CQER Working Papers

CQER Working Papers feature the research of visiting scholars and distinguished economists. The papers are intended to stimulate professional discussion and exploration of quantitative economic research. Online only.


The Decline of the U.S. Rust Belt: A Macroeconomic Analysis
Simeon Alder, David Lagakos, and Lee Ohanian
CQER Working Paper 14-05 (August)
Why did the Rust Belt fare worse than other parts of the country after World War II? The authors propose that a lack of competition in labor and output markets was behind the area's poor economic performance.

How Sticky Wages in Existing Jobs Can Affect Hiring
Mark Bils, Yongsung Chang, and Sun-Bin Kim
CQER Working Paper 14-04 (August)
The authors consider a matched model of employment in which wages are flexible for new hires but "sticky"—negotiated infrequently—for current employees. The paper departs from the literature on the topic, with firms and workers negotiating over effort and output.

Optimal Tax Progressivity: An Analytical Framework
Jonathan Heathcote, Kjetil Storesletten, and Giovanni L. Violante
CQER Working Paper 14-03 (June)
What shapes the optimal degree of progressivity of the tax and transfer system? The authors develop a tractable equilibrium model that considers policy and structural parameters and other trade-offs.

Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound
Jing Cynthia Wu and Fan Dora Xia
CQER Working Paper 14-02 (June)
The authors propose an extremely tractable model for analysis of an economy operating near the zero lower bound for interest rates. They show that this model can be used to summarize the macroeconomic effects of unconventional monetary policy at the zero lower bound.

Intergenerational Redistribution in the Great Recession
Andrew Glover, Jonathan Heathcote, Dirk Krueger, and José-Víctor Ríos-Rull
CQER Working Paper 14-01 (January)
The authors analyze the distributional consequences of a large recession across different age cohorts. They find that asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who can purchase assets at depressed prices.


Engineering a Paradox of Thrift Recession
Zhen Huo and José-Víctor Ríos-Rull
CQER Working Paper 13-03 (April)
The authors propose a variation of the neoclassical growth model, which provides a novel, quantitative theory of the current recessions in southern Europe.

Non-linear Effects of Taxation on Growth
Nir Jaimovich and Sergio Rebelo
CQER Working Paper 13-02 (April)
The authors present a simple model in which the effects of taxation on growth are highly non-linear. They contend that as tax rates and other disincentives to invest become large, they have a corresponding negative impact on growth.

Innovation and Growth with Financial, and other, Frictions
Jonathan Chiu, Cesaire Meh, and Randall Wright
CQER Working Paper 13-01 (March)
Examining the process of idea generation and exchange, which are both critical factors for economic performance and growth, the authors develop a novel endogenous growth model with frictions.


Understanding Booms and Busts in Housing Markets
Craig Burnside, Martin Eichenbaum, and Sergio Rebelo
CQER Working Paper 12-02 (February)
The authors observe that some booms in housing prices are followed by busts, while others are not. They study the role of agents' beliefs about long-run fundamentals and social dynamics in causing boom-bust cycles.

Moral Hazard, Investment, and Firm Dynamics
Hengjie Ai and Rui Li
CQER Working Paper 12-01 (February)
Using a dynamic general equilibrium model, the authors find that moral hazard in investment can quantitatively account for the fact that small firms have higher investment rates, lower dividend payments, and faster growth.


Fiscal Stimulus and Distortionary Taxation
Thorsten Drautzburg and Harald Uhlig
CQER Working Paper 11-01 (July)
In the wake of the financial crisis of 2008, the role of fiscal stimulus has become a central policy debate. The authors seek to quantify the size, uncertainty, and sensitivity of fiscal multipliers in response to the fiscal stimulus represented by the American Recovery and Reinvestment Act.


Monetary Policy and Stock Market Booms
Lawrence Christiano, Cosmin Ilut, Roberto Motto, and Massimo Rostagno
CQER Working Paper 10-08 (December)
Using historical data and model simulations, the authors conclude that inflation is low during stock market booms, so an interest rate rule that is too narrowly focused on inflation destabilizes asset markets and the broader economy.

Taxes, Transfers, and Employment in an Incomplete Markets Model
Jorge Alonso-Ortiz and Richard Rogerson
CQER Working Paper 10-07 (December)
Analyzing tax and transfer programs using a model with idiosyncratic productivity shocks and incomplete markets, the authors find that tax and transfer policies have large effects on average labor productivity via selection effects on employment.

Comment on Eggertsson, "What Fiscal Policy Is Effective at Zero Interest Rates?"
Lawrence J. Christiano,
CQER Working Paper 10-06 (November)
The author finds that Gauti B. Eggertsson's (2010) paper represents an important contribution to the analysis of fiscal policy in the New Keynesian model when the zero lower bound on the nominal interest rate is binding.

Microfoundations of Inflation Persistence in the New Keynesian Phillips Curve
Marcelle Chauvet and Insu Kim
CQER Working Paper 10-05 (November)
Unlike traditional sticky price models, the model of inflation persistence proposed in this paper yields inflation inertia, a delayed effect of monetary policy shocks on inflation, and a reverse dynamic correlation between inflation and economic activity.

Introducing Financial Frictions and Unemployment into a Small Open Economy Model
Lawrence J. Christiano, Mathias Trabandt, and Karl Walentin
CQER Working Paper 10-04 (August)
The authors extend the standard new Keynesian model by incorporating financial frictions in capital accumulation and management, modeling the labor market using a search and matching framework, and extending the model into a small open economy setting.

Involuntary Unemployment and the Business Cycle
Lawrence J. Christiano, Mathias Trabandt, and Karl Walentin
CQER Working Paper 10-03 (August)
When the authors integrate their model of involuntary unemployment into a DSGE model, the resulting model does well at accounting for standard macroeconomic variables' response to monetary policy shocks and two technology shocks.

DSGE Models for Monetary Policy Analysis
Lawrence J. Christiano, Mathias Trabandt, and Karl Walentin
CQER Working Paper 10-02 (August)
The paper describes and implements Bayesian moment matching and impulse response matching procedures to assign numerical values to parameters in DSGE models used for policy analysis.

When Is the Government Spending Multiplier Large?
Lawrence J. Christiano, Martin Eichenbaum, and Sergio Rebelo
CQER Working Paper 10-01 (August)
The authors argue that the government spending multiplier can be very large when the nominal interest rate is constant. For the economies they consider, it is optimal to increase government spending in response to shocks that make the zero lower bound on the nominal interest rate binding.


Optimal Prediction Pools
John Geweke and Gianni Amisano
CQER Working Paper 09-05 (October)
This study finds that linear pools of prediction models generally yield predictions superior to those of any single model as assessed by a conventional log score function.

Comparing and Evaluating Bayesian Predictive Distributions of Asset Returns
John Geweke and Gianni Amisano
CQER Working Paper 09-04 (October)
Using five different models, the authors compare and evaluate the quality of predictive distributions over multiple horizons for asset returns of the S&P 500 index from 1972 through 2005.

Sources of Variation in Holding Returns for Fed Funds Futures Contracts
James D. Hamilton and Tatsuyoshi Okimoto
CQER Working Paper 09-03 (October)
This paper investigates the extent to which changes in regime can account for predictable gains from positions in fed funds futures contracts.

Causes and Consequences of the Oil Shock of 2007–08
James D. Hamilton
CQER Working Paper 09-02 (October)
Exploring similarities and differences between the oil price run-up in 2007–08 and earlier oil price shocks, the author examines what caused the price increase and what effects it had on the economy.

Liquidity Needs in Economies with Interconnected Financial Obligations
Julio J. Rotemberg
CQER Working Paper 09-01 (July)
In this financial system model where firms must settle their debts using liquid assets, limits on the amount of liquid assets can lead to more defaults when financial firms are more interconnected.