Research

Mitigating climate change is critically linked to reducing an economy’s reliance on fossil energy. This paper examines U.S. energy dependence, measured by its factor share, using a neoclassical framework systematically. We present substitution across production inputs as a simple, explicit mechanism for climate-change mitigation and for interpreting energy-saving technical change. Allowing capital equipment–energy substitutability to vary over time, we find that changes in observed factor quantities can account for most low-frequency movements in the U.S. energy share over 1963–2019. Policies that foster access to and quality of capital equipment, and that account for dynamic substitutability between equipment and energy, can therefore support progress toward environmental goals.

This paper revisits capital-skill complementarity and inequality, as in Krusell, Ohanian, Rios-Rull and Violante (KORV, 2000). Using their methodology, we study how well the KORV model accounts for more recent data, including the large changes in the labor's share of income that were not present in KORV. We study both labor share of gross income (as in KORV), and income net of depreciation. We also use nonfarm business sector output as an alternative measure of production to real GDP. We find strong evidence for continued capital-skill complementarity in the most recent data, and we also find that the model continues to closely account for the skill premium. The model captures the average level of labor share, though it overpredicts its level by 2–4 percentage points at the end of the period.

Taking inefficiencies from taxation as given, a well-known public finance literature shows that the elasticity of taxable income (ETI) is a sufficient statistic for assessing the deadweight loss (DWL) from taxing labor income in a static neoclassical framework. Using a theoretical approach, we revisit this result from the vantage point of a general equilibrium macroeconomic model with labor search frictions. We show that, in this context, and against the backdrop of inefficient taxation, DWL can be up to 38 percent higher than the ETI under a range of reasonable parametric assumptions. Externalities arising from market participants not taking into account the impact of changes in their search- and vacancy-posting activities on other market participants can amplify this divergence substantially. However, with theoretical precision, we show how the wedge between the ETI and DWL can be controlled for, using readily observable variables.

This paper compares the ability of different market instruments in terms of predicting monetary policy decisions to find out which one best captures market participants' policy expectations. Towards this end, policy rate expectations implied by various market instruments and different approaches are derived for the period between July 2006 and October 2009. Empirical results show that market based monetary policy expectations in Turkey can most successfully be obtained by using the one week Turkish Lira Interbank Bid Rate (TRLIBID).

In this paper the effects of Central Bank of Turkey's interest rate decisions on relatively longer-term interest rates in financial markets and risk premia as well as on returns of the ISE-100, ISE-Financial indexes and exchange rates are studied by separating the anticipated component of monetary policy from that unexpected by financial markets. The results show that policy rate changes have significant effects on financial markets, especially on bond yields. Equity returns are not significantly driven by monetary policy surprises, whereas the responses of exchange rates are small. Thus, it appears that the transmission of monetary policy in Turkey is mainly through its effects on longer-term interest rates.

This note investigates how the behavior of the economic agents regarding 12 and 24 months ahead inflation expectation formation has changed with the revision of inflation targets in June 2008 as a result of the joint decision of the Government and the Central Bank of Turkey. The results suggest that the role of inflation targets on the determination of the inflation expectations has increased, while that of the past inflation has weakened.

This paper examines the impact of ambiguity (Knightian uncertainty) in U.S. financial markets on real economic activity in Emerging Market Economies (EMEs). Using a panel structural vector autoregression, we identify ambiguity shocks in U.S. equity markets and assess their transmission to EMEs. We find that an increase in ambiguity leads to a significant and persistent boom in EME GDP and investment. We attribute this result to investors’ portfolio reallocations: heightened ambiguity prompts a shift out of U.S. assets into foreign bonds and equities, with no flight to safety, which eases global financial conditions for EMEs and boosts their activity; a portfolio model with ambiguity-averse investors delivers this reallocation, in contrast to the flight to safety that higher volatility produces. We also document a negative response of ambiguity to structurally identified global financial risk shocks, uncovering a key role of global financial risk in shaping investors’ beliefs. Variance and historical decompositions underscore the role of ambiguity as a key driver of EME business cycles, comparable in importance to global financial risk and country spread shocks and accounting for about a third of the mid-2000s expansion in EME output.

The elasticity of taxable income (ETI) is often used to summarize the efficiency cost of taxation, but earlier work shows that search frictions can create a substantial gap between the ETI prediction and actual deadweight loss (DWL). We ask which features of a job ladder change this gap. In a calibrated search-and-matching model, we introduce these features sequentially. Duplicating the recruitment market leaves the gap unchanged, as does a controlled wage hierarchy. Allowing workers to climb the ladder through on-the-job search, on the other hand, increases the gap by 19 percent. The magnitude of this effect is not identified by standard labor-market observations and the ETI alone. Across calibrations that match the same targets but differ in unobserved nonwage amenities, on-the-job search increases the gap by up to 41 percent. An observation on the taxable wage bill as a share of output can distinguish these calibrations. Once workers move along a job ladder, taxable income alone need not contain enough information to measure the welfare cost of taxation.

Post-pandemic labor-market cooling was accompanied by unusually small increases in unemployment. A historically low increase, however, need not be anomalous given the vacancy decline and the initial unemployment rate. Using quarterly data for 17 advanced economies and a common tightness-based episode rule, we compare 14 cooling episodes with peaks in 2022–23 with 35 historical episodes. The median unemployment cost of cooling, the percentage-point increase in unemployment per 100 log points of declining tightness, was 1.16 recently, compared with 2.65 historically and 2.28 outside 2007–08. Every recent episode had a lower cost than its own economy’s historical median, and lower starting unemployment accounts for roughly one-quarter of the gap. A vacancy–unemployment relation estimated for the pre-pandemic period, applied to realized vacancy declines and initial unemployment rates, implies a median recent increase of 0.68 percentage point, close to the observed 0.63. Dating episodes from vacancy peaks places the recent response below this benchmark, but neither estimate is precise enough to establish an unusual conditional response. Net participation changes added to recent unemployment rather than holding it down, and inferred exits from unemployment deteriorated less than in historical episodes in quarterly duration measures.

The timing of vacancy adjustment after a productivity innovation matters for labor-market propagation, but an aggregate vacancy response combines two objects: the behavior of vacancies within industries and the distribution of outstanding openings across those industries. Using the Conference Board’s newspaper Help-Wanted Advertising Index for 1951Q1–2004Q2, we estimate productivity–vacancy–unemployment responses in progressively truncated samples. The impact response of vacancies generally becomes smaller as earlier decades are omitted, while positive point estimates at later horizons persist; the shortest-window estimates are imprecise. Using JOLTS data for 2001Q1–2019Q4, we then estimate manufacturing, private-services, and other-nonfarm responses to a common, recursively identified innovation in measured labor productivity. The manufacturing impact response exceeds the private-services response by 5.72 log percentage points (paired 90% pointwise bootstrap interval [3.93, 6.92]). Aggregating industry responses in vacancy levels and holding them fixed, we find that shifting five percentage points of the initial vacancy stock from private services to manufacturing raises the aggregate impact response by 0.29 log percentage points ([0.20, 0.35]), about 28% of the benchmark of 1.05. Our contribution is to link the historical change in response shape to an estimated sectoral contrast and an exact aggregation exercise. The exercise quantifies a channel through which industry composition may shape aggregate vacancy dynamics; identifying its historical contribution would require reconstructed historical vacancy-stock shares.

Computerization has opposing long-run effects on wealth concentration through changes in wages and capital accumulation and through widening persistent return differences. I combine an estimated task-based technology with incomplete markets and endogenous schooling, and compare stationary equilibria using U.S. inputs from 1967 to 2019. The ICT-linked return rule allows the dispersion of persistent household returns to rise with computer capital. I calibrate its elasticity, ψ, to the observed 7.2-point rise in the top-1% wealth share. With this rule active (ψ = ψ*), the induced widening more than offsets the equalizing response at fixed premia: the ICT-price decline raises the stationary top-1% wealth share by 6.5 percentage points, holding depreciation and education costs at their 2019 values. Holding return premia at either their initial or baseline 2019 distribution, the same price decline instead lowers the share by 8.1–8.6 percentage points. Higher wages and adjustments in the common return and financing tax both contribute to this decline, even as employment polarizes. At the 2019 benchmark inputs, wider dispersion raises the top-1% wealth share by about 14 percentage points relative to the economy retaining its initial dispersion (ψ = 0). This contribution depends strongly on persistence: shortening return-type spells from 4.6 to 2.1 years reduces it by about two-thirds. Sustained return advantages concentrate wealth while inducing capital accumulation that lowers the common return.

This paper provides evidence that shifts in the occupational composition of the U.S. workforce are the most important factor explaining the trend decline in the labor share over the past four decades. Estimates suggest that while there is unitary elasticity between equipment capital and non-routine tasks, equipment capital and routine tasks are highly substitutable. Through the lenses of a general equilibrium model with occupational choice and the estimated production technology, I document that the fall in relative price of equipment capital alone can explain 72 percent of the observed decline in the U.S. labor share. In addition, I find that differences in labor share trends across sectors can be accounted for by varying sensitivities of cost of production to the price of equipment capital.