Spurious Investment Specific Technological Change

imperfect competition, price indices, vintage capital.

The Brevity and Violence of Contractions and Expansions

Early studies of business cycles argued that contractions in economic activity were briefer (shorter) and more violent (rapid) than expansions. This paper systematically investigates this claim and in the process discovers a robust new business cycle fact: expansions and contractions in output are equally brief and violent but contractions in employment are briefer and more violent than expansions. The difference arises because employment typically lags output around peaks but both series roughly coincide in their troughs. We discuss the performance of existing business cycle models in accounting for this fact, and conclude that none can fully account for it. We then show that a simple model that combines three familiar ingredients%u2013labor hoarding, a choice of when to scrap old technologies, and job training or job search%u2013can account for the business cycle fact.

Evolution of commuting patterns in the New York City metro area

Has the migration of jobs to the suburbs changed the commuting patterns in the New York City metro area? An analysis of current commuting trends suggests that Manhattan remains the region's undisputed employment center and that workers are actually traveling farther to their jobs. Two factors appear to account for the longer commutes: the dispersion of people and jobs and a greater tolerance for long-distance travel among employers and employees.Employment - New York (N.Y.) ; Transportation - Fares ; Federal Reserve District, 2nd ; Demography

The role of automatic stabilizers in the U.S. business cycle

Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures their effect on the dynamics of the business cycle. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data and the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role in the dynamics of the business cycle, whereas tax-and-transfer programs that affect inequality and social insurance can have a larger effect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the U.S. has had little effect on the volatility of aggregate output fluctuations or on their welfare costs despite stabilizing aggregate consumption. The stabilizers have a more important role when monetary policy is constrained by the zero lower bound, and they affect welfare significantly through the provision of social insurance

Optimal automatic stabilizers

Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as inefficient business cycles driven by aggregate shocks through matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity and progressivity depend on a macroeconomic stabilization term. Using a series of analytical examples, we show that this term typically pushes for an increase in generosity and progressivity as long as slack is more responsive to social programs in recessions. A calibration to the U.S. economy shows that taking concerns for macroeconomic stabilization into account raises the optimal unemployment benefits replacement rate by 13 percentage points but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programs as automatic stabilizers affects their optimal design

Housing wealth effects: the long view

We provide new time-varying estimates of the housing wealth effect back to the 1980s. We use three identification strategies: OLS with a rich set of controls, the Saiz housing supply elasticity instrument, and a new instrument that exploits systematic differences in city-level exposure to regional house price cycles. All three identification strategies indicate that housing wealth elasticities were if anything slightly smaller in the 2000s than in earlier time periods. This implies that the important role housing played in the boom and bust of the 2000s was due to larger price movements rather than an increase in the sensitivity of consumption to house prices. Full-sample estimates based on our new instrument are smaller than recent estimates, though they remain economically important. We find no significant evidence of a boom-bust asymmetry in the housing wealth elasticity. We show that these empirical results are consistent with the behavior of the housing wealth elasticity in a standard life-cycle model with borrowing constraints, uninsurable income risk, illiquid housing, and long-term mortgages. In our model, the housing wealth elasticity is relatively insensitive to changes in the distribution of LTV for two reasons: First, low-leverage homeowners account for a substantial and stable part of the aggregate housing wealth elasticity; Second, a rightward shift in the LTV distribution increases not only the number of highly sensitive constrained agents but also the number of underwater agents whose consumption is insensitive to house prices.1623801, - National Science FoundationAccepted manuscrip

What can we learn from cross-sectional empirical estimates in macroeconomics?

Recent empirical work uses variation across cities or regions to identify the effects of economic shocks of interest to macroeconomists. The interpretation of such estimates is complicated by the fact that they reflect both partial equilibrium and local general equilibrium effects of the shocks. We propose an approach for recovering estimates of partial equilibrium effects from these cross-regional empirical estimates. The basic idea is to divide the cross-regional estimate by an estimate of the local fiscal multiplier, which measures the strength of local general equilibrium amplification. We apply this approach to recent estimates of housing wealth effects based on city-level variation, and derive conditions under which the adjustment is exact. We then evaluate its accuracy in a richer general equilibrium model of consumption and housing. The paper also reconciles the positive cross-sectional correlation between house price growth and construction with the notion that cities with larger price volatility have lower housing supply elasticities using a model in which housing supply elasticities are more dispersed in the long run than in the short run.Accepted manuscrip