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Working Paper
The Optimal Inflation Rate with Discount Factor Heterogeneity
Lepetit, Antoine (2018-12)
This paper shows that deviations from long-run price stability are optimal in the presence of price stickiness whenever profit and utility flows are discounted at a different rate. In that case, a monetary authority acting under commitment will choose a path for the inflation rate that ends with a non-zero value. Such a property is relevant in a wide range of macroeconomic environments. I first illustrate this by studying optimal monetary policy in a New Keynesian model with a perpetual youth structure. In this setting, profit flows are discounted more heavily than utility flows and the ...
Finance and Economics Discussion Series , Paper 2018-086

Working Paper
Turbulent Business Cycles
Dong, Ding; Wang, Pengfei; Liu, Zheng (2025-02-26)
Firm-level evidence suggests that turbulence that reshuffles firms’ productivity rankings rises sharply in recessions. An increase in turbulence reallocates labor and capital from high- to low-productivity firms, reducing aggregate TFP and the stock market value of firms. A real business cycle model with heterogeneous firms and financial frictions can generate the observed macroeconomic and reallocation effects of turbulence. In the model, increased turbulence makes high-productivity firms less likely to remain productive, reducing their expected equity values and tightening their borrowing ...
Working Paper Series , Paper 2021-22

Working Paper
Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach
Gelain, Paolo; Lansing, Kevin J.; Natvik, Gisele J. (2015-01)
We use a simple quantitative asset pricing model to ?reverse-engineer? the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage ...
Working Paper Series , Paper 2015-2

Working Paper
Income in the Off-Season: Household Adaptation to Yearly Work Interruptions
Price, Brendan M.; Coglianese, John M. (2020-10-07)
Joblessness is highly seasonal. To analyze how households adapt to seasonal joblessness, we introduce a measure of seasonal work interruptions premised on the idea that a seasonal worker will tend to exit employment around the same time each year. We show that an excess share of prime-age US workers experience recurrent separations spaced exactly 12 months apart. These separations coincide with aggregate seasonal downturns and are concentrated in seasonally volatile industries. Examining workers most prone to seasonal work interruptions, we find that these workers incur large earnings losses ...
Finance and Economics Discussion Series , Paper 2020-084

Working Paper
Firm Entry and Employment Dynamics in the Great Recession
Siemer, Michael (2014-07-30)
The 2007-2009 recession is characterized by: a large drop in employment, an unprecedented decline in firm entry, and a slow recovery. Using confidential firm-level data, I show that financial constraints reduced employment growth in small relative to large firms by 4.8 to 10.5 percentage points. The effect of financial constraints is robust to controlling for aggregate demand and is particularly strong in small young firms. I show in a heterogeneous firms model with endogenous firm entry and financial constraints that a large financial shock results in a long-lasting recession caused by a ...
Finance and Economics Discussion Series , Paper 2014-56

Working Paper
Information Acquisition and the Finance-Uncertainty Trap
Dong, Ding; Hu, Allen; Li, Zhaorui; Liu, Zheng (2025-07-05)
Using novel measures of information acquisition, we document causal evidence of a feedback loop between firms’ credit access and information acquisition. To examine the macroeconomic implications of this feedback loop, we develop a tractable general equilibrium framework with financial frictions and endogenous information acquisition. In line with the empirical evidence, the model predicts that a rise in information costs raises the level of uncertainty and reduces a firm’s equity value, hampering its credit access. On the other hand, tightened credit constraints restrain activity of ...
Working Paper Series , Paper 2025-12

Working Paper
Minimum Wage Increases and Vacancies
Kudlyak, Marianna; Tasci, Murat; Tuzemen, Didem (2023-01-01)
Using a unique data set and a novel identification strategy, we estimate the effect of minimum wage increases on job vacancy postings. Using occupation-specific county-level vacancy data from the Conference Board’s Help Wanted Online for 2005-2018, we find that state-level minimum wage increases lead to substantial declines in existing and new vacancy postings in occupations with a larger share of workers who earn close to the prevailing minimum wage. We estimate that a 10 percent increase in the state-level effective minimum wage reduces vacancies by 2.4 percent in the same quarter, and ...
Working Paper Series , Paper 2022-10

Working Paper
Fiscal Multipliers at the Zero Lower Bound: The Role of Policy Inertia
Hills, Timothy S.; Nakata, Taisuke (2014-11-20)
The presence of the lagged shadow policy rate in the interest rate feedback rule reduces the government spending multiplier nontrivially when the policy rate is constrained at the zero lower bound (ZLB). In the economy with policy inertia, increased inflation and output due to higher government spending during a recession speed up the return of the policy rate to the steady state after the recession ends. This in turn dampens the expansionary effects of the government spending during the recession via expectations. In our baseline calibration, the output multiplier at the ZLB is 2.5 when the ...
Finance and Economics Discussion Series , Paper 2014-107

Working Paper
Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?
Hall, Robert E.; Kudlyak, Marianna (2020-05-20)
It is a remarkable fact about the historical US business cycle that, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.55 percentage points per year. The economy seems to have had an irresistible force toward restoring full employment. There was high variation in monetary and fiscal policy, and in productivity and labor-force growth, but little variation in the rate of decline of unemployment. We explore models of the labor market's self-recovery that imply gradual working off of unemployment ...
Working Paper Series , Paper 20

Working Paper
Mortgages and monetary policy
Kydland, Finn E.; Šustek, Roman; Garriga, Carlos (2013)
Mortgages are long-term nominal loans. Under incomplete asset markets, monetary policy is shown to affect housing investment and the economy through the cost of new mortgage borrowing and the value of payments on outstanding debt. These channels, distinct from traditional transmission of monetary policy, are evaluated within a general equilibrium model. Persistent monetary policy shocks, resembling the level factor in the nominal yield curve, have larger effects than transitory shocks, manifesting themselves as long-short spread. The transmission is stronger under adjustable- than fixed-rate ...
Working Papers , Paper 2013-37

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