Gregory Givens
Working Papers
"unemployment, partial insurance, and the multiplier effects of government spending"
International Economic Review, forthcoming [Revised April 2021, First Draft November 2019, Appendix] I interpret the empirical evidence on government spending multipliers using an equilibrium model of unemployment in which workers are not fully insured against the risk of job loss. Consumption of resources by the government affects aggregate spending along two margins: (i) an intensive margin owing to a fall in household wealth and (ii) an extensive margin that accounts for growth in the working population. At insurance levels below a certain threshold, the positive effects of (ii) dominate the negative effects of (i), leading to multipliers for private consumption and output that exceed zero and one. Similar results appear in a quantitative version of the model scaled to match estimates from micro data on the consumption cost of unemployment. Publications
"monetary policy and investment dynamics: evidence from disaggregate data "
Journal of Money, Credit and Banking, December 2018, 50[8], pp. 1851-78. [with Robert R. Reed, Revised February 2018, Second Draft May 2017, First Draft June 2015] We use disaggregated data on the components of private fixed investment (PFI) to estimate industry-level responses of real investment and capital prices to unanticipated monetary policy. The response functions derive from a restricted large-scale VAR estimated over 1959-2017. Our results point to significant cross-sector heterogeneity in the behavior of PFI prices and quantities. For assets belonging to the equipment category of fixed investment, we find that quantities rather than prices absorb most of the fallout from a policy shock. By contrast, the price effects tend to be higher and the output effects lower for nonresidential structures. Consequently, the power of monetary policy to stimulate fixed-capital formation is not uniform across industries. "do data revisions matter for dsge estimation?"
Journal of Money, Credit and Banking, September 2017, 49[6], pp. 1385-1407. [Revised June 2016, Appendix] This paper checks whether the coefficient estimates of a famous DSGE model are robust to macroeconomic data revisions. The effects of revisions are captured by rerunning the estimation on a real-time data set compiled using the latest time series available each quarter from 1997 through 2015. Results show that point estimates of the structural parameters are generally robust to changes in the data that have occurred over the past twenty years. By comparison, estimates of the standard errors are relatively more sensitive to revisions. The latter implies that judgements about the statistical significance of certain parameters depend on which data vintage is used for estimation. "on the gains from monetary policy commitment under deep habits"
Journal of Macroeconomics, December 2016, 50, pp. 19-36. [Revised August 2016, Appendix] I study the welfare gains from commitment relative to discretion in the context of an equilibrium model that features deep habits in consumption. Policy simulations reveal that the welfare gains are increasing in the degree of habit formation and economically significant for a range of values consistent with U.S. data. I trace these results to the supply-side effects that deep habits impart on the economy and show that they ultimately weaken the stabilization trade-offs facing a discretionary planner. Most of the inefficiencies from discretion, it turns out, can be avoided by installing commitment regimes that last just two years or less. Extending the commitment horizon further delivers marginal welfare gains that are trivial by comparison. "a Note on comparing deep and aggregate habit formation in an estimated new-keynesian model"
Macroeconomic Dynamics, July 2015, 19[5], pp. 1148-66. [Revised September 2013, Appendix, Extended Version February 2013] Habit formation is a fixture of contemporary new-Keynesian models. The vast majority assume that agents form habits strictly over consumption of an aggregate good, leaving open the question of whether it might be preferable to have them form habits over differentiated products instead--an arrangement known as deep habits. I answer this question by estimating a model that nests both habit concepts as special cases. Estimates reveal that the data favor a specification in which consumption habits are stronger at the product level than at the aggregate level. A mix of significance tests and simulation results indicate that including deep habits greatly improves model fit, most notably with regard to inflation dynamics. "inferring monetary policy objectives with a partially observed state"
Journal of Economic Dynamics and Control, March 2015, 52[1], pp. 190-208. [with Michael K. Salemi, Revised November 2014, Appendix, First Draft May 2012] Accounting for the uncertainty in real-time perceptions of the state of the economy is believed to be critical for monetary policy analysis. We investigate this claim through the lens of a New Keynesian model with optimal discretionary policy and partial information. Structural parameters are estimated using a data set that includes real-time and ex post revised observations spanning 1965 to 2010. In comparison to a standard complete information model, our estimates reveal that under partial information: (i) the Federal Reserve demonstrates a significant concern for stabilizing the output gap after 1979, (ii) the model's fit with revised data improves, and (iii) the tension between optimal and observed policy is smaller. "estimating central bank preferences under commitment and discretion"
Journal of Money, Credit and Banking, September 2012, 44[6], pp. 1033-61. [Revised May 2012, Extended Version October 2010] This paper explains US macroeconomic outcomes with an empirical new-Keynesian model in which monetary policy minimizes the central bank's loss function. The presence of expectations in the model forms a well-known distinction between two modes of optimization, termed commitment and discretion. The model is estimated separately under each policy using maximum likelihood over the Volcker-Greenspan-Bernanke period. Comparisons of fit reveal that the data favor the specification with discretionary policy. Estimates of the loss function weights point to an excessive concern for interest rate smoothing in the commitment model but a more balanced concern relative to inflation and output stability in the discretionary model. "unemployment insurance in a sticky-price model with worker moral hazard"
Journal of Economic Dynamics and Control, August 2011, 35[8], pp. 1192-214. [Revised December 2010, Extended Version March 2010] This paper studies the role of unemployment insurance in a sticky-price model that features an efficiency-wage view of the labor market based on unobservable effort. The risk-sharing mechanism central to the model permits, but does not force, agents to be fully insured. Structural parameters are estimated using a maximum-likelihood procedure on US data. Formal hypothesis tests reveal that the data favor a model in which agents only partially insure each other against employment risk. The results also show that limited risk sharing helps the model capture many salient properties of the business cycle that a restricted version with full insurance fails to explain. "which price level to target? strategic delegation in a sticky price and wage economy"
Journal of Macroeconomics, December 2009, 31[4], pp. 685-98. [Revised October 2008, formerly titled "Revisiting the Delegation Problem in a Sticky Price and Wage Economy"] This paper assesses the value of delegating price level targets to a discretionary central bank in an economy with nominal frictions in both labor and product markets. In contrast to recent studies that demonstrate the benefits of targeting the price of output, model simulations provide evidence that favors targeting the price of labor, or the nominal wage, instead. While both policies impart inertia (a salient feature of commitment), wage targeting dominates output-price targeting because the former delivers more favorable tradeoffs between the stabilization goals appearing in the soical welfare function. Delegating joint price and wage targets, however, nearly replicates the commitment policy from a timeless perspective. "generalized method of moments and inverse control"
Journal of Economic Dynamics and Control, October 2008, 32[10], pp. 3113-47. [with Michael K. Salemi, Revised January 2008, Appendix] This paper presents a Generalized Method of Moments algorithm for estimating the structural parameters of a macroeconomic model subject to the restriction that the coefficients of the monetary policy rule minimize the central bank's expected loss function. The algorithm combines least-squares normal equations with moment restrictions derived from the first-order necessary conditions of the auxiliary optimization. We assess the performance of the algorithm with Monte Carlo simulations using three increasingly complex models. We find that imposing the optimizing restrictions when they are true improves estimation accuracy and that imposing those restrictions when they are false biases estimates of some of the structural parameters but not of the policy-rule coefficients. "unemployment, imperfect risk sharing, and the monetary business cycle"
B.E. Journal of Macroeconomics (Contributions), March 2008, 8[1], Article 13. [Revised January 2008] This paper examines the impact of unemployment insurance on the propagation of monetary disturbances in a staggered price model of the business cycle. To motivate a role for risk sharing behavior, I construct a quantitative equilibrium model that gives prominence to an efficiency-wage theory of unemployment based on imperfectly observable labor effort. Dynamic simulations reveal that under a full insurance arrangement, staggered price-setting is incapable of generating persistent real effects of a monetary shock. Introducing partial insurance, however, bolsters the amount of endogenous wage rigidity present in the model, enriching the propagation mechanism. Positive real persistence appears in versions of the model that exclude capital accumulation as well as in versions that do not. "policy evaluation with a forward-looking model"
in Money Matters: Essays in Honour of Alan Walters, Patrick Minford [editor], September 2004, pp. 280-305. [with Rouben V. Atoian and Michael K. Salemi, Print Version September 2004] In this paper, we follow the standard two-step approach to policy evaluation. We set out a small structural model and obtain estimates of its parameters, and then evaluate the performance of alternative policy rules while treating estimates of the structural parameters as fixed and known. We break with standard practice in an interesting way. On the assumption that structural-error covariances are fixed and known, we compute the performance of fixed-coefficient rules that condition on past state variables, current state variables, and expectations of future state variables. We also compare fixed-coefficient rules to optimal commitment and discretion. Our paper provides evidence on the practical importance to a central bank of obtaining a commitment mechanism and on the loss in performance when the commitment mechanism takes the form of a simple fixed-coefficient policy rule. |