Supply Shocks and the Persistence of Inflation

This paper examines the long-run effects of supply shocks (such as oil shocks) on inflation in the United States. The persistence of supply shocks in U.S. inflation fell considerably during the period of Volcker’s disinflation (1979-1982). My empirical results suggest that the difference between the pre-Volcker and post-Volcker periods is attributable to the change in the behavior of inflation expectations - agents expected shocks to persist in the pre-Volcker period, but not in the post-Volcker period. I construct a simple model of how different monetary policies lead to different persistence equilibria.Inflation, supply shocks, inflation expectations, persistence, Great Inflation

Habits, Sentiment and Predictable Income in the Dynamics of Aggregate Consumption

This paper explores whether habit formation in the representative agent’s preferences can explain two failures of the standard permanent income model: the sensitivity to lagged consumer sentiment, and to predictable changes in income. I show that in a habit formation model, the sensitivity of consumption to predicted income can be largely reinterpreted as a sluggish response to news. Moreover, the sensitivity of consumption to sentiment reflects the serial correlation in consumption growth generated by habits. The estimated model predicts an immediate (first-quarter) MPC out of a permanent tax cut of only about 30%.Consumer sentiment, excess sensitivity, habit formation, consumption, marginal propensity to consume, tax cuts

Supply Shocks and the Persistence of Inflation

This paper examines the long-run effects of supply shocks (such as oil shocks) on inflation in the United States. The persistence of supply shocks in U.S. inflation fell considerably during the period of Volcker's disinflation (1979-1982). My empirical results suggest that the difference between the pre-Volcker and post-Volcker periods is attributable to the change in the behavior of inflation expectations-agents expected shocks to persist in the pre-Volcker period, but not in the post-Volcker period. I construct a simple model of how different monetary policies lead to different persistence equilibria.

International evidence on sticky consumption growth

We estimate the degree of 'stickiness' in aggregate consumption growth (sometimes interpreted as reflecting consumption habits) for thirteen advanced economies. We find that, after controlling for measurement error, consumption growth has a high degree of autocorrelation, with a stickiness parameter of about 0.7 on average across countries. The sticky-consumption-growth model outperforms the random walk model of Hall (1978), and typically fits the data better than the popular Campbell and Mankiw (1989) model. In several countries, the sticky-consumption-growth and Campbell-Mankiw models work about equally well

Dissecting saving dynamics: measuring wealth, precautionary, and credit effects

We argue that the U.S. personal saving rate’s long stability (1960s–1980s), subsequent steady decline (1980s–2007), and recent substantial rise (2008–2011) can be interpreted using a parsimonious ‘buffer stock’ model of consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, with the target determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the long-term saving decline, while fluctuations in wealth and uncertainty capture the bulk of the business-cycle variation

Chiral symmetry and O(a) improvement in lattice QCD

The dominant cutoff effects in lattice QCD with Wilson quarks are proportional to the lattice spacing a. In particular, the isovector axial current satisfies the PCAC relation only up to such effects. Following a suggestion of Symanzik, they can be cancelled by adding local O(a) correction terms to the action and the axial current. We here address a number of theoretical issues in connection with the O(a) improvement of lattice QCD and then show that chiral symmetry can be used to fix the coefficients multiplying the correction terms.Comment: 43 pages, uuencoded gzipped postscript fil