Risultati della ricerca
Creator: Arellano, Cristina and Bai, Yan Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 525 Abstract:
This paper constructs a dynamic model in which fiscal restrictions interact with government borrowing and default. The government faces fiscal constraints; it cannot adjust tax rates or impose lump-sum taxes on the private sector, but it can adjust public consumption and foreign debt. When foreign debt is sufficiently high, however, the government can choose to default to increase domestic public and private consumption by freeing up the resources used to pay the debt. Two types of defaults arise in this environment: fiscal defaults and aggregate defaults. Fiscal defaults occur because of the government's inability to raise tax revenues. Aggregate defaults occur even if the government could raise tax revenues; debt is simply too high to be sustainable. In a quantitative exercise calibrated to Greece, we find that our model can predict the recent default, but that increasing taxes would not have prevented it. In fact, increasing taxes would have made the recession deeper because of the distortionary effects of taxation.
Parola chiave: Sovereign default, Tax reforms, and Debt crisis Soggetto: F30 - International Finance: General
Creator: Stevens, Lacramioara Luminita Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 520 Abstract:
The puzzling behavior of inflation in the Great Recession and its aftermath has increased the need to better understand the constraints that firms face when setting prices. Using new data and theory, I demonstrate that each firm's choice of how much information to acquire to set prices determines aggregate price dynamics through the patterns of pricing at the micro level, and through the large heterogeneity in pricing policies across firms. Viewed through this lens, the behavior of prices in recent years becomes less puzzling, as firms endogenously adjust their information acquisition strategies. In support of this mechanism, I present micro evidence that firms price goods using plans that are sticky, coarse, and volatile. A theory of information-constrained price setting generates such policies endogenously, and quantitatively matches the discreteness, duration, volatility, and heterogeneity of policies in the data. Policies track the state noisily, resulting in sluggish adjustment to shocks. A higher volatility of shocks does not reduce monetary non-neutrality and generates slight inflation, while progress in the technology to acquire information results in deflation.
Parola chiave: Rigid prices, Rational inattention, and Inflation dynamics Soggetto: E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General and E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Creator: Chodorow-Reich, Gabriel and Karabarbounis, Loukas Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 514 Abstract:
The flow opportunity cost of moving from unemployment to employment consists of foregone public benefits and the foregone value of non-working time in units of consumption. We construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefit levels, eligibility and take-up of benefits, consumption by labor force status, hours per worker, taxes, and preference parameters. Our estimated opportunity cost is procyclical and volatile over the business cycle. The estimated cyclicality implies far less unemployment volatility in many leading models of the labor market than that observed in the data, irrespective of the level of the opportunity cost.
Parola chiave: Opportunity cost of employment and Unemployment fluctuations Soggetto: E32 - Business Fluctuations; Cycles, J64 - Unemployment: Models, Duration, Incidence, and Job Search, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Creator: Anderson, Eric, Malin, Benjamin A., Nakamura, Emi, Simester, Duncan, and Steinsson, Jón, 1976- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 513 Abstract:
We use unique price data to study how retailers react to underlying cost changes. Temporary sales account for 95% of price changes in our data. Simple models would, therefore, suggest that temporary sales play a central role in price responses to cost shocks. We find, however, that, in response to a wholesale cost increase, the entire increase in retail prices comes through regular price increases. Sales actually respond temporarily in the opposite direction from regular prices, as though to conceal the price hike. Additional evidence from responses to commodity cost and local unemployment shocks, as well as broader evidence from BLS data reinforces these findings. We present institutional evidence that sales are complex contingent contracts, determined substantially in advance. We show theoretically that these institutional practices leave little money “on the table”: in a price-discrimination model of sales, dynamically adjusting the size of sales yields only a tiny increase in profits.
Parola chiave: Retail Sales, Regular Retail Prices, and Trade Deals Soggetto: M30 - Marketing and Advertising: General, E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data), and L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Creator: Aguiar, Mark, Amador, Manuel, Farhi, Emmanuel, and Gopinath, Gita, 1971- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 511 Abstract:
We study fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment. We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over-borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of debt in a monetary union, that is the fraction of high-debt versus low-debt members, on the occurrence of self-fulfilling debt crises. We demonstrate that a high-debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high- and low-debt members, than one where all other members are low-debt. This contrasts with the conventional wisdom that all countries should prefer a union with low-debt members, as such a union can credibly deliver low inflation. These findings shed new light on the criteria for an optimal currency area in the presence of rollover crises.
Parola chiave: Coordination failures, Fiscal policy , Monetary union, and Debt crisis Soggetto: F40 - Macroeconomic Aspects of International Trade and Finance: General, E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General, E40 - Money and Interest Rates: General, and F30 - International Finance: General
Creator: Atkeson, Andrew, Eisfeldt, Andrea L., and Weill, Pierre-Olivier Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 484 Abstract:
Building on the Merton (1974) and Leland (1994) structural models of credit risk, we develop a simple, transparent, and robust method for measuring the financial soundness of individual firms using data on their equity volatility. We use this method to retrace quantitatively the history of firms’ financial soundness during U.S. business cycles over most of the last century. We highlight three main findings. First, the three worst recessions between 1926 and 2012 coincided with insolvency crises, but other recessions did not. Second, fluctuations in asset volatility appear to drive variation in firms’ financial soundness. Finally, the financial soundness of financial firms largely resembles that of nonfinancial firms.
Parola chiave: Volatility, Credit Risk Modeling, Distance to Default, and Financial Frictions and Business Cycles Soggetto: E32 - Business Fluctuations; Cycles, G01 - Financial Crises, G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, and E44 - Financial Markets and the Macroeconomy
Creator: Pijoan-Mas, Josep and Ríos-Rull, José-Víctor Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 471 Abstract:
We develop a new methodology to compute differences in the expected longevity of individuals who are in different socioeconomic groups at age 50. We deal with two main problems associated with the standard use of life expectancy: that people’s socioeconomic characteristics evolve over time and that there is a time trend that reduces mortality over time. Using HRS data for individuals from different cohorts, we estimate a hazard model for survival with time-varying stochastic endogenous covariates that yields the desired expected durations. We uncover an enormous amount of heterogeneity in expected longevities between individuals in different socioeconomic groups, albeit less than implied by a naive (static) use of socioeconomic characteristics. Our analysis allows us to decompose the longevity differentials into differences in health at age 50, differences in mortality conditional on health, and differences in the evolution of health with age. Remarkably, it is the latter that is the most important for most socioeconomic characteristics. For instance, education and wealth are health protecting but have little impact on two-year mortality rates conditional on health. Finally, we document an increasing time trend of all these differentials in the period 1992–2008, and a likely increase in the socioeconomic gradient in mortality rates in the near future. The mortality differences that we find have huge welfare implications that dwarf the differences in consumption accruing to people in different socioeconomic groups.
Parola chiave: Life expectancies, Heterogeneity in mortality rates, and Inequality in health Soggetto: I14 - Health and Inequality, J14 - Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination, J12 - Marriage; Marital Dissolution; Family Structure; Domestic Abuse, and I24 - Education and Inequality
Creator: Arellano, Cristina, Bai, Yan, and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 466 Abstract:
The U.S. Great Recession featured a large decline in output and labor, tighter financial conditions, and a large increase in firm growth dispersion. We build a model in which increased volatility at the firm level generates a downturn and worsened credit conditions. The key idea is that hiring inputs is risky because financial frictions limit firms' ability to insure against shocks. An increase in volatility induces firms to reduce their inputs to reduce such risk. Out model can generate most of the decline in output and labor in the Great Recession and the observed increase in firms' interest rate spreads.
Parola chiave: Uncertainty shocks, Credit crunch, Great Recession, Firm credit spreads, Firm heterogeneity, Labor wedge, and Credit constraints Soggetto: E23 - Macroeconomics: Production, E32 - Business Fluctuations; Cycles, D52 - Incomplete Markets, E44 - Financial Markets and the Macroeconomy, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, and D53 - General Equilibrium and Disequilibrium: Financial Markets
Creator: Atkeson, Andrew, Hellwig, Christian, and Ordonez, Guillermo Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 464 Abstract:
In all markets, firms go through a process of creative destruction: entry, random growth and exit. In many of these markets there are also regulations that restrict entry, possibly distorting this process. We study the public interest rationale for entry taxes in a general equilibrium model with free entry and exit of firms in which firm dynamics are driven by reputation concerns. In our model firms can produce high-quality output by making a costly but efficient initial unobservable investment. If buyers never learn about this investment, an extreme “lemons problem” develops, no firm invests, and the market shuts down. Learning introduces reputation incentives such that a fraction of entrants do invest. We show that, if the market operates with spot prices, entry taxes always enhance the role of reputation to induce investment, improving welfare despite the impact of these taxes on equilibrium prices and total production.
Parola chiave: Regulation, Reputation, Firm dynamics, Entry and exit, Creative destruction, and General equilibrium Soggetto: D82 - Asymmetric and Private Information; Mechanism Design, L15 - Information and Product Quality; Standardization and Compatibility, L51 - Economics of Regulation, and D21 - Firm Behavior: Theory
Creator: Atkeson, Andrew and Burstein, Ariel Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 459 Abstract:
We examine the quantitative impact of policy-induced changes in innovative investment by firms on growth in aggregate productivity and output in a model that nests several of the canonical models in the literature. We isolate two statistics, the impact elasticity of aggregate productivity growth with respect to an increase in aggregate innovative investment and the degree of intertemporal knowledge spillovers in research, that play a key role in shaping the model’s predicted dynamic response of aggregate productivity, output, and welfare to a policy-induced change in the innovation intensity of the economy. Given estimates of these statistics, we find that there is only modest scope for increasing aggregate productivity and output over a 20-year horizon with uniform subsidies to firms’ investments in innovation of a reasonable magnitude, but the welfare gains from such a subsidy may be substantial.
Parola chiave: Economic growth, Innovation policies, and Social depreciation Soggetto: O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General and O40 - Economic Growth and Aggregate Productivity: General
Creator: Bhandari, Anmol, Birinci, Serdar, McGrattan, Ellen R., and See, Kurt Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 568 Abstract:
This paper examines the reliability of widely used surveys on U.S. businesses. We compare survey responses of business owners with administrative data and document large inconsistencies in business incomes, receipts, and the number of owners. We document problems due to nonrepresentative samples and measurement errors. Nonrepresentativeness is reflected in undersampling of owners with low incomes. Measurement errors arise because respondents do not refer to relevant documents and possibly because of framing issues. We discuss implications for statistics of interest, such as business valuations and returns. We conclude that predictions based on current survey data should be treated with caution.
Parola chiave: Business taxes and valuation, Intangibles, and Survey data Soggetto: H25 - Business Taxes and Subsidies including sales and value-added (VAT), C83 - Survey Methods; Sampling Methods, and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Bhandari, Anmol, Birinci, Serdar, McGrattan, Ellen R., and See, Kurt Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 578 Abstract:
In this appendix, we provide details on the data sources and construction of variables for our analysis in "What Do Survey Data Tell Us about U.S. Businesses?" We also include the auxiliary tables and figures omitted from the main text.
Parola chiave: Survey data Soggetto: C83 - Survey Methods; Sampling Methods
Working Papers are early drafts of academic research papers written by economists affiliated with the Minneapolis Fed. Working Papers are often preprints of articles that are published in scholarly journals. Many Working Papers later become Staff Reports. The Research Database is the official location for this series, but you can also find them on the Minneapolis Fed website, IDEAS/RePEc, and in EconLit.
Creator: Kehoe, Timothy Jerome, 1953- and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 418 Abstract:
Three of the arguments made by Temin (2008) in his review of Great Depressions of the Twentieth Century are demonstrably wrong: that the treatment of the data in the volume is cursory; that the definition of great depressions is too general and, in particular, groups slow growth experiences in Latin America in the 1980s with far more severe great depressions in Europe in the 1930s; and that the book is an advertisement for the real business cycle methodology. Without these three arguments — which are the results of obvious conceptual and arithmetical errors, including copying the wrong column of data from a source — his review says little more than that he does not think it appropriate to apply our dynamic general equilibrium methodology to the study of great depressions, and he does not like the conclusion that we draw: that a successful model of a great depression needs to be able to account for the effects of government policy on productivity.
In 2008, Peter Temin wrote a review of the book that appeared in the Journal of Economic Literature. This staff report and accompanying data file are in response to the review.
Citation for review: Temin, Peter. 2008. "Real Business Cycle Views of the Great Depression and Recent Events: A Review of Timothy J. Kehoe and Edward C. Prescott's Great Depressions of the Twentieth Century." Journal of Economic Literature, 46 (3): 669-84. DOI: https://doi.org/10.1257/jel.46.3.669
Creator: Schulhofer-Wohl, Sam and Yang, Yang Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 461 Abstract:
This document contains detailed algebra for the proofs of propositions 1 and 2.
Creator: Schulhofer-Wohl, Sam Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 462 Abstract:
This appendix contains seven sections. Section A reports results from running regressions of labor earnings on GDP using data from the PSID, for comparison with the results using HRS data in the body of the paper. Section B examines the relationship between family income, aggregate shocks, and risk preferences in the PSID. Section C gives technical details on the Markov Chain Monte Carlo estimation employed in table 1 of the paper and reports the complete parameter estimates for the regressions summarized in that table. Section D reports results when the relationship between earnings and aggregate shocks is estimated with individual-specific coecients rather than common coecients for each risk-tolerance group. Section E reports results comparable to table 1 of the paper and table D.1 of this appendix using only Social Security covered earnings instead of the combination of Social Security and W-2 earnings. Section F reports robustness checks for tables 2 and 3 of the paper under alternative definitions of the household and the consumption and income variables. Section G reports robustness checks for tables 2 and 3 under an alternative definition of the leisure variable.
Parola chiave: Heterogeneity, Imperfect insurance, Risk preferences, and Risk sharing Soggetto: E21 - Macroeconomics : Consumption, saving, production, employment, and investment - Consumption ; Saving ; Wealth and E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital
Creator: Schorfheide, Frank and Song, Dongho Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 701 Abstract:
This paper develops a vector autoregression (VAR) for macroeconomic time series which are observed at mixed frequencies – quarterly and monthly. The mixed-frequency VAR is cast in state-space form and estimated with Bayesian methods under a Minnesota-style prior. Using a real-time data set, we generate and evaluate forecasts from the mixed-frequency VAR and compare them to forecasts from a VAR that is estimated based on data time-aggregated to quarterly frequency. We document how information that becomes available within the quarter improves the forecasts in real time.
Parola chiave: Vector autoregressions, Real-time data, Bayesian methods, and Macroeconomic forecasting Soggetto: C11 - Bayesian Analysis: General, C32 - Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models, and C53 - Forecasting Models; Simulation Methods
Creator: Beauchemin, Kenneth Ronald Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 493 Abstract:
This paper describes recent modifications to the mixed-frequency model vector autoregression (MF-VAR) constructed by Schorfheide and Song (2012). The changes to the model are restricted solely to the set of variables included in the model; all other aspects of the model remain unchanged. Forecast evaluations are conducted to gauge the accuracy of the revised model to standard benchmarks and the original model.
Parola chiave: Forecasting and Bayesian Vector Autoregression Soggetto: C53 - Forecasting Models; Simulation Methods, C11 - Bayesian Analysis: General, and C32 - Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Creator: Kaplan, Greg Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 449 Abstract:
This paper uses an estimated structural model to argue that the option to move in and out of the parental home is an important insurance channel against labor market risk for youths who do not attend college. Using data from the NLSY97, I construct a new monthly panel of parent-youth coresidence outcomes and use it to document an empirical relationship between these movements and individual labor market events. The data is then used to estimate the parameters of a dynamic game between youths and their altruistic parents, featuring coresidence, labor supply and savings decisions. Parents can provide both monetary support through explicit financial transfers, and non-monetary support in the form of shared residence. To account for the data, two types of exogenous shocks are needed. Preference shocks are found to explain most of the cross-section of living arrangements, while labor market shocks account for individual movements in and out of the parental home. I use the model to show that coresidence is a valuable form of insurance, particularly for youths from poorer families. The option to live at home also helps to explain features of aggregate data for low-skilled young workers: their low savings rates and their relatively small consumption responses to labor market shocks. An important implication is that movements in and out of home can reduce the consumption smoothing benefits of social insurance programs.
Creator: Guerrieri, Veronica and Kondor, Péter Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 446 Abstract:
We propose a model of delegated portfolio management with career concerns. Investors hire fund managers to invest their capital either in risky bonds or in riskless assets. Some managers have superior information on the default probability. Looking at the past performance, investors update beliefs on their managers and make firing decisions. This leads to career concerns which affect investment decisions, generating a positive or negative “reputational premium.” For example, when the default probability is high, the return on the risky bond has to be high to compensate the uninformed managers for the high risk of being fired. As the default probability changes over time, the reputational premium amplifies price volatility.