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Working Paper
Trading down and the business cycle
Rebelo, Sergio; Wong, Arlene; Jaimovich, Nir (2015-11-01)
The authors document two facts: First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. Therefore, when households trade down, labor demand falls, increasing the severity of recessions. The authors find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. They study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the ...
FRB Atlanta CQER Working Paper , Paper 2015-5

Working Paper
Trends and cycles in China's macroeconomy
Waggoner, Daniel F.; Zha, Tao; Chang, Chun; Chen, Kaiji (2015-06-01)
We make four contributions in this paper. First, we provide a core of macroeconomic time series usable for systematic research on China. Second, we document, through various empirical methods, the robust findings about striking patterns of trend and cycle. Third, we build a theoretical model that accounts for these facts. Fourth, the model's mechanism and assumptions are corroborated by institutional details, disaggregated data, and banking time series, all of which are distinctive Chinese characteristics. We argue that preferential credit policy for promoting heavy industries accounts for ...
FRB Atlanta Working Paper , Paper 2015-5

Working Paper
The impact of medical and nursing home expenses and social insurance
Koreshkova, Tatyana; Kopecky, Karen A. (2010)
We consider a life-cycle model with idiosyncratic risk in earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the United States, we show that (1) savings for old-age, out-of-pocket expenses account for 13.5 percent of aggregate wealth, half of which is due to nursing home expenses; (2) cross-sectional out-of-pocket nursing home risk accounts for 3 percent of aggregate wealth and substantially slows down wealth decumulation at older ages; (3) the impact of medical and ...
FRB Atlanta Working Paper , Paper 2010-19

Working Paper
No Firm Is an Island? How Industry Conditions Shape Firms’ Expectations
Coibion, Olivier; Andrade, Philippe; Gorodnichenko, Yuriy; Gautier, Erwan (2020-08-01)
We study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions using a survey of French manufacturing firms. We document an important new stylized fact. In response to industry-level shocks that have no aggregate effects, firms’ aggregate expectations respond persistently. This is consistent with “island” models in which firms use the local prices they observe to make inferences about broader aggregate conditions. We then assess the extent to which these patterns are related to observable characteristics of firms and the industries in ...
Working Papers , Paper 20-17

Working Paper
Robinson Meets Roy: Monopsony Power and Comparative Advantage
Kaymak, Barış; Wu, Kai-Jie; Bils, Mark (2025-08-26)
We provide a number of insights into the nature and consequences of monopsony power through the lens of comparative advantage, where employers' power in wage setting stems from match-specific rents. Chief among them is that employers will apply larger wage markdowns to workers with greater comparative advantage at their firm. This leads to stronger monopsony power over more productive workers, provided the workers' comparative advantage aligns with their absolute advantage. Using Brazilian administrative data, we confirm this prediction: monopsony disproportionately affects high-wage workers ...
Working Papers , Paper 25-19

Working Paper
Exchange rate flexibility under the zero lower bound
Devereux, Michael B.; Cook, David (2014-09-01)
An independent currency and a flexible exchange rate generally helps a country in adjusting to macroeconomic shocks. But recently in many countries, interest rates have been pushed down close to the lower bound, limiting the ability of policy-makers to accommodate shocks, even in countries with flexible exchange rates. This paper argues that if the zero bound constraint is binding and policy lacks an effective ?forward guidance? mechanism, a flexible exchange rate system may be inferior to a single currency area. With monetary policy constrained by the zero bound, under flexible exchange ...
Globalization Institute Working Papers , Paper 198

Working Paper
Trade Uncertainty and Income Inequality
Brueckner, Markus; Vespignani, Joaquin L. (2017-03-01)
This paper examines the relationship between trade uncertainty and income inequality. In countries where only a small share of the population is educated, an increase in trade uncertainty is associated with a significant increase in income inequality. As education of the population increases the relationship between trade uncertainty and income inequality becomes more muted. Trade uncertainty has no significant effect on income inequality in countries that are world leaders in education. Developing countries that want to reduce income inequality arising from trade uncertainty should therefore ...
Globalization Institute Working Papers , Paper 306

Working Paper
The post-crisis slump in the Euro Area and the US: evidence from an estimated three-region DSGE model
Kollmann, Robert; Raciborski, Rafal; Pataracchia, Beatrice; Vogel, Lukas; Roeger, Werner; Ratto, Marco (2016-02-29)
The global financial crisis (2008-09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences?in particular, the EA slump has been markedly more protracted. We estimate a three-region (EA, US and Rest of World) New Keynesian DSGE model (using quarterly data for 1999-2014) to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that financial shocks were key drivers of the 2008-09 Great Recession, for both the EA and the ...
Globalization Institute Working Papers , Paper 269

Working Paper
Sharing the burden: monetary and fiscal responses to a world liquidity trap
Devereux, Michael B.; Cook, David (2011)
With integrated trade and financial markets, a collapse in aggregate demand in a large country can cause "natural real interest rates" to fall below zero in all countries, giving rise to a global "liquidity trap." This paper explores the optimal policy response to this type of shock, when governments cooperate on both fiscal and monetary policy. Adjusting to a large negative demand shock requires raising world aggregate demand, as well as redirecting demand towards the source (home) country. ; The key feature of demand shocks in a liquidity trap is that relative prices respond perversely. ...
Globalization Institute Working Papers , Paper 84

Working Paper
Fiscal deficits, debt, and monetary policy in a liquidity trap
Devereux, Michael B. (2010)
The macroeconomic response to the economic crisis has revived old debates about the usefulness of monetary and fiscal policy in fighting recessions. Without the ability to further lower interest rates, policy authorities in many countries have turned to expansionary fiscal policies. Recent literature argues that government spending may be very effective in such environments. But a critical element of the stimulus packages in all countries was the use of deficit financing and tax reductions. This paper explores the role of government debt and deficits in an economy constrained by the zero ...
Globalization Institute Working Papers , Paper 44

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