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Willem Van Zandweghe
Person

Willem Van Zandweghe

Assistant Vice President
Areas of Expertise macroeconomics, monetary economics
Department Research
Education
  • Licentiaat,
  • Economics,
  • KU Leuven,
  • 1998
  • DES,
  • Econometrics,
  • Université catholique de Louvain,
  • 2000
  • PhD,
  • Economics,
  • Carnegie Mellon University,
  • 2008

Willem Van Zandweghe is an assistant vice president in the Research Department at the Federal Reserve Bank of Cleveland. He oversees the department’s team of research analysts. His research focuses on questions regarding business fluctuations, inflation dynamics, and monetary policy.

Prior to joining the Bank in 2019, Dr. Van Zandweghe spent eleven years with the Federal Reserve Bank of Kansas City, where he joined the Research Department as an economist in 2008 and was appointed assistant vice president and economist in 2013. He obtained his undergraduate degree from KU Leuven in Belgium and a PhD in economics from Carnegie Mellon University.

Featured Publications

    • Working Papers

      • Working Paper
        Sticky Information Versus Sticky Prices Revisited: A Bayesian VAR-GMM Approach
        Takushi Kurozumi Ryohei Oishi Willem Van Zandweghe
        11.16.2022 | WP 22-34
        Several Phillips curves based on sticky information and sticky prices are estimated and compared using Bayesian VAR-GMM. This method derives expectations in each Phillips curve from a VAR and estimates the Phillips curve parameters and the VAR coefficients simultaneously. Quasi-marginal likelihood-based model comparison selects a dual stickiness Phillips curve in which, each period, some prices remain unchanged, consistent with micro evidence. Moreover, sticky information is a more plausible source of inflation inertia in the Phillips curve than other sources proposed in previous studies. Sticky information, sticky prices, and unchanged prices in each period are all needed to better describe inflation dynamics.

        Topics: Inflation, Econometrics modeling and forecasting
      • Working Paper
        Labor Supply Shocks, Labor Force Entry, and Monetary Policy
        Takushi Kurozumi Willem Van Zandweghe
        08.15.2022 | WP 22-17R
        Should monetary policy offset the effects of labor supply shocks on inflation and the output gap? Canonical New Keynesian models answer yes. Motivated by weak labor force participation during the pandemic, we reexamine the question by introducing labor force entry and exit in an otherwise canonical model with sticky prices and wages. The entry decision generates an employment channel of monetary policy, by which a decline in employment raises wage growth. Consequently, a labor supply shock to the value of nonparticipation in the labor market induces a policy trade-off between stabilization of the employment gap and wage growth. For an adverse labor supply shock, optimal policy dampens the decline in employment to rein in wage growth, which entails a period of higher inflation and a positive output gap. A welfare analysis of policy rules shows that monetary policy should not lean against the employment gap.

        Topics: Labor economics, Monetary policy
      • Working Paper
        Labor Supply Shocks, Labor Force Entry, and Monetary Policy
        Takushi Kurozumi Willem Van Zandweghe
        05.24.2022 | WP 22-17
        Should monetary policy offset the effects of labor supply shocks on inflation and the output gap? Canonical New Keynesian models answer yes. Motivated by weak labor force participation during the pandemic, we reexamine the question by introducing labor force entry and exit in an otherwise canonical model with sticky prices and wages. The entry decision generates an employment channel of monetary policy, and a labor supply shock to the value of nonparticipation in the labor market induces a policy trade-off between stabilization of the employment gap and wage growth. For an adverse labor supply shock, optimal policy dampens the decline in employment to rein in wage growth, which entails a period of higher inflation and a positive output gap. A welfare analysis of policy rules shows that monetary policy should not lean against the employment gap.

        Topics: Labor economics, Monetary policy
      • Working Paper
        Inflation Gap Persistence, Indeterminacy, and Monetary Policy
        Yasuo Hirose Takushi Kurozumi Willem Van Zandweghe
        02.22.2021 | WP 21-05
        Empirical studies have documented that the persistence of the gap between inflation and its trend declined after the Volcker disinflation. Previous research into the source of the decline has offered competing views while sidestepping the possibility of equilibrium indeterminacy. This paper examines the source by estimating a medium-scale DSGE model using a Bayesian method that allows for indeterminacy. The estimated model shows that the Fed’s change from a passive to an active policy response to the inflation gap or a decrease in firms’ probability of price change can fully account for the decline in inflation gap persistence by ruling out indeterminacy that induces persistent dynamics of the economy.

        Topics: Inflation, Monetary policy
      • Working Paper
        Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis
        Takushi Kurozumi Willem Van Zandweghe
        11.12.2020 | WP 20-35
        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.

        Topics: Economic growth, Inflation
      • Working Paper
        Output-Inflation Trade-offs and the Optimal Inflation Rate
        Takushi Kurozumi Willem Van Zandweghe
        07.02.2020 | WP 20-20
        In staggered price models, a non-CES aggregator of differentiated goods generates empirically plausible short- and long-run trade-offs between output and inflation: lower trend inflation flattens the Phillips curve and decreases steady-state output by increasing markups. We show that the aggregator reduces both the steady-state welfare cost of higher trend inflation and the inflation-related weight in a model-based welfare function for higher trend inflation. Consequently, optimal trend inflation is moderately positive even without considering the zero lower bound on nominal interest rates. Moreover, the welfare difference between 2 percent and 4 percent inflation targets is much smaller than in the CES aggregator case.

        Topics: Inflation, Econometrics modeling and forecasting
      • Working Paper
        A Theory of Intrinsic Inflation Persistence
        Takushi Kurozumi Willem Van Zandweghe
        08.29.2019 | WP 19-16
        We propose a novel theory of intrinsic inflation persistence by introducing trend inflation and variable elasticity of demand in a model with staggered price and wage setting. Under nonzero trend inflation, the variable elasticity generates intrinsic persistence in inflation through a measure of price dispersion stemming from staggered price setting. It also introduces intrinsic persistence in wage inflation under staggered wage setting, which affects price inflation. With the theory we show that inflation exhibits a persistent, hump-shaped response to a monetary policy shock. We also show that a credible disinflation leads to a gradual decline in inflation and a fall in output, and lower trend inflation reduces inflation persistence, as observed around the time of the Volcker disinflation.

        Topics: Econometrics modeling and forecasting, Inflation
      • Working Paper
        Monetary Policy and Macroeconomic Stability Revisited
        Yasuo Hirose Willem Van Zandweghe Takushi Kurozumi
        06.27.2019 | WP 19-14
        A large literature has established that the Fed’s change from a passive to an active policy response to inflation led to U.S. macroeconomic stability after the Great Inflation of the 1970s. This paper revisits the literature’s view by estimating a generalized New Keynesian model using a full-information Bayesian method that allows for equilibrium indeterminacy and adopts a sequential Monte Carlo algorithm. The model empirically outperforms canonical New Keynesian models that confirm the literature’s view. Our estimated model shows an active policy response to inflation even during the Great Inflation. More importantly, a more active policy response to inflation alone does not suffice for explaining the U.S. macroeconomic stability, unless it is accompanied by a change in either trend inflation or policy responses to the output gap and output growth. This extends the literature by emphasizing the importance of the changes in other aspects of monetary policy in addition to its response to inflation.

        Topics: Monetary policy, Financial stability

    • Economic Commentaries

      • Economic Commentary
        Postpandemic Nominal Wage Growth: Inflation Pass-Through or Labor Market Imbalance?
        Martin DeLuca Willem Van Zandweghe
        08.14.2023 | EC 2023-13
        According to a new model of wage growth, increases in wage growth since the pandemic reflect the pass-through of inflation instead of labor market imbalances.

        Topics: Labor economics, Inflation
      • Economic Commentary
        How Should Monetary Policy Respond to a Contraction in Labor Supply?
        Takushi Kurozumi Willem Van Zandweghe
        09.06.2022 | EC 2022-13
        Conventional wisdom holds that a central bank should tighten monetary policy after a surprise decline in labor supply to offset the inflationary effects of the decline. However, this policy prescription comes from models of monetary policy that abstract from labor force participation. We examine the policy implications of worker entry into and exit from the labor force. We find that cyclical changes in labor force participation call for a less restrictive policy response to a decline in labor supply. The less restrictive policy response is appropriate because policy tightening reduces the labor force and thus raises wage growth. The optimal policy response dampens the reduction in the labor force and brings about a period of higher inflation.

        Topics: Monetary policy, Labor economics, Econometrics modeling and forecasting
      • Economic Commentary
        Why Has Durable Goods Spending Been So Strong during the COVID-19 Pandemic?
        Kristen Tauber Willem Van Zandweghe
        07.07.2021 | EC 2021-16
        Consumers increased their purchases of durable goods notably during the COVID-19 pandemic. The pandemic may have lifted the demand for durable goods directly, by shifting consumer preferences away from services toward a variety of durable goods. It may also have stimulated spending on durable goods indirectly, by prompting a strong fiscal policy response that raised disposable income. We estimate the historical relationship between durable goods spending and income and find that income gains in 2020 accounted for about half of the increase in durable goods spending, indicating that the direct and indirect effects of the pandemic on durable goods spending were about equally important.

        Topics: Economic growth, Public health crises
      • Economic Commentary
        A Growth-Augmented Phillips Curve
        Kristen Tauber Willem Van Zandweghe
        07.02.2020 | EC 2020-16
        Empirical studies find that the link between inflation and economic slack has weakened in recent decades, a development that could hamper monetary policymakers as they aim to achieve their inflation objective. We show that while the role of economic slack has diminished, economic growth has become a significant driver of inflation dynamics, indicating that the link between inflation and economic activity remains but the relevant gauge of activity has changed. The new evidence suggests that the COVID-19-related recession could induce substantial disinflationary pressure.

        Topics: Econometrics modeling and forecasting, Inflation

  • Federal Reserve Bank of Kansas City Working Papers

    • “The Cyclical Behavior of Labor Force Participation.” With Didem Tüzemen. 2018. Federal Reserve Bank of Kansas City, Working Paper No. 18-08.
    • “A Pitfall of Expectational Stability Analysis.” With Takushi Kurozumi. 2014. Federal Reserve Bank of Kansas City, Working Paper No. 14-07.

    Federal Reserve Bank of Kansas City Publications

    • “The Phillips Curve and the Missing Disinflation from the Great Recession.” 2019. Federal Reserve of Kansas City, Economic Review, (second quarter).
    • “Do Changes in the Stock Market Affect Consumer and Business Confidence?” 2019. Federal Reserve of Kansas City, Macro Bulletin (January 9).
    • “Why Has Inflation Persistence Declined?” With Takushi Kurozumi. 2018. Federal Reserve of Kansas City, Macro Bulletin (April 11).
    • “The Changing Cyclicality of Labor Force Participation.” 2017. Federal Reserve of Kansas City, Economic Review (third quarter): 5–34.
    • “Wage Leaders and Laggards: Decomposing the Growth in Average Hourly Earnings.” 2017. Federal Reserve of Kansas City, Macro Bulletin (February 15).
    • “The Drag of Energy and Manufacturing on Productivity Growth.” 2016. Federal Reserve of Kansas City, Macro Bulletin (April 18).
    • “The Lasting Damage from the Financial Crisis to US Productivity.” With Michael Redmond. 2016. Federal Reserve of Kansas City, Economic Review (first quarter): 39–64.
    • “Monetary Policy and Firm Entry and Exit.” With Yoonsoo Lee. 2015. Federal Reserve of Kansas City, Macro Bulletin (August 20).
    • “Monetary Policy Shocks and Aggregate Supply.” 2015. Federal Reserve of Kansas City, Economic Review (third quarter): 31–56.
    • “Has Durable Goods Spending Become Less Sensitive to Interest Rates?” With John Carter Braxton. 2013. Federal Reserve of Kansas City, Economic Review (fourth quarter): 5–27.
    • “Interpreting the Recent Decline in Labor Force Participation.” 2012. Federal Reserve of Kansas City, Economic Review (first quarter): 5–34.
    • “Why Have the Dynamics of Labor Productivity Changed?” 2010. Federal Reserve of Kansas City, Economic Review (third quarter): 5–30.