I have a new paper with Steve Bond, Arshia Hashemi and Piotr Zoch called Some Unpleasant Markup Arithmetic: Production Function Elasticities and their Estimation from Production Data. We highlight some commonly overlooked issues about the identification and estimation of markups using the ratio estimator - the ratio of the output elasticity of a variable input to that input’s cost share in revenue. This is the estimator that has underpinned a recent literature that seeks to estimate heterogeneity and trends in markups. Most importantly, we show that it is essential that one uses an output elasticity, as opposed to a revenue elasticity, in the numerator of the ratio estimator. When the revenue elasticity is used, then the ratio estimator contains no information about markups at all. We then show that without data on output quantities (as opposed to sales or revenue) it is not possible to obtain consistent estimates of the output elasticity, and hence markups, using any current methods, when firms have market power and there is heterogeneity in markups
Read MoreHere is a new working paper with Piotr Zoch titled Markups, Labor Market Inequality and the Nature of Work. We develop framework for thinking about how changes in markups affect the labor income distribution. Our approach hinges on a distinction between two uses of labor in modern economies: the traditional use of labor for production, versus alternative uses of labor for overhead, marketing and other expansionary activities. We use our framework to assess the impact of changes in markups on the overall labor share and on labor income inequality across occupations. We identify the production and expansionary content of different occupations from the co-movement of occupational income shares with markup-induced changes in the labor share. We find that around one-fifth of US labor income compensates expansionary activities, and that occupations with larger expansionary content have experienced the fastest wage and employment growth since 1980. Our framework can rationalize a counter-cyclical labor share in the presence of sticky prices and can be used to study the distributional effects of demand shocks, monetary policy and secular changes in competition. You can find the working paper here, and a non-technical summary here.
Read MoreIn our paper, The Housing Boom and Bust, we put forward the view that the boom and bust in aggregate house prices in the USA during the 2000s was due to shifts in beliefs about future house price growth, rather than shifts in credit conditions. Some economists have found this view hard to swallow, given existing research on the topic. In order to explain what our paper says, what it doesn’t say and why, we have produced this non-technical FAQ.
Read MoreThe Housing Boom and Bust is now forthcoming in the Journal of Political of Economy. We started working on this paper in 2012 when one co-author, who now has tenure, was still in graduate school. The paper was solicited by the journal before I had any association with the University of Chicago. Turnaround times at the journal were fast; the long time lag is due to the length of time it took us to complete the first draft and subsequent revisions.
Read MoreMy paper with Sam Schulhofer-Wohl on The Changing (Dis-)Utility of Work was awarded the IPUMS Time Use Research Award ! Thanks to IPUMS for their amazing work in making data easily accessible and for recognizing our work.
Read MoreI recorded a podcast with Central Banking about HANK models, wealthy hand-to-mouth households and the intersection between monetary policy and inequality. You can listen to it here.
Read MoreBen Moll and I are co-teaching a four-day master-class on Moneteary and Fiscal Policy with Heterogeneity, targeted towards central bankers with an interest in learning about Heterogeneous Agent New Keynesian (HANK) Models. The class will be held in Chicago from August 4-8, 2019. Details and application instructions can be found here.
Read MoreRevised version of The Housing Boom and Bust: Model Meets Evidence available online (joint with Kurt Mitman and Gianluca Violante). This version has been resubmitted to Journal of Political Economy. It now contains a detailed explanation of the role of rental markets in our main finding that changes in credit conditions alone have a minimal effect on house prices.
Read MoreRevised version of The Changing (Dis-)Utility of Work available online (joint with Sam Schulhofer-Wohl). This paper is forthcoming in the Journal of Economic Perspectives.
Read MoreRevised version of Microeconomic Heterogeneity and Macroeconomic Shocks available online (joint with Gianluca Vionante). A less technical version of this paper is forthcoming in the Journal of Economic Perspectives.
Read MoreApplications for full-time pre-doctoral RA positions are now closed.
Read MoreFirst draft of What Would You do with $500? Evidence from Gains, Losses, News and Loans available online (joint with Andreas Fuster and Basit Zafar).
Read MoreReplication materials and description of computational algorithm for Monetary Policy According to HANK available online.
Read MoreTwo updates:
(1) Starting 1 March 2018, I will become an Editor at the Journal of Political Economy
(2) Starting this summer July 16-19 2018, Erik Hurst, Gianluca Violante and I will organize a group at the NBER Summer Institute on “Micro Data and Macro Models”. This will replace the group that was previously organized by Attanasio, Carroll and Rios-Rull. Look out for the call for papers.