An important transmission channel of monetary policy is the expectations channel. However, although this channel is important in theory, it has received limited attention in the empirical literature. One reason for this lack of focus is the scarcity of data on firms' expectations. This paper uses a novel data set on firms' expectations and estimates how they respond to monetary policy announcements. I find that firms respond to unexpected changes in the current policy rate by revising downward expectations about price pressure, output and employment growth, and labor market tightness. However, following an unexpected tightening in the future path of monetary policy, firms revise upward expectations about output growth. While the first result is in line with the predictions of the New Keynesian model, the second provides support for the information effect of monetary policy.
Despite its stability over time, as for any statistical relationship, Okun's law is subject to deviations that can be large at times. In this paper, we provide a mapping between residuals in Okun's regressions and structural shocks identified using a SVAR model by inspecting how unemployment responds to the state of the economy. We show that deviations from Okun's law are a natural and expected outcome once one takes a multi-shock perspective, as long as shocks to labour-saving technology, labour supply and structural factors in the labour market are taken into account. Our simple recipe for policy makers is that, if a positive deviation from Okun's law arises, it is likely to be generated by either positive labour supply or labour-saving technology shocks or by negative structural factors shocks.
After decades of low and stable inflation, advanced economies experienced a sharp and persistent surge in inflation following the COVID-19 pandemic. While many studies have examined the sources of this inflation, less attention has been paid to how domestic inflation expectations amplify global shocks. This paper makes a novel contribution by quantifying that amplification mechanism across six advanced, inflation-targeting economies: the United States, Canada, New Zealand, the Euro Area, the United Kingdom, and Norway. Using a structural Bayesian vector autoregression model, we jointly identify global demand and supply shocks, including various oil market shocks and global supply chain disruptions, as well as domestic shocks to inflation and inflation expectations. We show that these global shocks were key drivers of the post-pandemic inflation surge in all countries studied. Importantly, our counterfactual analysis reveals that inflation expectations have significantly amplified the transmission of global shocks, particularly in Canada, New Zealand, and the US. These findings demonstrate that the interaction between global forces and country-specific expectations is central to understanding inflation dynamics, and underscore the importance of managing inflation expectations as a tool to mitigate persistent inflation.
We use a unique data set of individual housing transaction histories from Norway and a novel shift-share design to show that temporary changes in the transaction sequencing decisions of moving homeowners-whether to buy first and then sell or vice versa-cause temporary local increases in house prices and seller liquidity. Our findings are consistent with a simple theory of how transaction sequencing decisions impact house prices in a frictional housing market. We also provide the first causal estimate of the elasticity of house prices to market tightness, which is around 0.1. Overall, our findings highlight the importance of trading frictions and supply-demand imbalances for housing market dynamics.
We study the housing market effects of a mark-down in the listing of a unit. We define a mark-down as an ask price below a publicly observed estimate of a housing unit’s market value. Using a unique bid-log dataset as well as transaction-level data, we demonstrate that, empirically, a mark-down implies more bidders, but lower opening bids. The net effect is a lower spread between the sell price and the estimated market value. Therefore, our empirical findings point to a relatively important direct effect of ask price changes on the expected sell price and a more limited role of the indirect effect arising from ask price changes directing the flow of buyers. We argue that our empirical findings are consistent with a simple directed search model of ask price determination in the presence of a conflict of interest between the seller and real estate agent over how to trade-off a higher sell price against a longer time-on-market.
