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Working Papers

Working Papers

  • WP 21-01 | Employer Wage Subsidy Caps and Part-Time Work


    Joel Elvery C. Lockwood Reynolds Shawn Rohlin

    Abstract

    Hiring credits and employer wage subsidies are tools that policymakers have available to attempt to improve labor market conditions for workers. This study explores how capped-wage subsidies affect firms’ labor market decisions, in particular, their reliance on part-time and low-skill workers. We focus on the federal Empowerment Zone program, which offers firms in targeted areas a 20 percent wage subsidy (capped at $3,000 per year) for each employee who also resides in the Empowerment Zone. Results using different methods of identification suggest that firms respond to capped-wage subsidies by expanding their use of part-time workers, particularly where the subsidy cap is likely to bind. We also provide evidence of a shift toward lower-skill workers.   Read More

  • WP 20-37 | Neighborhood Sorting Obscures Neighborhood Effects in the Opportunity Atlas


    Dionissi Aliprantis Hal Martin

    Abstract

    The Opportunity Atlas (OA) is an innovative data set that ranks neighborhoods according to children’s adult outcomes in several domains, including income. Conceptually, outcomes offer new evidence about neighborhood effects when measured in isolation from neighborhood sorting. This paper shows that neighborhood sorting contributes to OA estimates. We document cases in which small sample sizes and changes over time can explain disagreements between OA rankings and those based on contemporaneous variables. Our results suggest caution for interpretations of the OA data set at a granular level, particularly for predictions about the outcomes of black children in high-income neighborhoods.   Read More

  • WP 20-36 | What Determines the Success of Housing Mobility Programs?


    Dionissi Aliprantis Hal Martin Kristen Tauber

    Abstract

    There is currently interest in crafting public housing policy that combats, rather than contributes to, the residential segregation in American cities. One such policy is the Housing Mobility Program (HMP), which aims to help people move from disinvested neighborhoods to ones with more opportunities. This paper studies how design features influence the success of HMPs in reducing racial segregation. We find that the choice of neighborhood opportunity index used to define the opportunity areas to which participants are encouraged to move has limited influence on HMP success. In contrast, we find that three design features have large effects on HMP success: 1) whether the geographic scope is confined to the central city or is implemented as a metro-level partnership; 2) whether the eligibility criteria are race-based, race-conscious, or race-neutral; 3) whether tenant counseling, tenant search assistance, and landlord outreach are successful in relaxing rental housing supply constraints.   Read More

  • WP 20-35 | Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis


    Takushi Kurozumi Willem Van Zandweghe

    Abstract

    Recent studies indicate that, since 1980, the average markup and the profit share of income have increased, while the labor share and the investment share of spending have decreased. We examine the role of monetary policy in these changes as inflation has concurrently trended down. In a simple staggered price model with a non-CES aggregator of differentiated goods, a decline in trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, introducing a rise in the productivity of “superstar firms” in the model can better explain not only the macroeconomic changes but also the micro evidence on the distribution of firms’ markups, including the flat median markup.   Read More

  • WP 20-34 | Does the Yield Curve Predict Output?


    Joseph G. Haubrich

    Abstract

    Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But many details are matters of dispute: When and where does the yield curve predict successfully, which aspects of the curve matter most, and which economic forces account for the predictive ability? Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, have addressed these issues. For the US, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post-World War Two period. The spread also predicts future real GDP growth for the US, although the forecast ability varies by time period, in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the UK and Germany, among others.   Read More

  • WP 20-32 | Measuring Uncertainty and Its Effects in the COVID-19 Era


    Andrea Carriero Todd E. Clark Massimiliano Marcellino Elmar Mertens

    Abstract

    We measure the effects of the COVID-19 outbreak on macroeconomic and financial uncertainty, and we assess the consequences of the latter for key economic variables. We use a large, heteroskedastic vector autoregression (VAR) in which the error volatilities share two common factors, interpreted as macro and financial uncertainty, in addition to idiosyncratic components. Macro and financial uncertainty are allowed to contemporaneously affect the macroeconomy and financial conditions, with changes in the common component of the volatilities providing contemporaneous identifying information on uncertainty. We also consider an extended version of the model, based on a latent state approach to accommodating outliers in volatility, to reduce the influence of extreme observations from the COVID period. The estimates we obtain yield very large increases in macroeconomic and financial uncertainty over the course of the COVID-19 period. These increases have contributed to the downturn in economic and financial conditions, but with both models, the contributions of uncertainty are small compared to the overall movements in many macroeconomic and financial indicators. That implies that the downturn is driven more by other dimensions of the COVID crisis than shocks to aggregate uncertainty (as measured by our method).   Read More

  • WP 20-33 | Even Keel and the Great Inflation


    Victoria Consolvo Owen F. Humpage Sanchita Mukherjee

    Abstract

    During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage point to the overall 5.1 percent average annual inflation rate over these years.   Read More

  • WP 20-31 | Real-Time Density Nowcasts of US Inflation: A Model-Combination Approach


    Edward S. Knotek II Saeed Zaman

    Abstract

    We develop a flexible modeling framework to produce density nowcasts for US inflation at a trading-day frequency. Our framework: (1) combines individual density nowcasts from three classes of parsimonious mixed-frequency models; (2) adopts a novel flexible treatment in the use of the aggregation function; and (3) permits dynamic model averaging via the use of weights that are updated based on learning from past performance. Together these features provide density nowcasts that can accommodate non-Gaussian properties. We document the competitive properties of the nowcasts generated from our framework using high-frequency real-time data over the period 2000-2015.   Read More

  • WP 15-33R | Industrial Composition and Educational Intergenerational Mobility


    Stephan D. Whitaker

    Original Paper: WP 15-33

    Abstract

    Using the National Longitudinal Surveys of Youth (NLSY), this article examines the influence of a region’s industrial composition on the educational attainment of children raised by parents who do not have college degrees. The NLSY’s geo-coded panel allows for precise measurements of the local industries that shaped the parents’ employment opportunities and the labor market that the children directly observed. For cohorts finishing school in the 1990s and early 2000s, concentrations of manufacturing are positively associated with both high school and college attainment. Concentrations of college-degree intensive industries are positively associated with college attainment. I investigate several potential mechanisms that could relate the industrial composition to educational attainment, including returns to education, opportunity costs, parental inputs, community resources, and information.   Read More

  • WP 20-30 | Fireside Chats: Communication and Consumers’ Expectations in the Great Depression


    Mathieu Pedemonte

    Abstract

    This paper shows how policy announcements can be used to manage expectations and have a role as a policy tool. Using regional variation in radio exposure, I evaluate the impact of President Franklin D. Roosevelt’s 1935 Fireside Chat, in which he showcased the introduction of important social policies, establishing a new cycle of the New Deal. I document that cities with higher exposure to the announcement exhibited a significant increase in spending on durable goods. I provide evidence that this result is not driven by wealth or other potentially confounding variables. The estimated effect is consistent with changes in expectations toward the policies announced. This paper shows the power of communication as a policy tool in affecting economic activity.   Read More