Macroeconomics Department Publications

Decoupling Nominal and Real Rigidities: A Reexamination of the Canonical Model of Price Setting under Menu Costs

We revisit Ball and Romer’s (1990) canonical model of price setting with menu costs that exhibits multiple equilibria. We show that changes to firms’ markups move nominal and real rigidities in opposite directions. Using game-theoretic tools to derive a unique equilibrium, we find that accounting for agents’ endogenous adjustment of price expectations further weakens the link between real and nominal ...

Capital Taxation and Government Debt Policy with Public Discounting

This paper characterizes capital taxation and public debt policy in a quantitative macroeconomic model with an impatient government and uncertainty. The government has access to linear taxes on capital and labor, and to non-state-contingent bonds. Government impatience generates positive and empirically realistic long-run levels of both capital taxes and public debt. Prior predictive analysis shows ...

Granularity in Banking and Growth: Does Financial Openness Matter?

We explore the impact of large banks and of financial openness for aggregate growth. Large banks matter because of granular effects: if markets are very concentrated in terms of the size distribution of banks, idiosyncratic shocks at the bank-level do not cancel out in the aggregate but can affect macroeconomic outcomes. Financial openness may affect GDP growth in and of itself, and it may also influence ...

Spillovers of U.S. Unconventional Monetary Policy to Emerging Markets: The Role of Capital Flows

We employ a structural global VAR model to analyze whether U.S. unconventional monetary policy shocks, identified through changes in the central bank’s balance sheet, have an impact on financial and economic conditions in emerging market economies (EMEs). Moreover, we study whether international capital flows are an important channel of shock transmission. We find that an expansionary policy shock ...

Unemployment and Business Cycles

We develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, we do not impose wage inertia. Instead we derive wage inertia from our specification of how firms and workers negotiate wages. Our model outperforms a variant of the standard ...

War, Housing Rents, and Free Market: A Case of Berlin's Rental Housing Market during World War I

New archival evidence on housing rents in Berlin over 1909–1917 is presented. The data are extracted from newspaper announcements and georeferenced. Using hedonic regressions, quality-adjusted rent indices are constructed and employed to analyze the rental dynamics during World War I, when housing market experienced several shocks. The outbreak of the war led to an outflow of men from cities. Toward ...

Personal Income Tax Progressivity and Output Volatility: Evidence from OECD Countries

This paper investigates empirically the effect of personal income tax progressivity on output volatility using macro data from a sample of OECD countries over the period 1982–2009. Our measure of progressivity is based on the difference between the marginal and the average personal income tax rate for the average production worker. We find supportive empirical evidence for the hypothesis that higher ...

Institutional Determinants of Financial Development in MENA Countries

Developed and well regulated financial markets are usually seen as a precondition for an efficient allocation of resources and can foster long term economic growth. This paper explores the institutional determinants for financial development in the countries of the Middle East and North African (MENA) region. Institutional conditions are from the International Country Risk Guide. Panel-econometric ...

Between the Hammer and the Anvil: The Impact of Economic Sanctions and Oil Prices on Russia's Ruble

On the Empirical Relevance of the Lucas Critique: The Case of Euro Area Money Demand

This paper examines the relevance of the Lucas critique for euro area money demand. Based on the money in the utility function approach, a vector error correction model is specified to investigate the relationship between money and inflation in times of policy shifts. A well defined equation for money demand is obtained. The results indicate that the evolution of M3 is still in line with money demand. ...