COVID-19, Real Uncertainty, and Monetary Policy
Sunday, Jan. 3, 2021 10:00 AM - 12:00 PM (EST)
- Chair: Raphael Schoenle, Brandeis University and Federal Reserve Bank of Cleveland
Wall Street versus Main Street QE
AbstractThe Federal Reserve has reacted swiftly to the COVID-19 pandemic. It has resuscitated many of its programs from the last crisis by lending to the financial sector, which we refer to as “Wall Street QE.” The Fed is now proposing to also lend directly to, and purchase debt directly from, non-financial firms, which we label “Main Street QE.” Our paper develops a new framework to compare and contrast these different policies. In a situation in which financial intermediary balance sheets are impaired, such as the Great Recession, Main Street and Wall Street QE are perfect substitutes and both stimulate aggregate demand. In contrast, for situations like the one we are now facing due to COVID-19, where the production sector is facing significant cash flow shortages, Wall Street QE becomes almost completely ineffective, whereas Main Street QE can be highly stimulative.
Pricing under Distress
AbstractUsing a novel daily dataset from VAT invoices, this paper investigates the pricing behavior of supermarkets during the riots in Chile, unleashed from mid-October to mid-November 2019. The main results are: (1) price stickiness increased, (2) the average size increases for both positive and negative price changes, and (3) the fraction of small price changes decreases. In addition, we document that riots had no significant effect on supermarkets' suppliers prices, and the regional variation in the intensity of riots had no effects on supermarkets' pricing behavior. We discuss implications for modelling of nominal price rigidities from this quasi-natural experiment.
Can Pandemic-Induced Uncertainty Increase Automation and Income Inequality?
AbstractThe COVID-19 pandemic has raised concerns about the future of work. The pandemic may become recurrent, necessitating repeated adoptions of social distancing measures (voluntary or mandatory), creating substantial uncertainty about worker productivity. But robots are not susceptible to the virus. Thus, pandemic-induced job uncertainty may boost the incentive for automation. However, elevated uncertainty also reduces aggregate demand and reduces the value of new investment in automation. We assess the importance of automation in driving business cycle dynamics following an increase in job uncertainty in a quantitative New Keynesian DSGE framework. We find that, all else being equal, job uncertainty does stimulate automation, and increased automation helps mitigate the negative impact of uncertainty on aggregate demand.
- E3 - Prices, Business Fluctuations, and Cycles
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy