https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/rss Staff Reports en {C8F2AC21-9559-4BAC-833C-0F7C696EDF1F} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/trade-models-trade-elasticities-and-the-gains-from-trade We consider five models of international trade that belong to the class of models in which the trade elasticity and domestic trade share are sufficient statistics for the welfare cost of autarky. Three are fixed-variety models featuring increasing micro-level margins of adjustment: versions of the Armington model, the Ricardian model, and its variable-markup counterpart. Two are endogenous-variety models featuring monopolistic competition: versions of the Krugman model and the Melitz model. For the three fixed-variety models, we show theoretically that, although they imply the same mapping from the trade elasticity to welfare, they imply different mappings from the trade elasticity to observed order statistics of price gaps of identical goods across countries. This result implies that choosing the parameter that governs the elasticity of trade to match the same order statistics in the data differentially impacts each model’s measured welfare cost of autarky. We quantify these differences for all five models.<br/> Thu, 02 Apr 2026 18:16:25 GMT {1211F54E-FC85-4EBE-99E2-7F262E0235E8} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/why-people-disagree-about-what-drives-stock-prices We show that, to a first-order approximation, estimates of Shiller’s fundamental price relative to observed price depend only on forecasts of long-horizon expected returns. Researchers using different measures of cash flow and valuation may reach different conclusions about the extent to which values fluctuate excessively relative to fundamentals, but that is only because return forecasts based on different cash-flow-to-value measures will be different. Using U.S. equity data, we demonstrate that the amount of persistence in expected returns, rather than the amount of short-run return predictability, is the key determinant of implied excess volatility. Disagreements about stock market valuation therefore reduce to disagreements about long-run expected returns.<br/> Wed, 04 Mar 2026 19:09:18 GMT {491D2474-C7E9-4AD5-8A1F-AC637548B5DC} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/monetary-policy-and-sovereign-risk-in-emerging-economies-nk-default This paper develops a New Keynesian model with sovereign default risk. Inflation is set by forward-looking firms, monetary policy is an interest rate rule, and the fiscal government borrows externally, long-term, with an option to default. In this framework, default risk creates inflation pressures through an expectations channel, and tight monetary policy disincentivizes fiscal overborrowing. The model sheds light on temporary inflation events in emerging-market data: short-lived spikes in inflation, spreads, and domestic policy rates. As spreads rise, firms increase their prices in expectation of higher future inflation and low consumption during default. Monetary policy tightens, which reduces inflation and helps bring spreads down by disciplining government borrowing. These monetary-fiscal interactions imply that delivering the flexible prices allocation may not be optimal for monetary policy.<br/> Mon, 23 Feb 2026 15:08:51 GMT {02261ED6-92BF-4886-8C70-6969B0F20795} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/a-macroeconomic-perspective-on-stock-market-valuation-ratios Traditional valuation metrics for the U.S. stock market based on a comparison of the aggregate market value of U.S. corporations to measures of dividends, earnings, output, and the replacement cost of measured capital have been above historical norms for the past 25–30 years. Will they return to their historical means? We use macroeconomic data to argue that the observed decline in labor’s share of corporate output in conjunction with relatively weak corporate investment mechanically generates a persistent rise in the ratio of corporate valuation relative to corporate earnings, even absent any changes in expected returns or growth rates.<br/> Fri, 30 Jan 2026 16:44:53 GMT {F8CDB199-5D3D-4FEC-9083-249B82C9832E} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/sovereign-default-risk-and-firm-heterogeneity This paper measures the output costs of sovereign risk by combining a sovereign debt model with firm- and bank-level data. An increase in sovereign risk lowers the price of government debt and has an adverse impact on banks’ balance sheets, disrupting their ability to finance firms. The resulting fall in credit supply impacts firms directly, as they need to borrow at higher interest rates, and indirectly through general equilibrium effects on the price of inputs and other goods. Importantly, firms are not equally affected by these developments: those that have greater financing needs and that borrow from banks that hold more government debt are mostly affected by the change in borrowing rates, while firms that do not borrow are only impacted indirectly. We show that these direct and indirect effects can be recovered using a firm-level regression, which we estimate using Italian data. We calibrate our model to match the measured firm-level elasticities and find that heightened sovereign risk was responsible for one-third of the observed output decline during the Italian debt crisis.<br/> Fri, 16 Jan 2026 21:54:49 GMT {2A3ABD34-6E66-4BA4-9B32-FC0EA029E2EF} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/how-restrictive-is-us-trade-policy This short note computes Trade Restrictiveness Index measures for current U.S. trade policy. Building on the ideas of Anderson and Neary (1996, 2005), the Trade Restrictiveness Index is the uniform tariff that leaves the U.S. consumer as well off as under actual policy. As of October 2025, U.S. trade policy is twice as restrictive as headline tariff numbers suggest. The Trade Restrictiveness Index is 23 percent, which stands in contrast to the 11 percent average tariff rate. Trade policy towards Canada and Mexico is two to three times more restrictive than average tariff rates suggest. Sectoral analysis shows that the restrictiveness is concentrated in vehicles, machinery, and electrical equipment.<br/> Fri, 09 Jan 2026 22:08:24 GMT {17FA2BEA-8AFF-488D-8B74-2E238DA8C10F} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/selffulfilling-debt-crises-with-long-stagnations We assess the quantitative relevance of expectations-driven sovereign debt crises, focusing on the southern European crisis of the early 2010s and the Argentine default of 2001. The source of multiplicity is the one in Calvo (1988). Crucial for multiplicity is an output process characterized by long periods of either high growth or stagnation, which we estimate using data for these countries. We find that expectations-driven debt crises are quantitatively relevant but state dependent, as they occur only during periods of stagnation. Expectations, and how they respond to policy, are the major factors explaining default rates and credit spread differences between Spain and Argentina.<br/> Tue, 30 Dec 2025 16:19:58 GMT {91F10472-8334-4278-AF10-9C5A280513BA} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/default-and-interest-rate-shocks-renegotiation-matters We develop a sovereign default model with debt renegotiation in which interest-rate shocks affect default incentives through two mechanisms. Under the standard mechanism, higher interest rates tighten the government’s budget constraint. Under the renegotiation mechanism, higher rates increase lenders’ opportunity cost of holding delinquent debt, which makes lenders accept larger haircuts and makes default more attractive for the government. We argue that our novel renegotiation mechanism reconciles standard sovereign default models with the narrative that the sharp increase in the real interest rate in the United States was a relevant factor in the defaults of the early 1980s.<br/> Mon, 15 Dec 2025 19:55:21 GMT {5BE84FA1-4CCB-431F-9DD8-7C68BB7B43DF} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/the-role-of-dispersed-information-in-maintaining-low-interest-rates When public debt is issued in domestic currency, any sudden confidence crisis in the repayment ability of the government need not trigger a default, since it can be accommodated by temporary monetary financing, converting default risk into inflation risk. When the default risk premium is determined by well-informed financial intermediaries while inflation arises from the choices of less-informed workers and producers, this conversion masks adverse news, at least temporarily, and results in lower interest rates following adverse shocks. In this paper, we assess the importance of this channel, and the extent to which it is eroded when persistent fiscal shortfalls shift the prior held by all agents in the economy about the eventual resolution of the imbalance.<br/> Fri, 12 Dec 2025 22:07:36 GMT {5CCB8F4D-474F-4853-B740-49E4C895D884} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/official-sovereign-debt This paper studies sovereign debt from official lenders empirically and theoretically. We document that official sovereign debt is more than half of the total sovereign debt in emerging markets and tends to flow in during default episodes. We then develop a model in which a sovereign borrows from official and private lenders, can partially and selectively default on each, and faces bond prices that compensate for default losses. Official debt differs from private debt in that it is of longer duration and more concessional after a default. Default does not preclude borrowing, and episodes end when the sovereign repays accrued obligations and deleverages to sustainable debt levels. A main finding is that longer-duration official debt carries greater debt capacity because it can constrain future governments from borrowing and allows future pledgeable resources to strengthen its repayment incentives. Our model rationalizes the stylized facts, including that official debt flows in during defaults and the sovereign ends the episode with a portfolio of longer-duration official debt. Counterfactuals show that Pareto-improving voluntary swaps exchanging one type of debt for another can be feasible and provide guidance for the contractual design of official debt.<br/> Fri, 05 Dec 2025 20:05:05 GMT {1C66E16D-7889-4A2C-9DDD-BBBAEEA36D27} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/economists-should-be-studying-monopoly-much-more-extensively-how-our-interest-in-monopoly-waned-after-we-began-thinking-about-monopoly-all-wrong Our forebears --- including Adam Smith, Anne Robert Jacques Turgot, William Stanley Jevons, Frank A. Fetter, Lionel Robbins, Jacob Viner, Henry Simons and Thurman Arnold --- understood there were many types of groups or organizations that develop into monopolies, including trade associations, cartels, unions, cooperatives and professional associations. They also emphasized that it's difficult to know the full extent of monopolization, as many monopolies were informally organized, while others, perhaps the majority, were alliances of monopolies, making both types hard to detect. Our forebears also understood that monopolies took many types of harmful actions, such as destroying substitutes for their products and services, typically those purchased by low income families. They saw monopolies as the major cause of inequality. But after 1950, our profession simply ignored our forebears' great knowledge. At this time, we adopted the definition of monopoly we have used for the last 75 years --- "A monopoly is a firm that is a single seller with no close substitutes." This obviously presents a very narrow view of the organizations that develop into monopolies and the type of harmful actions they take. Under such a view, Harberger (1954) found that the social costs of monopoly were trivial. Our profession's interest in monopoly subsequently waned (see, e.g., Krugman (2015)). But our views about monopoly should not be driven by Harberger (1954), rather we should look to our great forebears. Moreover, a recent literature conducting research in the "spirit" of our forebears (reviewed in Schmitz (2020)) has essentially rediscovered our forebears' findings but for our current period. Our profession should be studying monopoly much more extensively.<br/> Thu, 04 Dec 2025 15:32:26 GMT {1D4CD696-F98F-4C24-8F90-B8778646B3FF} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/online-appendix-for-the-welfare-costs-of-inflation-reconsidered This online appendix accompanies [Staff Report 675: The Welfare Costs of Inflation Reconsidered](https://doi.org/10.21034/sr.675).<br/> Mon, 20 Oct 2025 17:02:37 GMT {19A9CB33-DE1F-4F55-AAAC-4919501A442E} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/the-welfare-costs-of-inflation-reconsidered Modern analysis of the welfare effects of monetary policy is based on moneyless models and therefore ignores the effect of inflation on the efficiency of transactions. A justification for this strategy is that these welfare effects are quantitatively very small, as argued by Ireland (2009). We revisit Ireland’s result using recent data for the United States and several other developed countries. Our computations are influenced by the experience of very low short-term rates observed since Ireland’s work in the countries we study. We estimate the welfare cost of a steady state nominal interest rate of 5% to be at least one order of magnitude higher than in Ireland (2009), which questions the validity of performing monetary policy evaluation in cashless models. Wed, 15 Oct 2025 15:32:41 GMT {93ED0EC1-D8B3-4424-BDDF-2D8EB1ED684C} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/mass-production-of-houses-in-factories-in-the-united-states-the-first-and-only-experiment-was-a-tremendous-success We show that the first and only experiment of U.S. mass production of houses, in a factory-built home industry that became known as the Mobile Home industry (and today, as the Manufactured Home industry), was a tremendous success. Mobile Home prices-psf fell by two-thirds from 1955 to 1973, as productivity soared; home quality rose significantly, with Mobile Home building codes receiving ANSI certification in 1963 and National Fire Protection Association co-sponsorship in 1965; as production soared, Mobile Homes accounted for one-third of single-family homes produced in the early 1970s. These feats were achieved as industry leaders developed state-wide building codes for Mobile Homes. This dramatically increased the size of the market for them. Factories invested in specialized machinery to produce simple and standardized products, substituting machinery for labor. Given each factory produced under the same code, industry-induced productivity gains followed, including external effects and directed technical change. Lessons from this industry give insights into critical issues in today's residential construction industry. The poor productivity performance of today's residential construction industry is considered a puzzle. But this poor performance is not new. Our forebears before 1950 wrote extensively about the sector's poor performance, attributing it to the failure to adopt factory-built housing. Our analysis strongly supports this view - for their time and ours. It also supports their view, like that of Levitt & Sons, that factory production is the only way "to produce the homes and apartments needed to house our expanding population and our underprivileged citizens in a comfortable, dignified, decent way," (U.S. Senate 1969).<br/> Wed, 01 Oct 2025 20:51:54 GMT {CB47178D-EEAD-4E0B-B2F6-C49037449CC9} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/on-the-nature-of-entrepreneurship This paper provides insights into the nature of entrepreneurship using a novel panel dataset based on U.S. administrative data from the Internal Revenue Service and the Social Security Administration. These data are used to analyze patterns of income growth and determinants of entrepreneurial choice for a large population of business owners. Earlier studies relying on household survey data have been limited by small samples, short panels, and income top-coding and, as a result, have focused on the typical self-employed individual rather than the typical dollar earned in self-employment. Without these limitations, we find that self-employed individuals have significantly higher income and steeper income growth profiles than paid-employed peers with similar characteristics. Contrary to the survey evidence, we find a smaller role for non-pecuniary motives in driving entrepreneurial choice, little evidence for high risk factors or liquidity constraints impeding entry, and a positive role for past on-the-job experience to start a business. Across years, we find stable entry and exit rates into self-employment and no decline in the share of entrepreneurs in the population over our sample period, even during the Great Recession. Wed, 17 Sep 2025 20:40:53 GMT {C4C8AF1F-9B9E-41A1-BBE8-623F73998220} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/the-influence-of-occupational-licensing-on-workforce-transitions-to-retirement- Ways of leaving the labor force has been an understudied aspect of labor market outcomes. Labor market institutions such as occupational licensing may influence how individuals transition to retirement. When and how workers transition from career jobs to full retirement may contribute to pre- and post-retirement well-being. Previous investigations of retirement pathways focused on the patterns and outcomes of retirement transitions, yet the influence of occupational licensing on retirement transition has not been analyzed. In this study, we use the Current Population Survey and Survey of Income and Program Participation to investigate how occupational licensing influences American later-career workers’ choice of retirement pathways. Our results show that licensed workers are less likely to choose to change careers but more likely to reduce work hours in transitioning out of the workforce. These results are consistent with the findings that licensed workers receive more benefits in the form of preferable retirement options, suggesting that these workers tend to have higher wages, benefits, and flexibility even toward the end of their careers.<br/> Tue, 02 Sep 2025 15:31:21 GMT {C34D18A1-FF6F-4D73-9741-98F715B7E1D8} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/risk-loving-and-fat-tails-in-the-wealth-distribution We study the dynamic properties of the wealth distribution in an overlapping generations model with warm-glow bequests and heterogeneous attitudes towards risk. Some dynasties of agents are risk averters, and others are risk lovers. Agents can invest in two types of Lucas trees. The two types of trees are symmetric in the sense that one type has a high return in states where the other has a return of zero. This symmetry allows risk averters to perfectly ensure their future income and eliminates aggregate uncertainty in the model. Furthermore, risk lovers take extreme portfolio positions, which make it easy for us to characterize the evolution of their wealth holdings over time. We show that the model has an equilibrium in which the aggregate wealth distribution converges to a unique invariant distribution. The invariant distribution of wealth of the risk lovers has fat tails for high bequest rates. The existence of fat tails is endogenously generated by the behavior of risk lovers rather than by the exogenous existence of fat tails in the endowments or in the returns of the assets.<br/> Thu, 28 Aug 2025 20:06:53 GMT {E8A96649-AD6F-46DD-BDB9-844665709F7C} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/openness-and-growth-a-comparison-of-the-experiences-of-china-and-mexico In the late 1980s, Mexico opened itself to international trade and foreign investment, followed in the early 1990s by China. China and Mexico are still the two countries characterized as middle-income by the World Bank with the highest levels of merchandise exports. Although their measures of openness have been comparable, these two countries have had sharply different economic performances: China has achieved spectacular growth, whereas Mexico’s growth has been disappointingly modest. In this article, we extend the analysis of Kehoe and Ruhl (2010) to account for the differences in these experiences. We show that China opened its economy while it was still achieving rapid growth from shifting employment out of agriculture and into manufacturing while Mexico opened long after its comparable phase of structural transformation. China is only now catching up with Mexico in terms of GDP per working-age person, and it still lags behind in terms of the fraction of its population engaged in agriculture. Furthermore, we argue that China has been able to move up a ladder of quality and technological sophistication in the composition of its exports and production, while Mexico seems to be stuck exporting a fixed set of products to its North American neighbors. Thu, 21 Aug 2025 20:42:57 GMT {F5EEE7BA-5723-4FF5-B69B-2C4EB3678799} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/modeling-great-depressions-the-depression-in-finland-in-the-1990s This paper is a primer on the great depressions methodology developed by Cole and Ohanian (1999, 2007) and Kehoe and Prescott (2002, 2007). We use growth accounting and simple dynamic general equilibrium models to study the depression that occurred in Finland in the early 1990s. We find that the sharp drop in real GDP over the period 1990–93 was driven by a combination of a drop in total factor productivity (TFP) during 1990–92 and of increases in taxes on labor and consumption and increases in government consumption during 1989–94, which drove down hours worked in Finland. We attempt to endogenize the drop in TFP in variants of the model with an investment sector and with terms-of-trade shocks but are unsuccessful.<br/> Thu, 21 Aug 2025 14:13:36 GMT {A450012D-2DC1-4BB4-8C37-72E4E6E51C62} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/approximating-transition-dynamics-with-discrete-choice This paper develops a method to analyze policy reforms in environments with discrete choice, such as occupational choice or default. Computing transition paths in these settings is computationally challenging, particularly in models with substantial heterogeneity and many endogenous states. We extend perturbation methods to handle discrete choice by appropriately tracking both intensive-margin changes conditional on discrete choices that are relatively small and extensive-margin changes resulting from a switch in a discrete choice that are relatively large. The method is fast, scalable, and efficient, providing good initial estimates for global solution methods. We demonstrate our method by analyzing optimal business taxation in a model with occupational choice between paid- and self-employment. Mon, 11 Aug 2025 20:15:46 GMT {C0360828-B17A-41F8-95F7-F6CEF5FCC4E1} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/does-universal-occupational-licensing-recognition-improve-patient-access-evidence-from-healthcare-utilization Optimizing physician labor supply has been an important policy issue in healthcare in the United States. One of the proposed solutions has been the universal licensing recognition (ULR), which allows out-of-state physicians to provide healthcare services without relicensing and increases the local labor supply of physicians. There has been no empirical analysis of the effect of such regulatory relaxation on the local labor supply and subsequent improvements of consumer welfare. In this study, we use the Behavioral Risk Factor Surveillance System to investigate the effect of universal reciprocity of physician licenses on healthcare utilization, and use data from IPUMS-USA, IPUMS-CPS, and the Doctors and Clinicians National Downloadable File from the Centers for Medicare & Medicaid Services to examine the changes in the local labor supply of physicians through interstate migration and out-of-state practices. Our results show that adopting the ULR significantly raises the proportion of individuals accessing healthcare, particularly among older individuals, and reduces the proportion of individuals not getting healthcare services because of costs. We provide empirical evidence that these effects are from the universal reciprocity of physician licenses, instead of unknown factors related to the ULR. We also show that the positive effect of the ULR on healthcare utilization is closely related to the increase in out-of-state practitioners to include temporary and telehealth physicians, by showing no changes in interstate migration of physicians and an increase in out-of-state practices. The adoption of ULR may allow for a more efficient regional distribution of physicians and result in greater access to healthcare. Mon, 04 Aug 2025 20:12:00 GMT {9AB2B4DC-5FAE-494F-AB6A-30B658018657} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/international-evidence-on-the-historical-properties-of-business-cycles We document properties of business cycles in ten countries over the last hundred years, contrasting the behavior of real quantities with that of the price level and the stock of money. Although the magnitude of output fluctuations has varied across countries and periods, relations among variables have been remarkably uniform. Consumption has generally been about as variable as output, and investment substantially more variable, and both have been strongly procyclical. The trade balance has generally been countercyclical. The exception to this regularity is government purchases, which exhibit no systematic cyclical tendency. With respect to the size of output fluctuations, standard deviations are largest between the two world wars. In some countries (notably Australia and Canada) they are substantially larger prior to World War I than after World War II, but in others (notably Japan and the United Kingdom) there is little difference between these periods. Properties of price levels, in contrast, exhibit striking differences between periods. Inflation rates are more persistent after World War II than before, and price level fluctuations are typically procyclical before World War II, countercyclical afterward. We find no general tendency toward increased persistence in money growth rates, but find that fluctuations in money are less highly correlated with output in the postwar period.<br/> Thu, 31 Jul 2025 17:20:41 GMT {3EE39BE2-F6CE-4851-A7A2-55B993C862AC} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/occupational-licensing-and-labor-market-fluidity We show that occupational licensing has significant negative effects on labor market fluidity defined as cross-occupation mobility. Using a balanced panel of workers constructed from the CPS and SIPP data, we analyze the link between occupational licensing and labor market outcomes. We find that workers with a government-issued occupational license experience churn rates significantly lower than those of non-licensed workers. Specifically, licensed workers are 24% less likely to switch occupations and 3% less likely to become unemployed in the following year. Moreover, occupational licensing represents barriers to entry for both non-employed workers and employed ones. The effect is more prominent for employed workers relative to those entering from non-employment, because the opportunity cost of acquiring a license is much higher for employed individuals. Lastly, we find that average wage growth is higher for licensed workers than non-licensed workers, whether they stay in the same occupation in the next year or switch occupations. We find significant heterogeneity in the licensing effect across different occupation groups. These results hold across various data sources, time spans, and indicators of being licensed. Overall, licensing could account for almost 8% of the total decline in monthly occupational mobility over the past two decades Thu, 17 Jul 2025 15:25:41 GMT {38ECCE64-5EB3-414F-9858-E82507D67C6C} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/a-monetary-fiscal-theory-of-sudden-inflations This paper posits an information channel as the explanation for sudden inflations. Consumers saving via nominal government bonds face a choice whether to acquire costly information about future government surpluses. They trade off the cost of acquiring information about the surpluses that back bond repayment against the benefit of a more informed saving decision. Through the information channel, small changes in the economic environment can trigger large responses in consumers' behavior and prices. This setting explains why there can be long stretches of time during which government surpluses have large movements with little inflation response; yet, at some point, something snaps, and a sudden inflation takes off that is strongly responsive to incoming fiscal news.<br/> Mon, 14 Jul 2025 21:16:20 GMT {7C46D2CC-F1D1-44E1-AB8A-4CA146E3B48E} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/the-end-of-privilege-a-reexamination-of-the-net-foreign-asset-position-of-the-united-states The U.S. net foreign asset position has declined sharply since 2007 and is currently negative 65 percent of U.S. GDP. This deterioration primarily reflects a U.S.-specific rise in corporate asset values that has inflated the value of U.S. equity liabilities to the rest of the world. To interpret these trends we develop an international macro finance model of flows, stocks, asset valuations, the current account, and the net foreign asset position. We find that the welfare impact of rising asset values for a representative U.S. household has been quite negative given extensive foreign ownership of U.S. corporate equity.<br/> Mon, 14 Jul 2025 21:10:37 GMT {78B3E498-C2CE-4757-A770-435265ED27BB} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/analyzing-the-effects-of-occupational-licensing-on-earnings-inequality-in-the-united-states There is a consensus that there is an earnings premium for licensed workers relative to unlicensed workers. However, little is known about how occupational licensing affects earnings inequality. In this paper, we study dynamic, heterogeneous earnings effects of occupational licensing and draw implications for earnings inequality in the United States. First, we find that the earnings gap between workers in licensed occupations and those in unlicensed occupations with similar characteristics (“licensing premium”) increased slightly during the 1983–2019 period. Second, we find that the licensing premium for workers in high paying occupations significantly increased, which is not the case for workers in lower paying occupations. The finding is consistent with growing demands for skills over the past decades, given the more rigorous licensing requirements for high-skilled occupations. As a result, earnings inequality among workers in licensed occupations increased. Third, we document that the licensing premium for female workers and workers without a college education declined relative to male workers and college graduates. Taken together, our findings suggest that occupational licensing is associated with widening earnings inequality in the United States during the 1983–2019 period.<br/> Thu, 15 May 2025 18:06:34 GMT {879B5CC8-A8F8-407C-8420-C2DF92B060D1} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/the-incredible-taylor-principle This paper discusses the extent to which the Taylor principle can solve the indeterminacy of equilibria in economies where the monetary authority follows an interest rate feedback rule. We first show that only the limiting behavior of the feedback rule matters, so identifying in the data if the Taylor principle holds cannot be achieved. Second, we show that the competitive equilibrium under interest rate feedback rules is nominally determined if the Taylor principle holds and, in addition, two ad-hoc restrictions on equilibrium are satisfied. These require equilibrium inflation to be bounded and equilibria to be locally unique. Finally, we show that the Taylor principle is strongly time inconsistent, in a sense we make very precise.<br/> Fri, 04 Apr 2025 15:52:54 GMT {5175F2C1-7254-4FAD-BDD5-9B1792AF9E1A} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/the-macroeconomic-dynamics-of-labor-market-policies We develop a dynamic macroeconomic framework with worker heterogeneity, putty-clay adjustment frictions, and firm monopsony power to study the distributional impact of labor market policies over time. Our framework reconciles the well-known tension between low short-run and high long-run elasticities of substitution across inputs of production, especially among workers with different skills within a same education group. We use this framework to evaluate the effects of redistributive policies such as the minimum wage and the Earned Income Tax Credit. We argue that since these policies generate slow transition dynamics that can differ greatly in the short and long run, a serious assessment of their overall impact must take account of the entire time path of the responses they induce.<br/> Fri, 28 Mar 2025 20:46:28 GMT {EE3177B5-542E-451F-9348-4F0483CAF5F9} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/the-origins-and-evolution-of-occupational-licensing-in-the-united-states The analysis of occupational licensing has concentrated largely on its labor market and consumer welfare effects. By contrast, relatively little is known about how occupational licensing laws originated or the key factors in their evolution. In this paper, we study the determinants of U.S. licensing requirements from 1870 to 2020. We begin by developing a model where licensing arises as an endogenous political outcome and use this framework to study how market characteristics and political incentives influence regulators’ choices. Our empirical analysis draws on a novel database tracking the initial enactment of licensing legislation for hundreds of unique occupations, as well as changes to the specific qualifications required to obtain a subset of licenses over time. We first show that, consistent with the predictions of our model, licensing requirements are more common and were adopted earlier for occupations whose tasks plausibly pose some risk to consumers. Second, large, urbanized states are significantly more likely to produce new policies. Third, among occupations regulated before 1940, licensing requirements appeared earlier in states with more practitioners and where incumbent workers likely experienced greater labor market competition. After 1980, state-level factors are more strongly associated with the timing of policy adoption. Finally, political organization, as measured by the establishment of a state professional association, significantly increases the probability of regulation. Together, our findings suggest that both public and private interests have contributed to the diffusion of licensing requirements across states and occupations.<br/> Thu, 27 Mar 2025 21:31:07 GMT {AFBFEA73-3284-4B44-B278-DD56C28252CE} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/staff-reports/a-neoclassical-model-of-the-world-financial-cycle Emerging markets face large and persistent fluctuations in sovereign spreads. To what extent are these fluctuations driven by local shocks versus financial conditions in advanced economies? To answer this question, we develop a neoclassical business cycle model of a world economy with an advanced country, the North, and many emerging market economies, the South. Northern households invest in domestic stocks, domestic defaultable bonds, and international sovereign debt. Over the 2008-2016 period, the global cycle phase, the North accounts for 68% of Southern spreads’ fluctuations. Over the whole 1994-2024 period, however, Northern shocks account for less than 20% of these fluctuations.<br/> Fri, 21 Mar 2025 15:09:56 GMT