Fiscal Histories

[Symposium: The Size of Government Debt]

By John H. Cochrane

Journal of Economic Perspectives, Fall 2022

The fiscal theory states that inflation adjusts so that the real value of government debt equals the present value of real primary surpluses. Monetary policy remains important. The central bank can set an interest rate target, which determines the path of...

Earnings Inequality and the Minimum Wage: Evidence from Brazil

By Niklas Engbom and Christian Moser

American Economic Review, December 2022

Increases in the minimum wage can substantially reduce earnings inequality. To demonstrate this, we combine administrative and survey data with an equilibrium model of the Brazilian labor market. We find that a 128 percent increase in the real minimum wag...

Skilled Labor Productivity and Cross-Country Income Differences

By Lutz Hendricks and Todd Schoellman

American Economic Journal: Macroeconomics, January 2023

This paper revisits the question of how allowing for imperfect substitution among workers with different skill levels affects the results of development accounting. We consider a range of models that nest the approaches in the literature and calibrate the...

Women, Wealth Effects, and Slow Recoveries

By Masao Fukui, Emi Nakamura, and Jón Steinsson

American Economic Journal: Macroeconomics, January 2023

Business cycle recoveries have slowed in recent decades. This slow-down comes entirely from female employment, as women's employment rates converged toward men's during the past half-century. But does the slowdown in the growth of female employment rates ...

Firm Wages in a Frictional Labor Market

By Leena Rudanko

American Economic Journal: Macroeconomics, January 2023

This paper studies wage setting in a directed search model of multiworker firms facing within-firm equity constraints on wages. The constraints reduce wages, as firms exploit their monopsony power over their existing workers, rendering wages less responsi...

The Employment Effects of Countercyclical Public Investments

By Lukas Buchheim and Martin Watzinger

American Economic Journal: Economic Policy, February 2023

This paper estimates the causal impact of a sizable German public investment program on employment at the county level. The program focused on improving the energy efficiency of school buildings, making it possible to use the number of schools as an instr...

Monetary Policy and Inequality

[Symposium: Monetary Policy]

By Alisdair McKay and Christian K. Wolf

Journal of Economic Perspectives, Winter 2023

We ask three questions about the connection between monetary policy and inequality. First, does monetary policy affect inequality? While different households respond to changes in monetary policy for different reasons, we argue that the overall consumpt...

Macroeconomic Dynamics with Rigid Wage Contracts

By Tobias Broer, Karl Harmenberg, Per Krusell, and Erik Öberg

American Economic Review: Insights, March 2023

We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with recontracting as in Calvo (1983). The resulting wage-rigidity framework dampens income effects in the short run, thus allowing significant responses of hour...

Hysteresis and Business Cycles

By Valerie Cerra, Antonio Fatás, and Sweta C. Saxena

Journal of Economic Literature, March 2023

Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as "hysteresis," argues for unifying the analysis of growth and cycles. In this ...

The Matching Multiplier and the Amplification of Recessions

By Christina Patterson

American Economic Review, April 2023

This paper shows that the unequal incidence of recessions in the labor market amplifies aggregate shocks. Using administrative data from the United States, I document a positive covariance between workers' marginal propensities to consume (MPCs) and their...

Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data

By Ian Dew-Becker and Stefano Giglio

American Economic Journal: Macroeconomics, April 2023

This paper presents a novel and unique measure of cross-sectional uncertainty constructed from stock options on individual firms. Cross-sectional uncertainty varied little between 1980 and 1995 and subsequently had three distinct peaks—during the tech b...

Self-Harming Trade Policy? Protectionism and Production Networks

By Alessandro Barattieri and Matteo Cacciatore

American Economic Journal: Macroeconomics, April 2023

Using monthly data on temporary trade barriers (TTBs), we estimate the dynamic employment effects of protectionism through vertical production linkages. First, exploiting high-frequency data and TTB procedural details, we identify trade policy shocks exog...

The State-Dependent Effectiveness of Hiring Subsidies

By Sebastian Graves

American Economic Journal: Macroeconomics, April 2023

The responsiveness of job creation to shocks is procyclical, while the responsiveness of job destruction is countercyclical. This new finding can be explained by a heterogeneous-firm model in which hiring costs lead to lumpy employment adjustment. The mod...

The Effect of Population Aging on Economic Growth, the Labor Force, and Productivity

By Nicole Maestas, Kathleen J. Mullen, and David Powell

American Economic Journal: Macroeconomics, April 2023

Population aging is expected to slow US economic growth. We use variation in the predetermined component of population aging across states to estimate the impact of aging on growth in GDP per capita for 1980–2010. We find that each 10 percent increase i...

The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany

By Johannes F. Schmieder, Till von Wachter, and Jörg Heining

American Economic Review, May 2023

We document the sources behind the costs of job loss over the business cycle using administrative data from Germany. Losses in annual earnings after displacement are large, persistent, and highly cyclical, nearly doubling in size during downturns. A large...

Heterogeneity and Aggregation

By Richard Blundell and Thomas M. Stoker

Journal of Economic Literature, June 2005

This survey covers recent solutions to aggregation problems in three application areas, consumer demand analysis, consumption growth and wealth, and labor participation and wages. Each area involves treatment of heterogeneity and nonlinearity at the indiv...

The Wage Phillips Curve under Labor Market Power

By Anastasia Burya, Rui Mano, Yannick Timmer, and Anke Weber

AEA Papers and Proceedings, May 2023

Using the near universe of online vacancy postings in the United States, we explore linkages between labor market power and the trade-off between unemployment and wages. We estimate the Phillips curve at the commuting zone level and find that the relation...

Measuring Business Trends and Outlook through a New Survey

By Catherine Buffington, Lucia Foster, and Colin Shevlin

AEA Papers and Proceedings, May 2023

The Census Bureau's new Business Trends and Outlook Survey (BTOS) provides timely information from businesses on their current trends and expectations over core concepts such as prices, employment, and revenue. The BTOS collects qualitative information in...

Payroll Employment at the Weekly Frequency

By Tomaz Cajner, Leland D. Crane, Ryan A. Decker, Adrian Hamins-Puertolas, and Christopher Kurz

AEA Papers and Proceedings, May 2023

Nontraditional data can provide critical economic insights in real time. We document the development of weekly employment indexes based on microdata from the payroll processor ADP. These data have provided insights into labor market developments in the fa...

Are Business Applications Early Economic Indicators?

By Jose Asturias, Emin Dinlersoz, John Haltiwanger, and Rebecca Hutchinson

AEA Papers and Proceedings, May 2023

Are business applications early indicators of economic activity? Our analysis indicates that monthly year-over-year growth in applications for likely employer businesses significantly leads growth in total nonfarm employment and has a positive correlation...