with: Bryan Engelhardt
Forthcoming, Labour Economics
We estimate and nest the canonical competitive search model of Moen (1997) inside a random search model with bargaining. The nesting allows us to compare the two models predictions, or comparative statics, using the same empirical estimation. Furthermore, nesting provides likelihood ratio tests that demonstrate the empirical differences between competitive search and random search with bargaining. The differences between the two models include whether workers search in different “sub-markets” with different levels of productivity, they direct the search to each firm/sub-market, and the wage they receive is split efficiently via Hosios (1990).
with: Roman Sustek
The monetary transmission mechanism in New-Keynesian models is put to scrutiny, focusing on the role of capital. We demonstrate that, contrary to a widely held view, the transmission mechanism does not operate through a real interest rate channel. Instead, as a first pass, inflation is determined by Fisherian principles, through current and expected future monetary policy shocks, while output is then pinned down by the New-Keynesian Phillips curve. The real rate largely only reflects consumption smoothing. In fact, declines in output and inflation are consistent with a decline, increase, or no change in the ex-ante real rate.
with: Christine Braun, Bryan Engelhardt and Ben Griffy
Using a multi-spell mixed proportional hazards competing risks model with National Longitudinal Survey of Youth(1997) data, we test whether an individual’s search intensity across wage markets differs in ways that would reject random search as the way in which workers search while unemployed. After controlling for an individual’s observable characteristics such as age and unobservable characteristics such as an individual’s reservation wage, we reject the random search implication that search intensity is constant across wage markets. In particular, unemployment insurance reduces matching in the high wage market at half the rate of the medium wage market, which we show to be inconsistent with the assumption of random search.
with: Giulio Zanella
Becoming a grandparent may increase or decrease grandparents’ own labor supply. Exploiting the unique genealogical design of the PSID and the random variation in the timing the parents of first-born boys and girls become grandparents, we find a negative effect on employed grandmother’s hours of work of at least 170 hours per year. This effect originates towards the bottom of the hours distribution (i.e., among women less attached to the labor market), and is stronger the younger the grandchildren are. The “extensive margin” of grandparenting (be- coming a grandparent) is much more important than the “intensive” margin (having additional grandchildren).
with: Zach Bethune and Guillaume Rocheteau, (Review of Economic Dynamics)
This paper studies the relationship between the availability of unsecured credit to households and unemployment. We extend the Mortensen-Pissarides model to include a goods market with search and financial frictions. Households, who have limited commitment, face endogenous borrowing constraints when financing random consumption opportunities. We show that the borrowing limit depends on the development of the financial system, the frequency of liquidity shocks, and the rate of return on partially liquid assets that households can accumulate for self insurance. Moreover, firms’ average productivity is endogenous and it depends on firms’ market power in the goods market, and the availability of unsecured credit to consumers. As a result of the complementarity between the credit and labor markets multiple steady states might exist. Across steady states unemployment and debt limits are negatively correlated. We calibrate the model to the U.S. labor market and illustrate the labor market effects of a contraction in unsecured debt similar to that seen in the U.S. from 2007 to 2010. Under the baseline calibration, the reduction in unsecured credit can only explain a small fraction of the increase in unemployment. However, the effect is highly dependent on the calibration target for the value of leisure. Under other, reasonable targets for this parameter the effect is magnified and can explain potentially explain 10% of the increase unemployment over this time period.
with: Giulio Zanella, (Journal of Monetary Economics)
We examine wage profiles in the PSID, 1968-2007 and find that in long panels there is no evidence that wages decline over the life cycle until very late in life. Much of the literature has documented that wages fall beginning around age 55. This new evidence should rekindle interest in understanding human capital investment and depreciation over the life cycle.
with: Finn Kydland and Roman Sustek, (International Economic Review)
Over the U.S. business cycle, fluctuations in residential investment are well known to systematically lead GDP. These dynamics are documented here to be specific to the U.S. and Canada. In other developed economies residential investment is broadly coincident with GDP. Nonresidential investment has the opposite dynamics, being coincident with or lag- ging GDP. These observations are in sharp contrast with the properties of nearly all business cycle models with disaggregated investment. Including mortgages and interest rate dynamics aligns the theory more closely with U.S. observations. Longer time to build in housing construction makes residential investment coincident with output.