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We document how lifetime utility varies by demographic groups in the US and how these differences have evolved since the start of the 21st century. Using the equivalent variation as our measure of welfare we find that the standard...
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We document how lifetime utility varies by demographic groups in the US and how these differences have evolved since the start of the 21st century. Using the equivalent variation as our measure of welfare we find that the standard deviation in cross-sectional well-being between demographic groups is comparable to the standard deviation of relative annual income in prime earning years and double the standard deviation of relative consumption. Our metric includes consumption, leisure, and mortality risk. The results are primarily driven by differences in consumption and life expectancy. Controlling for other demographics, welfare is increasing in educational attainment and is higher for women and those of Asian descent. This qualitative ordering is robust to classifying a broad measure of home production and child care as work and various definitions of real consumption. Finally, we show that changes in mortality rates associated with 'deaths of despair' disproportionately lower the welfare of less educated Whites. (C) 2022 Elsevier B.V. All rights reserved.
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The flow utility of unemployment plays a crucial role in labor search and matching models. Recent evidence by Chodorow-Reich and Karabarbounis suggests that the flow utility is high on average, volatile, and strongly procyclical. ...
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The flow utility of unemployment plays a crucial role in labor search and matching models. Recent evidence by Chodorow-Reich and Karabarbounis suggests that the flow utility is high on average, volatile, and strongly procyclical. Taken together, these facts imply that labor search and matching models perform worse than prevailing conventional wisdom. In contrast, we build a model where unemployed workers choose between home production and job search. Procyclical job search implies that the effective unemployment benefit is countercyclical. Our results suggest that omitting endogenous search will upwardly bias the measured correlation between effective unemployment benefits and productivity.
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This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting ...
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This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting as well as to a conventional Taylor rule. These comparisons are made on the basis of welfare losses relative to a hypothetical equilibrium with flexible prices and wages. Output gap targeting is the most desirable of the rules under consideration, but nominal GDP targeting performs almost as well. Nominal GDP targeting is associated with smaller welfare losses than a Taylor rule and significantly outperforms inflation targeting. Relative to inflation targeting and a Taylor rule, nominal GDP targeting performs best conditional on supply shocks and when wages are sticky relative to prices. Nominal GDP targeting may outperform output gap targeting if the gap is observed with noise, and has more desirable properties related to equilibrium determinacy than does gap targeting. (C) 2016 Elsevier B.V. All rights reserved.
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We quantify the welfare effects of cash suppression policies within a general equilibrium model where cash reduces transactions costs and aids tax evasion in underground markets. In the model, currency suppression increases transa...
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We quantify the welfare effects of cash suppression policies within a general equilibrium model where cash reduces transactions costs and aids tax evasion in underground markets. In the model, currency suppression increases transactions costs and raises effective tax rates, but shifts resources out of costly underground markets and relaxes the government budget. When coupled with a reduction in distortionary taxes on consumption or factor inputs to ensure budget neutrality, cash suppression policies increase welfare in our baseline representative agent model. In a model with individual heterogeneity in cash use, suppression increases welfare for all, but by less for cash-intensive users.
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The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utili...
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The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. We find that there is no significant difference in the response of expected inflation to a productivity shock at the ZLB compared to normal times.
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This article studies optimal monetary policy in a model with credit frictions and money demand. We show that augmenting a standard New Keynesian model with money demand and financial frictions generates a mechanism that, in equili...
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This article studies optimal monetary policy in a model with credit frictions and money demand. We show that augmenting a standard New Keynesian model with money demand and financial frictions generates a mechanism that, in equilibrium, gives rise to optimal negative nominal interest rates. In addition, we find that the tighter credit markets are, the lower the optimal nominal policy interest rate and the more likely it is to be negative. Quantitatively, when credit constraints are binding, a standard calibration of the model generates an optimal nominal policy interest rate that is roughly -4% annually. (JEL E31, E41, E43, E44, E52, E58)
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This paper shows that inflation has been an important determinant of firm-level liquid asset holdings. Liquid assets as a share of total assets- the cash ratio - for U.S. corporations steadily declined from the 1960s to the early ...
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This paper shows that inflation has been an important determinant of firm-level liquid asset holdings. Liquid assets as a share of total assets- the cash ratio - for U.S. corporations steadily declined from the 1960s to the early 1980s, and has since steadily increased. Our empirical analysis finds that inflation is a key factor accounting for these changes. We show that these liquid asset holdings are imperfectly hedged against inflation. Hence, changes in inflation alter the real value of a firm's liquid asset portfolio causing them to readjust these balances. (C) 2017 Elsevier B.V. All rights reserved.
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Are periods of low interest rates advantageous times for governments to increase expenditure by issuing debt? Because borrowing costs are lower, some economists have argued that the answer is yes. We argue that the logic used in r...
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Are periods of low interest rates advantageous times for governments to increase expenditure by issuing debt? Because borrowing costs are lower, some economists have argued that the answer is yes. We argue that the logic used in reaching this conclusion may in fact be too simplistic. Whether or not it is a good time to issue debt depends not on whether interest rates are low, but rather on why interest rates are low. We show that if interest rates are low because of an increased preference for saving, then fiscal sustainability allows increasing debt in a period of low interest rates. In contrast, if interest rates are low because of a decline in trend output growth, then it is not sustainable to increase deficit financed spending. (C) 2019 Published by Elsevier B.V.
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