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Discussion Paper
The Effect of Monetary and Fiscal Policy on Inequality
How does accounting for households’ heterogeneity—and in particular inequality in income and wealth—change our approach to macroeconomics? What are the effects of monetary and fiscal policy on inequality, and what did we learn in this regard from the COVID-19 pandemic? What are the implications of inequality for the transmission of monetary policy, and its ability to stabilize the economy? These are some of the questions that were debated at a recent symposium on “Heterogeneity in Macroeconomics: Implications for Policy” organized by the new Applied Macroeconomics and Econometrics ...
Report
Approximating Grouped Fixed Effects Estimation via Fuzzy Clustering Regression
We propose a new, computationally-efficient way to approximate the “grouped fixed-effects” (GFE) estimator of Bonhomme and Manresa (2015), which estimates grouped patterns of unobserved heterogeneity. To do so, we generalize the fuzzy C-means objective to regression settings. As the regularization parameter m approaches 1, the fuzzy clustering objective converges to the GFE objective; moreover, we recast this objective as a standard Generalized Method of Moments problem. We replicate the empirical results of Bonhomme and Manresa (2015) and show that our estimator delivers almost identical ...
Discussion Paper
Not Just “Stimulus” Checks: The Marginal Propensity to Repay Debt
Households frequently use stimulus checks to pay down existing debt. In this post, we discuss the empirical evidence on this marginal propensity to repay debt (MPRD), and we present new findings using the Survey of Consumer Expectations. We find that households with low net wealth-to-income ratios were more prone to use transfers from the CARES Act of March 2020 to pay down debt. We then show that standard models of consumption-saving behavior can be made consistent with these empirical findings if borrowers’ interest rates rise with debt. Our model suggests that fiscal policy may face a ...
Discussion Paper
Understanding Permanent and Temporary Income Shocks
The earnings of 200 million U.S. workers change each year for various reasons. Some of these changes are anticipated while others are more unexpected. Although many of these changes may be due to pleasant surprises?such as receiving salary raises and promotions?others involve disappointments?such as falling into unemployment. Arguably, some of these factors have rather short-lived effects on an individual?s earnings, whereas others may have permanent effects. Many labor economists have been interested in these various shocks to earnings. How big are the more permanent shocks to earnings? How ...
Discussion Paper
Black and White Differences in the Labor Market Recovery from COVID-19
The ongoing COVID-19 pandemic and the various measures put in place to contain it caused a rapid deterioration in labor market conditions for many workers and plunged the nation into recession. The unemployment rate increased dramatically during the COVID recession, rising from 3.5 percent in February to 14.8 percent in April, accompanied by an almost three percentage point decline in labor force participation. While the subsequent labor market recovery in the aggregate has exceeded even some of the most optimistic scenarios put forth soon after this dramatic rise, the recovery has been ...
Discussion Paper
Climate Change: Implications for Macroeconomics
What are the implications of climate change, and climate change–related policies, for macroeconomics in general and monetary policy in particular? This is the key question debated at a recent symposium on “Climate Change: Implications for Macroeconomics” organized by the Applied Macroeconomics and Econometrics Center (AMEC) of the New York Fed on May 13. This post briefly summarizes the content of the discussion and provides links to recordings of the various sessions and the participants’ slides.
Discussion Paper
Expecting the Unexpected: Job Losses and Household Spending
Unemployment risk constitutes one of the most significant sources of uncertainty facing workers in the United States. A large body of work has carefully documented that job loss may have long-term effects on one’s career, depressing earnings by as much as 20 percent after fifteen to twenty years. Given the severity of a job loss for earnings, an important question is how much such an event affects one’s standard of living during a spell of unemployment. This blog post explores how unemployment and expectations of job loss interact to affect household spending.
Discussion Paper
Who’s Ready to Spend? Constrained Consumption across the Income Distribution
Spending on goods and services that were constrained during the pandemic is expected to grow at a fast pace as the economy reopens. In this post, we look at detailed spending data to track which consumption categories were the most constrained by the pandemic due to social distancing. We find that, in 2019, high-income households typically spent relatively more on these pandemic-constrained goods and services. Our findings suggest that these consumers may have strongly reduced consumption during the pandemic and will likely play a crucial role in unleashing pent-up demand when pandemic ...
Discussion Paper
What Have Workers Done with the Time Freed up by Commuting Less?
The COVID-19 pandemic has dramatically changed the way Americans spend their time. One of the most enduring shifts has occurred in the workplace, with millions of employees making the switch to work from home. Even as the pandemic has waned, more than 15 percent of full-time employees remain fully remote and an additional 30 percent work in hybrid arrangements (Barrero, Bloom, and Davis). These changes have substantially reduced time spent commuting to work; in the aggregate, Americans now spend 60 million fewer hours traveling to work each day. In this post, we investigate how people spend ...
Report
Latent Heterogeneity in the Marginal Propensity to Consume
We estimate the unconditional distribution of the marginal propensity to consume (MPC) using clustering regression and the 2008 stimulus payments. Since we do not measure heterogeneity as the variation of MPCs with observables, we can recover the full distribution of MPCs. Households spent at least one quarter of the rebate, and individual households used rebates for different goods. While many observables are individually correlated with our estimated MPCs, these relationships disappear when tested jointly, except for nonsalary income and the average propensity to consume. Household ...