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Working Paper
Metro Business Cycles
We construct monthly economic activity indices for the 50 largest U.S. metropolitan statistical areas (MSAs) beginning in 1990. Each index is derived from a dynamic factor model based on twelve underlying variables capturing various aspects of metro area economic activity. To accommodate mixed-frequency data and differences in data-publication lags, we estimate the dynamic factor model using a maximum- likelihood approach that allows for arbitrary patterns of missing data. Our indices highlight important similarities and differences in business cycles across MSAs. While a number of MSAs ...
Working Paper
Household Financial Distress and the Burden of “Aggregate” Shocks
The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in their "FD-intensity," measured either by how much additional credit households therein can access, or in how delinquent they typically are on debts, (ii) shocks that are typically viewed as "aggregate" in nature hit geographic areas quite differently, and (iii) FD is an economic "preexisting ...
Discussion Paper
How Did the Great Recession Affect New York State's Public Schools?
Surprisingly, there is no literature on how recessions (including the Great Recession) have affected schools. Perhaps this is because educational funding stresses and decisions vary among and within states, which makes it hard to reach general conclusions. Yet schools play an indispensable role in our society, educating the populace and building the nation’s future. Therefore, it is important to understand how the Great Recession is affecting public spending on schools, the delivery of education services, and student learning. In this post, we analyze one state’s experience, drawing on ...
Discussion Paper
Waiting for Recovery: New York Schools and the Aftermath of the Great Recession
A key institution that was significantly affected by the Great Recession is the school system, which plays a crucial role in building human capital and shaping the country’s economic future. To prevent major cuts to education, the federal government allocated $100 billion to schools as part of the American Recovery and Reinvestment Act of 2009 (ARRA), commonly known as the stimulus package. However, the stimulus has wound down while many sectors of the economy are still struggling, leaving state and local governments with budget squeezes. In this post, we present some key findings on how ...
Journal Article
The Changing Cyclicality of Labor Force Participation
The labor force participation rate has become more sensitive to the business cycle.
Working Paper
Downward Wage Rigidities and Recession Dynamics in Advanced and Emerging Economies*
Downward wage rigidity limits the downward adjustment of wages, especially during recessions. Although macroeconomic models generally suggest that wage rigidity exacerbates employment losses and generates asymmetric business cycles, direct empirical evidence is scarce. In this paper, we construct a data set covering 53countries, including both emerging markets and advanced economies, to measure and compare downward real wage rigidities across countries. We find that wage rigidities are widespread, but overall higher in emerging markets. We provide empirical evidence that countries with higher ...
Working Paper
Financial Distress and Macroeconomic Risks
This paper investigates how, and how much, household financial distress (FD), arising from allowing debts to go unpaid, matters for the aggregate and cross-sectional consumption responses to macroeconomic risk. Through a battery of structural models, we show that FD can affect consumption responses through three channels: (1) as another margin of adjustment to shocks (direct channel); (2) because its persistence implies a significant degree of preference heterogeneity (indirect channel); and (3) because it can exacerbate macroeconomic risks whenever it is more severe in the hardest-hit ...
Working Paper
Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?
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
Machine Learning, the Treasury Yield Curve and Recession Forecasting
We use machine learning methods to examine the power of Treasury term spreads and other financial market and macroeconomic variables to forecast US recessions, vis-à-vis probit regression. In particular we propose a novel strategy for conducting cross-validation on classifiers trained with macro/financial panel data of low frequency and compare the results to those obtained from standard k-folds cross-validation. Consistent with the existing literature we find that, in the time series setting, forecast accuracy estimates derived from k-folds are biased optimistically, and cross-validation ...
Discussion Paper
How Did Education Financing in New Jersey’s Abbott Districts Fare during the Great Recession?
In the state of New Jersey, any child between the ages of five and eighteen has the constitutional right to a thorough and efficient education. The state also has one of the country’s most rigid policies regarding a balanced budget. When state and local revenues took a big hit in the most recent recession, officials had to make tough decisions about education spending. In this post, we analyze education financing and spending in two groups of high-poverty districts during the Great Recession and the ARRA (American Recovery and Reinvestment Act of 2009) federal stimulus period—the Abbott ...