Search Results
Showing results 1 to 10 of approximately 10.
(refine search)
Working Paper
What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models
This paper finds that U.S. consumer prices fell substantially due to increased trade with China. With comprehensive price micro-data and two complementary identification strategies, we estimate that a 1pp increase in import penetration from China causes a 1.91% decline in consumer prices. This price response is driven by declining markups for domestically-produced goods, and is one order of magnitude larger than in standard trade models that abstract from strategic price-setting. The estimates imply that trade with China increased U.S. consumer surplus by about $400,000 per displaced job, and ...
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
Assessing the Impact of Central Bank Digital Currency on Private Banks
I investigate the theoretical impact of central bank digital currency (CBDC) on a monopolistic banking sector. The framework combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of banking. There are two main results. First, the introduction of interest-bearing CBDC increases financial inclusion, diminishing the demand for physical cash. Second, while interest-bearing CBDC reduces monopoly profit, it need not disintermediate banks in any way. CBDC may, in fact, lead to an expansion of bank deposits if CBDC competition compels banks to raise their ...
Working Paper
Wealth Effects, Price Markups, and the Neo-Fisherian Hypothesis
By introducing Jaimovich-Rebelo (JR) consumption-labor nonseparable preferences into an otherwise standard New Keynesian model, we show that the occurrence of positive comovement between inflation and the nominal interest rate conditional on a nominal shock - the so-called neo-Fisherian hypothesis - depends on the extent of wealth effects in households’ labor supply decisions. Neo-Fisherianism appears more prominent in economic environments with i) weaker wealth effects on labor supply (in particular for Greenwood-Hercowitz-Huffmann preferences where wealth effects are absent), and ii) ...
Working Paper
Assessing the Impact of Central Bank Digital Currency on Private Banks
I investigate how a central bank digital currency (CBDC) can be expected to impact a monopolistic banking sector. My framework of analysis combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of a monopoly bank. I find that the introduction of a CBDC has no detrimental effect on bank lending activity and may, in some circumstances, even serve to promote it. Competitive pressure leads to a higher monopoly deposit rate which reduces profit but expands deposit funding through greater financial inclusion and desired saving. An appeal to available ...
Working Paper
Evidence for the Effects of Mergers on Market Power and Efficiency
Study of the impact of mergers and acquisitions (M&As) on productivity and market power has been complicated by the difficulty of separating these two effects. We use newly-developed techniques to separately estimate productivity and markups across a wide range of industries using detailed plant-level data. Employing a difference-in-differences framework, we find that M&As are associated with increases in average markups, but find little evidence for effects on plant-level productivity. We also examine whether M&As increase efficiency through reallocation of production to more efficient ...
Briefing
How Costly Is Rising Market Power for the U.S. Economy?
We survey the recent, active debate on market power in the U.S. economy. While typical studies on market power focused on narrow industries due to data constraints, the relevance of market power for the aggregate economy was reinvigorated by a study focusing on publicly traded firms that documented a significant rise in U.S market power since the 1980s. This article is meant to provide a bird's-eye view of the (sometimes heated) discussion on market power. Furthermore, we examine the macroeconomic consequences of a rise in U.S. market power.
Working Paper
Trade Credit, Markups, and Relationships
Trade credit is the most important form of short-term finance for firms. In 2019, U.S. non-financial firms had about $4.5 trillion in trade credit outstanding equaling 21 percent of U.S. GDP. This paper documents two striking facts about trade credit use. First, firms with higher markups supply more trade credit. Second, trade credit use increases in relationship length, as firms often switch from cash in advance to trade credit but rarely away from trade credit. These two facts can be rationalized in a model where firms learn about their trading partners, sellers charge markups over ...
Working Paper
Financial Heterogeneity and Monetary Union
We analyze the economic consequences of forming a monetary union among countries with varying degrees of financial distortions, which interact with the firms' pricing decisions because of customer-market considerations. In response to a financial shock, firms in financially weak countries (the periphery) maintain{{p}}cashflows by raising markups--in both domestic and export markets--while firms in financially strong countries (the core) reduce markups, undercutting their financially constrained competitors to gain market share. When the two regions are experiencing different shocks, common ...
Working Paper
Estimating Unequal Gains across U.S. Consumers with Supplier Trade Data
Using supplier-level trade data, we estimate the effect on consumer welfare from changes in U.S. imports both in the aggregate and for different household income groups from 1998 to 2014. To do this, we use consumer preferences which feature non-homotheticity both within sectors and across sectors. After structurally estimating the parameters of the model, using the universe of U.S. goods imports, we construct import price indexes in which a variety is defined as a foreign establishment producing an HS10 product that is exported to the United States. We find that lower income households ...