread of the COVID-19 virus, with a multisector model, designed to capture key characteristics of the U.S. Input Output Tables. Our two-sector model features a core sector that produces intermediate inputs not easily replaced ...
Working Paper
Trade Risk and Food Security
We study the role of international trade risk for food security, the patterns of production and trade across sectors, and its implications for policy. We document that food import dependence across countries is associated with higher food insecurity, particularly in low-income countries. We provide causal evidence on the role of trade risk for food security by exploiting the exogeneity of the Ukraine-Russia war as a major trade disruption limiting access to imports of critical food products. Using micro-level data from Ethiopia, we empirically show that districts relatively more exposed to ...
Working Paper
What is Measured in National Accounts?
Most statistical agencies construct sectoral real GDP using double deflation and base period prices. When the base period price used for intermediate inputs is not equal to their marginal revenue product, such as when firms apply a markup, real GDP fluctuations become mechanically linked to variations in intermediate inputs. This is because these inputs generate profits that are incorporated into real value added. Taking this channel into account, we demonstrate that real GDP reported in national accounts substantially diverges from a theory-consistent "physical" value added. This, in turn, ...
Working Paper
The Inflationary Effects of Sectoral Reallocation
The COVID-19 pandemic has led to an unprecedented shift of consumption from services to goods. We study this demand reallocation in a multi-sector model featuring sticky prices, input-output linkages, and labor reallocation costs. Reallocation costs hamper the increase in the supply of goods, causing inflationary pressures. These pressures are amplified by the fact that goods prices are more flexible than services prices. We estimate the model allowing for demand reallocation, sectoral productivity, and aggregate labor supply shocks. The demand reallocation shock explains a large portion of ...
Working Paper
Communicating Monetary Policy Rules
Despite the ubiquity of inflation targeting, central banks communicate their frameworks in a variety of ways. No central bank explicitly expresses their conduct via a policy rule, which contrasts with models of policy. Central banks often connect theory with their practice by publishing inflation forecasts that can, in principle, implicitly convey their reaction function. We return to this central idea to show how a central bank can achieve the gains of a rule-based policy without publicly stating a specific rule. The approach requires central banks to specify an inflation target, inflation ...
Working Paper
Does Unemployment Risk Affect Business Cycle Dynamics?
In this paper, I show that the decline in household consumption during unemployment spells depends on both liquid and illiquid asset positions. I also provide evidence that unemployment spells predict the withdrawal of illiquid assets, particularly when households have few liquid assets. Motivated by these findings, I embed endogenous unemployment risk in a two-asset heterogeneous-agent New Keynesian model. The model is consistent with the above evidence and provides a new propagation mechanism for aggregate shocks due to a flight-to-liquidity that occurs when unemployment risk rises. This ...
Working Paper
Search with wage posting under sticky prices
Working Paper
Corporate income tax, legal form of organization, and employment
We adopt a dynamic stochastic occupational choice model with heterogeneous agents and evaluate the impact of a potential reduction in the corporate income tax on employment. We show that a reduction in corporate income tax leads to moderate job creation. In the extreme case, the elimination of the corporate income tax would reduce the non-employed population by 5.4 percent. In the model, a reduction in the corporate income tax creates jobs through two channels, one from new entry firms and one from existing firms changing their form of legal organization. In particular, the latter accounts ...
Working Paper
Bubbly Recessions
We develop a tractable rational bubbles model with financial frictions, downward nominal wage rigidity, and the zero lower bound. The interaction of financial frictions and nominal rigidities leads to a "bubbly pecuniary externality," where competitive speculation in risky bubbly assets can result in excessive investment booms that precede inefficient busts. The collapse of a large bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent and inefficient recession. We evaluate a ...