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Journal Article
How the U.S. tax system stacks up against other G-7 economies
The recent financial crisis, Europe?s sovereign debt problems and the U.S. political dispute about raising the national debt ceiling have prompted fiscal policy debate about the size of government and the type of tax structure needed to fund public expenditures. ; Government revenue of the so-called Group of Seven (G-7) largest industrialized nations expressed as a percentage of gross domestic product (GDP) from 1970 to 2009 generally trended upward before stabilizing in the 1990s (Chart 1). Revenue averaged 27 percent of GDP in 1970, rising to 36 percent in 2009. Over the past four decades, ...
Journal Article
The Big Mac: a global-to-local look at pricing
The global, national, regional and local factors that shape price-setting behavior are complex, even for a relatively simple product that's neither easily tradable nor wholly nontradable.
Journal Article
Economic rebounds in U.S. and euro zone: deceivingly similar, strikingly different
The global downturn following Lehman Brothers? failure in September 2008 has become known as the Great Recession for good reason: It was the most severe global economic contraction since the Great Depression. As the dust settles, patterns among key macroeconomic variables have emerged. Identifying them may make it possible to understand the nature of the downturn and, thus, determine which policies might best address its fallout.
Journal Article
The globalization of ideas
Globalization is the process of increasing economic interdependence among nations. It is reflected in the growth of cross-border trade in goods and services. Ideas, like goods and services, also flow across borders and their globalization is well under way. ; Quantifying that flow is difficult; however, patent filings can provide indirect evidence on the production of ideas. Further, cross-border patenting--the patenting of one idea in several countries--can help trace the flow of ideas. What we learn from those data is that idea production has taken off in the developing BRIC economies ...
Working Paper
The quantitative role of capital-goods imports in U.S. growth
Over the last 40 years, an increasing share of U.S. aggregate E&S investment expenditure has been allocated to capital-goods imports. While capital-goods imports were only 3.5 percent of E&S investment in 1967, by 2008 their share had risen tenfold to 36 percent. The goal of this paper is to measure the contribution of capital-goods imports to growth in U.S. output per hour using a simple growth accounting exercise. We find that capital-goods imports have contributed 20 to 30 percent to growth in U.S. output per hour between 1967 and 2008. More importantly, we find that capital-goods imports ...
Working Paper
Borders and Big Macs
I measure the extent of international market segmentation using local, national, and international Big Mac prices. I show that the bulk of time-series price volatility observed across the United States arises between neighboring locations. Using these data, I provide new estimates of border frictions for 14 countries. I find that borders generally introduce only small price wedges, far smaller than those observed across neighboring locations. When expressing these wedges in terms of distance equivalents, I find that border widths are small in relation to price variations observed across the ...
Working Paper
Accounting for real exchange rates using micro-data
The classical dichotomy predicts that all of the time series variance in the aggregate real exchange rate is accounted for by nontraded goods in the CPI basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) found that traded goods had comparable volatility to the aggregate real exchange. Our work reconciles these two views by successfully applying the classical dichotomy at the level of intermediate inputs into the production of final goods using highly disaggregated retail price data. Since the typical good found in the CPI basket is about equal parts traded ...
Working Paper
IKEA: product, pricing, and pass-through
With over 300 stores in 40 countries, IKEA is a major international presence in retail housewares and furnishings. IKEA publishes country-specific catalogs with local-currency prices guaranteed to hold for 1 year. This paper explores a new dataset of IKEA products and catalog prices covering six countries for the time period 1994?2010. The dataset, with over 140,000 observations, is uniquely poised to shed light on the way in which a large multinational retailer operates in a setting characterized by a very large number of goods, distributed and priced in many countries. Thus, the goal of ...
Working Paper
Expectations and exchange rate dynamics: a state-dependent pricing approach
We introduce elements of state-dependent pricing and strategic complementarity into an otherwise standard New Open Economy Macroeconomics (NOEM) model. Relative to previous NOEM works, there are new implications for the dynamics of real and nominal economic activity: complementarity in the timing of price adjustment alters an open economy's response to monetary disturbances. Using a two-country Producer-Currency-Pricing environment, our framework replicates key international features following a domestic monetary expansion: (i) a delayed surge in inflation across countries, (ii) a delayed ...
Working Paper
Pricing-to-market with state-dependent pricing
This paper extracts information on inflation expectations, the real interest rate, and various risk premiums by exploring the underlying common factors among the actual inflation, University of Michigan consumer survey inflation forecast, yields on U.S. nominal Treasury bonds, and particularly, yields on Treasury Inflation Protected Securities (TIPS). Our findings suggest that a significant liquidity risk premium on TIPS exists, which leads to inflation expectations that are generally higher than the inflation compensation measure at the 10-year horizon. On the other hand, the estimated ...