Understanding the Dynamics of Labour Shares and Inflation

Calvo-style models of nominal rigidities currently provide the dominant paradigm for understanding the linkages between wage and price dynamics. Recent empirical implementations stress the idea that these models link inflation to the behavior of the labour share of income. Galí, Gertler, and Lopez-Salido (2001) argue that the model explains the combination of declining inflation and labour shares in Euro area. In this paper, we show that with realistic parameters, the canonical Calvo-style model cannot explain this outcome. In addition, we show that the model fails very badly in sectoral data. We examine the elements underlying the decline in the labour share in Europe, and conclude that the key factors are related to technological and labour market developments not accounted for in the standard New-Keynesian framework.

A Note on Trade Costs and Distance

One of the most famous and robust findings in international economics is that distance has a strong negative effect on trade. Bernard, Jensen, Redding, and Schott (2007) discuss how this can be decomposed into an effect due to the number of products and an effect due to average exports per product. Using US firm-level data, they show that distance has a strong negative effect on the number of products exported. However, they find that the intensive margin - average sales of individual products - is increasing with distance. We show that this apparently puzzling finding is consistent with models featuring firm heterogeneity in productivity and fixed costs associated with exporting to each market. We also show how evidence of this type can be used to derive new estimates of how distance affects fixed and variable trade costs and how these two costs combine to generate the distance effect on trade.

A Note on Trade Costs and Distance

One of the most famous and robust findings in international economics is that distance has a strong negative effect on trade. Bernard, Jensen, Redding, and Schott (2007) discuss how this can be decomposed into an effect due to the number of products and an effect due to average exports per product. Using US firm-level data, they show that distance has a strong negative effect on the number of products exported. However, they find that the intensive margin—average sales of individual products—is increasing with distance. We show that this apparently puzzling finding is consistent with models featuring firm heterogeneity in productivity and fixed costs associated with exporting to each market. We also show how evidence of this type can be used to derive new estimates of how distance affects fixed and variable trade costs and how these two costs combine to generate the distance effect on trade.

Where Do Firms Export, How Much, and Why?

The empirical finding that exporting firms are more productive on average than non-exporters has provoked a large theoretical literature based on models such as Melitz (2003), where more productive firms are more likely to overcome costs associated with trade. This paper provides a systematic empirical assessment of the Melitz framework using a unique Irish dataset that includes information on destinations and firm characteristics such as productivity. We find a number of interesting deviations from the model’s predictions including a high degree of unpredictable idiosyncratic participation in export markets by firms, a relatively weak positive correlation between the extent of export participation and export sales, and a limited role for productivity in explaining firm exporting behavior. We illustrate the effect of firm heterogeneity on gravity regressions of aggregate trade flows and show how past exporting to a particular market has a strong impact on the current probability of exporting there.

A Note on Trade Costs and Distance

One of the most famous and robust findings in international economics is that distance has a strong negative effect on trade. Bernard, Jensen, Redding, and Schott (2007) discuss how this can be decomposed into an effect due to the number of products and an effect due to average exports per product. Using US firm-level data, they show that distance has a strong negative effect on the number of products exported. However, they find that the intensive margin—average sales of individual products—is increasing with distance. We show that this apparently puzzling finding is consistent with models featuring firm heterogeneity in productivity and fixed costs associated with exporting to each market. We also show how evidence of this type can be used to derive new estimates of how distance affects fixed and variable trade costs and how these two costs combine to generate the distance effect on trade.

Where do Firms Export, How Much and Why?

The empirical finding that exporting firms are more productive on average than non-exporters has provoked a large theoretical literature based on models such as Melitz (2003), where more productive firms are more likely to overcome costs associated with trade. This paper provides a systematic empirical assessment of the Melitz framework using a unique Irish dataset that includes information on destinations and firm characteristics such as productivity. We find a number of interesting deviations from the model's predictions including a high degree of unpredictable idiosyncratic participation in export markets by firms, a relatively weak positive correlation between the extent of export participation and export sales, and a limited role for productivity in explaining firm exporting behavior. We illustrate the effect of firm heterogeneity on gravity regressions of aggregate trade flows and show how past exporting to a particular market has a strong impact on the current probability of exporting there.

Understanding the dynamics of labor shares and inflation

Calvo-style models of nominal rigidities currently provide the dominant paradigm for understanding the linkages between wage and price dynamics. Recent empirical implementations stress the idea that these models link inflation to the behavior of the labor share of income. Gali, Gertler, and Lopez-Salido (2001) argue that the model explains the combination of declining inflation and labor shares in euro area. In this paper, we show that with realistic parameters, the canonical Calvo-style model cannot explain this outcome. In addition, we show that the model fails very badly in sectoral data. We examine the elements underlying the decline in the labor share in Europe, and conclude that the key factors are related to technological and labor market developments not accounted for in the standard New-Keynesian framework. JEL Classification: E31Labor Share, Phillips curve, Sectoral Data

Search for neutrino sources from the direction of IceCube alert events

We search for additional neutrino emission from the direction of IceCube's highest energy public alert events. We take the arrival direction of 122 events with a high probability of being of astrophysical origin and look for steady and transient emission. We investigate 11 years of reprocessed and recalibrated archival IceCube data. For the steady scenario, we investigate if the potential emission is dominated by a single strong source or by many weaker sources. In contrast, for the transient emission we only search for single sources. In both cases, we find no significant additional neutrino component. Not having observed any significant excess, we constrain the maximal neutrino flux coming from all 122 origin directions (including the high-energy events) to $\Phi_{90\%,~100~\rm{TeV}} = 1.2 \times 10^{-15}$~(TeV cm$^2$ s)$^{-1}$ at 100~TeV, assuming an $E^{-2}$ emission, with 90\% confidence. The most significant transient emission of all 122 investigated regions of interest is the neutrino flare associated with the blazar TXS~0506+056. With the recalibrated data, the flare properties of this work agree with previous results. We fit a Gaussian time profile centered at $\mu_T = 57001 ^{+38}_{-26}$~MJD and with a width of $\sigma_T = 64 ^{+35}_{-10}$~days. The best fit spectral index is $\gamma = 2.3 \pm 0.4$ and we fit a single flavor fluence of $J_{100~\rm{TeV}} = 1.2 ^{+1.1} _{-0.8} \times 10^{-8}$~(TeV~cm$^2$)$^{-1}$. The global p-value for transient emission is $p_{\rm{global}} = 0.156$ and, therefore, compatible with background.Comment: Presented at the 38th International Cosmic Ray Conference (ICRC2023). See arXiv:2307.13047 for all IceCube contribution