August 2024
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4 Reads
Journal of Monetary Economics
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Publications (82)
January 2024
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1 Citation
SSRN Electronic Journal
June 2023
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26 Reads
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14 Citations
American Economic Review
The narrative approach to macroeconomic identification uses qualitative sources, such as newspapers or government records, to provide information that can help establish causal relationships. This paper discusses the requirements for rigorous narrative analysis using fresh research on the impact of monetary policy as the focal application. We read the historical Minutes and Transcripts of Federal Reserve policymaking meetings to identify significant contractionary and expansionary changes in monetary policy not taken in response to current or prospective developments in real activity for the period 1946 to 2016. We find that such monetary shocks have large and significant effects on unemployment, output, and inflation in the expected directions. Analysis of available policy records suggests that a contractionary monetary shock likely occurred in 2022. Based on the empirical estimates of the effect of previous shocks, one would expect substantial negative impacts on real GDP and inflation in 2023 and 2024. (JEL E31, E52, E58, E65, N12)
January 2023
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22 Reads
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7 Citations
SSRN Electronic Journal
May 2022
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24 Reads
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13 Citations
Journal of Economic Perspectives
This paper considers fiscal policy during the pandemic through the lens of optimal social insurance. We develop a simple framework to analyze how government taxes and transfers could mimic the insurance that people would like to have had against pandemic income losses. Permutations of the framework provide insight into how unemployment insurance should be structured, when and how much hazard pay is called for, and whether fiscal policy should aim just to redistribute income or also to stimulate aggregate demand during a pandemic. When we use the insights from the model to evaluate unemployment insurance measures taken during the pandemic, we find that some, but far from all, of the implications of the social insurance framework were followed. In the case of hazard pay, we find that the proposal for a national program (the never-implemented HEROES Act) was both broader and more generous than a social insurance perspective would call for. We suggest that the social insurance perspective on fiscal policy is likely to become increasingly relevant as pandemics and climate-related natural disasters become more common causes of unemployment and recessions.
January 2019
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12 Reads
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103 Citations
Brookings Papers on Economic Activity
November 2017
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83 Reads
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102 Citations
Analysis based on a new measure of financial distress for 24 advanced economies in the postwar period shows substantial variation in the aftermath of financial crises. This paper examines the role that macroeconomic policy plays in explaining this variation. We find that the degree of monetary and fiscal policy space prior to financial distress—that is, whether the policy interest rate is above the zero lower bound and whether the debt-to-GDP ratio is relatively low—greatly affects the aftermath of crises. The decline in output following a crisis is less than 1% when a country possesses both types of policy space, but almost 10% when it has neither. The difference is highly statistically significant and robust to the measures of policy space and the sample. We also consider the mechanisms by which policy space matters. We find that monetary and fiscal policy are used more aggressively when policy space is ample. Financial distress itself is also less persistent when there is policy space. The findings may have implications for policy during both normal times and periods of acute financial distress.
October 2017
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104 Reads
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258 Citations
American Economic Review
This paper examines the aftermath of postwar financial crises in advanced countries. We construct a new semiannual series on financial distress in 24 OECD countries for the period 1967-2012. The series is based on assessments of the health of countries' financial systems from a consistent, real-time narrative source, and classifies financial distress on a relatively fine scale. We find that the average decline in output following a financial crisis is statistically significant and persistent, but only moderate in size. More important, we find that the average decline is sensitive to the specification and sample, and that the aftermath of crises is highly variable across major episodes. A simple forecasting exercise suggests that one important driver of the variation is the severity and persistence of financial distress itself. At the same time, we find little evidence of nonlinearities in the relationship between financial distress and the aftermaths of crises.
May 2017
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4,272 Reads
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304 Citations
October 2016
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319 Reads
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35 Citations
American Economic Journal: Macroeconomics
This paper uses Social Security benefit increases from 1952 to 1991 to investigate the macroeconomic effects of changes in transfers. It finds a large, immediate, and significant positive response of consumption to permanent benefit increases. The response declines after about five months, and does not appear to spread to industrial production or employment. The effects of transfers are faster, but much less persistent and much smaller overall, than those of tax changes. Finally, monetary policy responds strongly to benefit increases but not to tax changes. This may account for the failure of the effects of transfers to persist or spread. (JEL E21, E62, E63, H31, H55).
Citations (72)
... This study aligns with the findings of Mishkin (2009), Swanson (2018), Driscoll (2022), and Romer and Romer (2023). Increases in the FED's assets, both in the short and long term, contribute to inflation alongside the money supply, while abnormally low policy interest rates intensify inflationary pressures. ...
- Citing Article
June 2023
American Economic Review
... 187 that escape the narrow lens of quantitative methods such as global warming, Soviet Union economics, United States health policy, the bitcoin hype, market panic, automation and job replacement, real estate booms and busts, and stock market bubbles (for examples of the narrative approach applied to understand actors' behaviour seeShiller, 2019;Romer & Romer, 2023).188 ...
- Citing Article
January 2023
SSRN Electronic Journal
... Countries that consistently invest in social programs, such as health and unemployment insurance, have demonstrated a greater ability to stabilize domestic demand and sustain consumption during economic downturns. Recent studies (Burchi et al., 2022;Romer & Romer, 2022;Goniewicz et al., 2023;Cuesta et al., 2024) suggest that such spending contributes not only to economic stability but also to social cohesion, thereby reducing long-term economic and social risks. ...
- Citing Article
May 2022
Journal of Economic Perspectives
... Our empirical objective is to investigate the impact of monetary policy shocks on the state of labor markets as measured by online job vacancy postings at daily frequency in three eurozone member countries (Estonia, Latvia and Lithuania) over the period 2018-2024. 7 To this end, we employ the LP method developed by Jordà (2005), which is less sensitive to misspecification compared to conventional vector autoregressive (VAR) models (Auerbach and Gorodnichenko, 2013;Jordà and Taylor, 2016;Ramey and Zubairy, 2018;Romer and Romer, 2019). Taking advantage of high-frequency data, we estimate impulse response functions (IRFs) from local projections as follows: ...
- Citing Article
January 2019
Brookings Papers on Economic Activity
... X′ it + μ it + ε it (2) Trade Openness (TO): A vast body of empirical literature supports a positive relationship between trade openness and economic growth. Studies across various countries and time periods, including those by Dollar [12]; Sachs and Warner [13] and Frankel and Romer [14] have found that more open economies tend to grow faster. More recently, studies focusing on developing countries and ASEAN continue to find evidence of this positive link [3,11]. ...
- Citing Chapter
- Full-text available
May 2017
... The assessment of the effects of macroeconomic policies is mainly based on the comprehensive consideration of economic growth, price stability, social livelihood and environmental sustainability. Only on the basis of continuous evaluation and adjustment can macroeconomic policies work better and realize sustainable economic and social development [9][10][11][12]. ...
- Citing Article
November 2017
... The phenomenon of hysteresis, which in the empirical literature was expressed as a deviation from the cyclical movements of macroeconomic variables, was also empirically observed in the output gap. The relationship between hysteresis, which is expressed in the persistence of the output gap, and financial crises is widely observed in the empirical literature as well as in the theoretical underpinnings (Redmond and Van Zandweghe, 2016;Romer and Romer, 2017;Blanchard, 2018). Although the view that unemployment, which was a product of the systematic relationship between the financial system and the real economy, was solved by the dynamics of the financial system (money supply, interest rate) was accepted, the view that this process was an equilibrium mechanism has been supported by the experience of resistant output declines in developed economies (Solow, 2000). ...
- Citing Article
October 2017
American Economic Review
... Regarding the Brazilian case, from 1997 to 2018, Sanches and Carvalho (2022) estimate a cumulative multiplier (in two years) of 0.6 for total government expenditure, while the accumulated multiplier for social benefits reached 2.9. 10 Studies resorting to different empirical strategies similarly found mixed results. For example, Romer and Romer (2016) use a narrative method based on episodes of fiscal expansion in different countries and find that permanent increases in social protection expenditures exert significant and substantial impacts on aggregate consumption. However, tax reductions seem to have the highest and most persistent multiplier effect, which, according to Romer and Romer (ibid.) ...
- Citing Article
October 2016
American Economic Journal: Macroeconomics
... Additionally, it suggests that technological advancements can transfer between companies or sectors, generating positive externalities. The model illustrates that the long-term growth rate of output per worker is influenced by the incentives and policies governing research and development, innovation, and the enhancement of human capital [6][7][8][9]. ...
- Citing Article
January 1992
Quarterly Journal of Economics
... This substantial cross-country variation makes understanding why TFP levels differ an important research question. Two broad (proximate) explanations can be relevant, namely that individual firms are less productive in one country than another, for example because of differences in technology adoption (e.g., Comin and Hobijn, 2010), or the allocation of resources between firms may be less efficient (e.g., Jones, 2011). Regardless of which of these explanations is most important, it implies that a highproductivity economy is more efficient in meaningful ways. ...
- Citing Article
January 2008