Understanding Hawks and Doves
How do hawks and doves on the Federal Open Market Committee differ in their views of appropriate monetary policy and their related projections for inflation and unemployment? We find that hawks project higher inflation despite building tighter policy paths into their projections. Doves project lower inflation despite having easier policy paths, although their projections are somewhat closer to the median. In addition, hawks see a steeper inflation-unemployment tradeoff than doves up to a one-year horizon.
Source: Federal Reserve Bank of Kansas City
Wednesday, June 27, 2018
Monday, June 25, 2018
What Happened: Financial Factors in the Great Recession
From a new NBER working paper by Mark Gertler and Simon Gilchrist
Abstract:
Since the onset of the Great Recession, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be used to understand what happened during the Great Recession. In the process, we also present some new evidence on the role of the household balance sheet channel versus the disruption of banking. We examine a panel of quarterly state level data on house prices, mortgage debt and employment along with a measure of banking distress. Then exploiting both panel data and time series methods, we analyze the contribution of the house price decline versus the banking distress indicator to the overall decline in employment during the Great Recession. We confirm a common finding in the literature that the household balance sheet channel is important for regional variation in employment. However, we also find that the disruption in banking was central to the overall employment contraction.
Gated copy of the paper is here.
Abstract:
Since the onset of the Great Recession, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be used to understand what happened during the Great Recession. In the process, we also present some new evidence on the role of the household balance sheet channel versus the disruption of banking. We examine a panel of quarterly state level data on house prices, mortgage debt and employment along with a measure of banking distress. Then exploiting both panel data and time series methods, we analyze the contribution of the house price decline versus the banking distress indicator to the overall decline in employment during the Great Recession. We confirm a common finding in the literature that the household balance sheet channel is important for regional variation in employment. However, we also find that the disruption in banking was central to the overall employment contraction.
Gated copy of the paper is here.
Tuesday, June 19, 2018
Californians still support Proposition 13, the precursor to the Bay State's Proposition 2 1/2
This just in from the Public Policy Institute of California. Most residents still support the trail-blazing property tax limitation amendment 40 years after passage according to PPIC.
Wednesday, June 13, 2018
Tuesday, June 12, 2018
Friday, June 8, 2018
Monday, June 4, 2018
Who Benefits From Productivity Growth?
From a new NBER working paper by Richard Hornbeck, Enrico Moretti, "Who Benefits From Productivity Growth? Direct and Indirect Effects of Local TFP Growth on Wages, Rents, and Inequality"
Abstract:
We estimate the local and aggregate effects of total factor productivity (TFP) growth on US workers' earnings, housing costs, and purchasing power. Drawing on four alternative instrumental variables, we consistently find that when a city experiences productivity gains in manufacturing, there are substantial local increases in employment and average earnings. For renters, increased earnings are largely offset by increased cost of living; for homeowners, the benefits are substantial.
Strikingly, local productivity growth reduces local inequality, as it raises earnings of local less-skilled workers more than the earnings of local more-skilled workers. This is due, in part, to lower geographic mobility of less-skilled workers.
However, local productivity growth also has important general equilibrium effects through worker mobility. We estimate that 38% of the overall increase in workers' purchasing power occurs outside cities directly affected by local TFP growth. The indirect effects on worker earnings are substantially greater for more-skilled workers, due to greater geographic mobility of more-skilled workers, which increases inequality in other cities. Neglecting these general equilibrium effects would both understate the overall magnitude of benefits from productivity growth and misstate their distributional consequences.
Overall, US workers benefit substantially from productivity growth. Summing direct and indirect effects, we find that TFP growth from 1980 to 1990 increased purchasing power for the average US worker by 0.5-0.6% per year from 1980 to 2000. These gains do not depend on a worker's education; rather, the benefits from productivity growth mainly depend on where workers live.
Gated version of paper is available here.
Abstract:
We estimate the local and aggregate effects of total factor productivity (TFP) growth on US workers' earnings, housing costs, and purchasing power. Drawing on four alternative instrumental variables, we consistently find that when a city experiences productivity gains in manufacturing, there are substantial local increases in employment and average earnings. For renters, increased earnings are largely offset by increased cost of living; for homeowners, the benefits are substantial.
Strikingly, local productivity growth reduces local inequality, as it raises earnings of local less-skilled workers more than the earnings of local more-skilled workers. This is due, in part, to lower geographic mobility of less-skilled workers.
However, local productivity growth also has important general equilibrium effects through worker mobility. We estimate that 38% of the overall increase in workers' purchasing power occurs outside cities directly affected by local TFP growth. The indirect effects on worker earnings are substantially greater for more-skilled workers, due to greater geographic mobility of more-skilled workers, which increases inequality in other cities. Neglecting these general equilibrium effects would both understate the overall magnitude of benefits from productivity growth and misstate their distributional consequences.
Overall, US workers benefit substantially from productivity growth. Summing direct and indirect effects, we find that TFP growth from 1980 to 1990 increased purchasing power for the average US worker by 0.5-0.6% per year from 1980 to 2000. These gains do not depend on a worker's education; rather, the benefits from productivity growth mainly depend on where workers live.
Gated version of paper is available here.
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