Price Setting in a Forward-Looking Customer Market

We propose a new explanation for price rigidity. We show that if consumers form habits in individual goods, then firms face a time- inconsistency problem. The consumers’ habits imply that low prices in the future help attract customers in the present. Firms would therefore like to promise low prices in the future. But when the future arrives they have an incentive to exploit consumers’ habits and price gouge. In this model, unlike the standard no-habit model, nominal price rigidity is an equilibrium outcome. Equilibrium price rigidity can be sustained because rigid prices help firms overcome the time-inconsistency problem. If customers have incomplete information about firms’ desired prices, the optimal policy for the firm is to commit to a “price cap”. Our model therefore provides an explanation for the simultaneous existence of a rigid regular price and frequent sales, a pattern that is difficult to reconcile with existing menu cost models or price rigidity. Our model also explains survey evidence on firms’ fears of adverse customer reactions to price changes, the fact that firms make open commitments to customers not to change their prices, the tendency of price rigidity to increase with the frequency of repeat purchases and the tendency of prices to be more rigid to existing customers than new customers.Time-inconsistency, Price Rigidity, Habit Formation, Asymmetric Information.

The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models

I show that the empirical impulse response of the real exchange rate is hump-shaped. This fact can explain why a number of recent authors have been unable to match the persistence of the real exchange rate using sticky-price business cycle models driven by monetary shocks. The key failure of the models used in the recent literature is that they yield monotonic impulse responses for the real exchange rate. While it is extremely difficult for models that have this feature to match the empirical persistence of the real exchange rate, models that yield hump-shaped impulse responses for the real exchange rate can easily match the empirical persistence of the real exchange rate. I present a two-country sticky-price business cycle model that yields humpshaped responses for the real exchange rate in response to a number of different disturbances. This model can match the half-life of the real exchange rate as well as and the humped shape of its impulse response.

Women, wealth effects, and slow recoveries

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 translate into a slowdown for overall employment rates? We estimate the extent to which women "crowd out" men in the labor market across US states, and find that it is small. Through the lens of a general equilibrium model with home production, we show this statistic implies that 60–75 percent of the slowdown in recent business cycle recoveries can be explained by female convergence.First author draf

Monetary Policy and Long-Term Real Rates

Abstract Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis point increase in the two-year nominal yield on a Federal Open Markets Committee announcement day is associated with a 42 basis point increase in the ten-year forward real rate. This finding is at odds with standard macro models based on sticky nominal prices, which imply that monetary policy cannot move real rates over a horizon longer than that over which all prices in the economy can readjust. Instead, the responsiveness of long-term real rates to monetary shocks appears to reflect changes in term premia. One mechanism that could generate such variation in term premia is based on demand effects due to the existence of what we call yield-oriented investors. We find some evidence supportive of this channel. JEL classification: E43, E52, G12, G1

Fourteen sequence variants that associate with multiple sclerosis discovered by meta-analysis informed by genetic correlations

To access publisher's full text version of this article, please click on the hyperlink in Additional Links field or click on the hyperlink at the top of the page marked FilesA meta-analysis of publicly available summary statistics on multiple sclerosis combined with three Nordic multiple sclerosis cohorts (21,079 cases, 371,198 controls) revealed seven sequence variants associating with multiple sclerosis, not reported previously. Using polygenic risk scores based on public summary statistics of variants outside the major histocompatibility complex region we quantified genetic overlap between common autoimmune diseases in Icelanders and identified disease clusters characterized by autoantibody presence/absence. As multiple sclerosis-polygenic risk scores captures the risk of primary biliary cirrhosis and vice versa (P = 1.6 x 10(-7), 4.3 x 10(-9)) we used primary biliary cirrhosis as a proxy-phenotype for multiple sclerosis, the idea being that variants conferring risk of primary biliary cirrhosis have a prior probability of conferring risk of multiple sclerosis. We tested 255 variants forming the primary biliary cirrhosis-polygenic risk score and found seven multiple sclerosis-associating variants not correlated with any previously established multiple sclerosis variants. Most of the variants discovered are close to or within immune-related genes. One is a low-frequency missense variant in TYK2, another is a missense variant in MTHFR that reduces the function of the encoded enzyme affecting methionine metabolism, reported to be dysregulated in multiple sclerosis brain.Swedish Research Council Knut and Alice Wallenberg Foundation AFA Foundation Swedish Brain Foundatio

Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through

We develop a structural model of a small open economy with gradual exchange rate pass-through and endogenous inertia in inflation and output. We then estimate the model by matching the implied impulse responses with those obtained from a VAR model estimated on Swedish data. Although our model is highly stylized it captures very well the responses of output, domestic and imported inflation, the interest rate, and the real exchange rate. However, in order to account for the observed persistence in the real exchange rate and the large deviations from UIP, we need a large and volatile premium on foreign exchange

Replication Data for: 'High-Frequency Identification of Monetary Non-Neutrality: The Information Effect'

The data and programs replicate tables and figures from "High Frequency Identification of Monetary Non-Neutrality: The Information Effect", by Nakamura and Steinsson. Please see the Readme file for additional details