F. Boissay, Fabrice Collard, Cristina Manea, Adam Shapiro
The paper explores the state–dependent effects of a monetary tightening on financial stress, focusing on a novel dimension: the nature of supply versus demand inflation at the time of policy rate hikes. We use local projections to estimate the effect of high frequency identified monetary policy surprises on a variety of financial stress measures, differentiating the effects based on whether inflation is supply–driven (e.g. due to adverse supply or cost–push shocks) or demand–driven (e.g. due to positive demand factors). We find that financial stress flares up after a policy rate hike when inflation is supply–driven, but it remains roughly unchanged, or even declines when inflation is demand–driven. Our findings point to a particular tension between price stability and financial stability when inflation is high and largely supply–driven.
{"title":"Monetary Tightening, Inflation Drivers and Financial Stress","authors":"F. Boissay, Fabrice Collard, Cristina Manea, Adam Shapiro","doi":"10.24148/wp2023-38","DOIUrl":"https://doi.org/10.24148/wp2023-38","url":null,"abstract":"The paper explores the state–dependent effects of a monetary tightening on financial stress, focusing on a novel dimension: the nature of supply versus demand inflation at the time of policy rate hikes. We use local projections to estimate the effect of high frequency identified monetary policy surprises on a variety of financial stress measures, differentiating the effects based on whether inflation is supply–driven (e.g. due to adverse supply or cost–push shocks) or demand–driven (e.g. due to positive demand factors). We find that financial stress flares up after a policy rate hike when inflation is supply–driven, but it remains roughly unchanged, or even declines when inflation is demand–driven. Our findings point to a particular tension between price stability and financial stability when inflation is high and largely supply–driven.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"125 3","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138999571","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Classical contributions in international macroeconomics rely on goods-market mechanisms to reconcile the cyclicality of real exchange rates when financial markets are incomplete. However, cross-border trade in one domestic and one foreign-currency-denominated risk-free asset prohibits these mechanisms from breaking the pattern consistent with complete markets. In this paper, we characterize how goods markets drive exchange rate cyclicality, taking into account trade in risk-free and/or risky assets. We show that goods-market mechanisms come back into play, even when there is cross-border trade in two risk-free assets, as long as we allow for empirically plausible heterogeneity in the stochastic discount factors of domestic marginal investors.
{"title":"Low Risk Sharing with Many Assets","authors":"Emile A. Marin, Sanjay R. Singh","doi":"10.24148/wp2023-37","DOIUrl":"https://doi.org/10.24148/wp2023-37","url":null,"abstract":"Classical contributions in international macroeconomics rely on goods-market mechanisms to reconcile the cyclicality of real exchange rates when financial markets are incomplete. However, cross-border trade in one domestic and one foreign-currency-denominated risk-free asset prohibits these mechanisms from breaking the pattern consistent with complete markets. In this paper, we characterize how goods markets drive exchange rate cyclicality, taking into account trade in risk-free and/or risky assets. We show that goods-market mechanisms come back into play, even when there is cross-border trade in two risk-free assets, as long as we allow for empirically plausible heterogeneity in the stochastic discount factors of domestic marginal investors.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"894 ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139204823","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Joan Monras, Eduardo Polo-Muro, Javier Vázquez-Grenno
This paper studies how fertility decisions respond to an improvement in job stability using variation from the large and unexpected regularization of undocumented immigrants in Spain implemented during the first half of 2005. This policy change improved substantially the labor market opportunities of affected men and women, many of which left the informality of house keeping service sectors toward more formal, stable, and higher paying jobs in larger firms (Elias et al., 2023). In this paper, we estimate the effects of the regularization on fertility rates using two alternative difference-in-differences strategies that compare fertility behavior of “eligible” and “non-eligible” candidate women to obtain the legal status, both on aggregate and at the local level. Our findings suggests that gaining work permits leads to a significant increase in women fertility. Our preferred estimates indicate that the regularization increased fertility rates among affected women by around 5 points, which is a 10 percent increase.
{"title":"Labor Market Stability and Fertility Decisions","authors":"Joan Monras, Eduardo Polo-Muro, Javier Vázquez-Grenno","doi":"10.24148/wp2023-36","DOIUrl":"https://doi.org/10.24148/wp2023-36","url":null,"abstract":"This paper studies how fertility decisions respond to an improvement in job stability using variation from the large and unexpected regularization of undocumented immigrants in Spain implemented during the first half of 2005. This policy change improved substantially the labor market opportunities of affected men and women, many of which left the informality of house keeping service sectors toward more formal, stable, and higher paying jobs in larger firms (Elias et al., 2023). In this paper, we estimate the effects of the regularization on fertility rates using two alternative difference-in-differences strategies that compare fertility behavior of “eligible” and “non-eligible” candidate women to obtain the legal status, both on aggregate and at the local level. Our findings suggests that gaining work permits leads to a significant increase in women fertility. Our preferred estimates indicate that the regularization increased fertility rates among affected women by around 5 points, which is a 10 percent increase.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"R-24 2","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139277710","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Michael D. Bauer, Carolin E. Pflueger, Adi Sunderam
We estimate perceptions about the Federal Reserve’s monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, including over the monetary policy cycle. Forecasters update their perceptions about the Fed’s policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about this rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings.
{"title":"Perceptions about Monetary Policy","authors":"Michael D. Bauer, Carolin E. Pflueger, Adi Sunderam","doi":"10.24148/wp2023-31","DOIUrl":"https://doi.org/10.24148/wp2023-31","url":null,"abstract":"We estimate perceptions about the Federal Reserve’s monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, including over the monetary policy cycle. Forecasters update their perceptions about the Fed’s policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about this rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"94 2","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135219010","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Carlos Carvalho, Andrea Ferrero, Felipe Mazin, Fernanda Nechio
We explore the implications of demographic trends for the evolution of real interest rates across countries and over time. To that end, we develop a tractable three-country general equilibrium model with imperfect capital mobility and country-specific demographic trends. We calibrate the model to study how low-frequency movements in a country's real interest rate depend on its own and other countries' demographic factors, given a certain degree of financial integration. The more financially integrated a country is, the higher the sensitivity of its real interest rate to global developments is, and the less its own real rate determinants matter. We then estimate panel error correction models relating real interest rates to many of its possible determinants-demographics included-imposing some restrictions motivated by lessons from our structure model. Results corroborate the importance of accounting for time-varying financial integration, and show global factors and life expectancy are relevant determinants of real interest rates.
{"title":"Demographics and Real Interest Rates Across Countries and Over Time","authors":"Carlos Carvalho, Andrea Ferrero, Felipe Mazin, Fernanda Nechio","doi":"10.24148/wp2023-32","DOIUrl":"https://doi.org/10.24148/wp2023-32","url":null,"abstract":"We explore the implications of demographic trends for the evolution of real interest rates across countries and over time. To that end, we develop a tractable three-country general equilibrium model with imperfect capital mobility and country-specific demographic trends. We calibrate the model to study how low-frequency movements in a country's real interest rate depend on its own and other countries' demographic factors, given a certain degree of financial integration. The more financially integrated a country is, the higher the sensitivity of its real interest rate to global developments is, and the less its own real rate determinants matter. We then estimate panel error correction models relating real interest rates to many of its possible determinants-demographics included-imposing some restrictions motivated by lessons from our structure model. Results corroborate the importance of accounting for time-varying financial integration, and show global factors and life expectancy are relevant determinants of real interest rates.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"35 12","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135323056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Michael D. Bauer, Eric A. Offner, Glenn D. Rudebusch
The Inflation Reduction Act of 2022 (IRA) represents the largest climate policy action ever undertaken in the United States. Its legislative path was marked by two abrupt shifts as the likelihood of climate policy action fell to near zero and then rose to near certainty. We investigate equity price reactions to these two events, which represent major realizations of climate policy transition risk. Our results highlight the heterogeneous nature of climate policy risk exposure. We find sizable reactions that differ by industry as well as across firm-level measures of greenness such as environmental scores and emission intensities. While the financial market response to the IRA was economically significant, it did not lead to instability financial stress, suggesting that transition risks posed by climate policies even as ambitious as the IRA may be manageable.
{"title":"The Effect of U.S. Climate Policy on Financial Markets: An Event Study of the Inflation Reduction Act","authors":"Michael D. Bauer, Eric A. Offner, Glenn D. Rudebusch","doi":"10.24148/wp2023-30","DOIUrl":"https://doi.org/10.24148/wp2023-30","url":null,"abstract":"The Inflation Reduction Act of 2022 (IRA) represents the largest climate policy action ever undertaken in the United States. Its legislative path was marked by two abrupt shifts as the likelihood of climate policy action fell to near zero and then rose to near certainty. We investigate equity price reactions to these two events, which represent major realizations of climate policy transition risk. Our results highlight the heterogeneous nature of climate policy risk exposure. We find sizable reactions that differ by industry as well as across firm-level measures of greenness such as environmental scores and emission intensities. While the financial market response to the IRA was economically significant, it did not lead to instability financial stress, suggesting that transition risks posed by climate policies even as ambitious as the IRA may be manageable.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135295817","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper reviews how productivity has evolved around the world since the pandemic began in 2020. Productivity in many countries has been volatile. We conclude that the broad contours of productivity growth during this period have been heavily shaped by predictable cyclical patterns. Looking at U.S. industry data, we find little evidence that the sharp rise in telework has had a notable impact, good or bad, on productivity. Stepping back, the data so far appear consistent with a continuation of the slow-productivity-growth trajectory that we faced before the pandemic.
{"title":"Productivity in the World Economy During and After the Pandemic","authors":"Huiyu Li, John G. Fernald","doi":"10.24148/wp2023-29","DOIUrl":"https://doi.org/10.24148/wp2023-29","url":null,"abstract":"This paper reviews how productivity has evolved around the world since the pandemic began in 2020. Productivity in many countries has been volatile. We conclude that the broad contours of productivity growth during this period have been heavily shaped by predictable cyclical patterns. Looking at U.S. industry data, we find little evidence that the sharp rise in telework has had a notable impact, good or bad, on productivity. Stepping back, the data so far appear consistent with a continuation of the slow-productivity-growth trajectory that we faced before the pandemic.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"67 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135345131","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Catalonia enacted a second-generation rental cap policy that affected only some municipalities and, within those, only units with prices above their “reference” price. We show that, as intended, the policy led to a reduction in rental prices, but with price increases at the bottom and price declines at the top of the distribution. The policy also affected supply, with exit at the top which is not compensated by entry at the bottom. We show that a model with quality differences in rental units rationalizes the empirical facts and allows us to compute the welfare consequences of the policy.
{"title":"The Effect of Second-Generation Rent Controls: New Evidence from Catalonia","authors":"Joan Monras, Jose G. Montalvo","doi":"10.24148/wp2023-28","DOIUrl":"https://doi.org/10.24148/wp2023-28","url":null,"abstract":"Catalonia enacted a second-generation rental cap policy that affected only some municipalities and, within those, only units with prices above their “reference” price. We show that, as intended, the policy led to a reduction in rental prices, but with price increases at the bottom and price declines at the top of the distribution. The policy also affected supply, with exit at the top which is not compensated by entry at the bottom. We show that a model with quality differences in rental units rationalizes the empirical facts and allows us to compute the welfare consequences of the policy.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"90 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136378389","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Clément Imbert, Joan Monras, Marlon Seror, Yanos Zylberberg
This paper argues that migrants’ decision to bring their dependent family members shapes their consumption behavior, their choice of destination, and their sensitivity to migration barriers. We document that in China: (i) rural migrants disproportionately move to expensive cities; (ii) in these cities they live without their family and in poorer housing conditions; and (iii) they remit more, especially when living without their family. We then develop a quantitative general equilibrium spatial model in which migrant households choose whether, how (with or without their family), and where to migrate. We estimate the model using plausibly exogenous variation in wages, housing prices, and exposure to family migration costs. We use the model to estimate migration costs and relate them to migration policy. We find that hukou policies protect workers in large, expensive, and high income cities at the expense of rural households, who use remittances to overcome some of these costs.
{"title":"Floating Population: Migration With(Out) Family and the Spatial Distribution of Economic Activity","authors":"Clément Imbert, Joan Monras, Marlon Seror, Yanos Zylberberg","doi":"10.24148/wp2023-26","DOIUrl":"https://doi.org/10.24148/wp2023-26","url":null,"abstract":"This paper argues that migrants’ decision to bring their dependent family members shapes their consumption behavior, their choice of destination, and their sensitivity to migration barriers. We document that in China: (i) rural migrants disproportionately move to expensive cities; (ii) in these cities they live without their family and in poorer housing conditions; and (iii) they remit more, especially when living without their family. We then develop a quantitative general equilibrium spatial model in which migrant households choose whether, how (with or without their family), and where to migrate. We estimate the model using plausibly exogenous variation in wages, housing prices, and exposure to family migration costs. We use the model to estimate migration costs and relate them to migration policy. We find that hukou policies protect workers in large, expensive, and high income cities at the expense of rural households, who use remittances to overcome some of these costs.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136240815","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Brandyn Bok, Richard K. Crump, Christopher J. Nekarda, Nicolas Petrosky-Nadeau
Before the pandemic, the U.S. unemployment rate reached a historic low that was close to estimates of its underlying longer-run value and the short-run level associated with an absence of inflationary pressures. After two turbulent years, unemployment returned to its pre-pandemic low, and the estimated underlying longer-run unemployment rate appeared largely unchanged. However, economic disruptions pushed up the short-run noninflationary rate substantially, as high as 6%. This primer examines these different measures of the natural rate of unemployment and discusses how they can provide useful insights for policymakers.
{"title":"Estimating Natural Rates of Unemployment: A Primer","authors":"Brandyn Bok, Richard K. Crump, Christopher J. Nekarda, Nicolas Petrosky-Nadeau","doi":"10.24148/wp2023-25","DOIUrl":"https://doi.org/10.24148/wp2023-25","url":null,"abstract":"Before the pandemic, the U.S. unemployment rate reached a historic low that was close to estimates of its underlying longer-run value and the short-run level associated with an absence of inflationary pressures. After two turbulent years, unemployment returned to its pre-pandemic low, and the estimated underlying longer-run unemployment rate appeared largely unchanged. However, economic disruptions pushed up the short-run noninflationary rate substantially, as high as 6%. This primer examines these different measures of the natural rate of unemployment and discusses how they can provide useful insights for policymakers.","PeriodicalId":250744,"journal":{"name":"Federal Reserve Bank of San Francisco, Working Paper Series","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123887915","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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