Understanding whether labor market developments stem from supply or demand forces has fundamental implications for the conduct of monetary policy. This article develops a structural vector autoregression (VAR) methodology to decompose U.S. employment and wage growth into supply and demand components using sign restrictions. Extending Shapiro 2026, we separately identify trend growth, current shocks, and past shocks across different industries. Results reveal that goods-producing sectors experienced strong demand-driven growth in 2022, which subsequently weakened as Federal Reserve tightening took effect. Service sectors showed robust demand through 2023, but by 2025, supply-side factors-likely due to immigration policy changes-became dominant. We validate our shock identification by linking estimated demand shocks to financial dependence measures during monetary tightening and supply shocks to immigration flows. These findings highlight the asymmetric nature of post-pandemic labor market rebalancing and underscore the importance of distinguishing supply from demand forces for appropriate monetary policy calibration.
Following the literature that uses data from the Consumer Expenditure Survey and the consumer price index, this article examines U.S. households' inflation experiences during the recent period from 2010 to 2023. We construct group-specific market baskets to reflect diverse spending patterns and identify key differences in inflation. Our main finding is that, although average inflation was higher and more volatile during this period, inflation inequality remained stable or even declined compared with the earlier period. Nevertheless, despite the overall similarity in households' inflation experiences, the underlying drivers of inflation-by consumption category and specific subcategory-can differ significantly.
The U.S. did not experience large decreases in production or employment during the disinflation of 2022-2024. To put this unusually costless disinflation in context, this article characterizes the behavior of economic variables from more than 100 disinflation episodes in OECD countries. We decompose these episodes into those that successfully reduced inflation over several years, those in which inflation substantially rebounded, and the most recent episodes of 2022-2024. Successful episodes show several differences in comparison to failed episodes, including lower real interest rates and higher stock prices. The recent disinflations of 2022-2024 sometimes resemble successful episodes, but with essentially no average output loss. By characterizing the behavior of recent episodes, as well as historical disinflations with differing outcomes, we create a set of stylized facts to guide analysis of disinflation policies.
We develop a simple model where the final output is produced using two technologies-one with diminishing returns and another with constant returns-and labor as the sole input. We show that the rate of decline in the share of agricultural employment is a sufficient statistic for the onset of economic transition from stagnation to sustained growth. Our quantitative results are consistent with the implications for the evolution of per capita income for economies in various stages of development and structural transformation.
This article presents a framework to monitor differences in real expenditure growth and inflation in real time, focusing on variations across the expenditure distribution. High-frequency tracking of heterogeneity in real expenditure growth and inflation holds particular value for policymakers. The newly constructed time series reveals three key findings. First, households with lower expenditure levels have faced higher inflation since 2000 than those with higher expenditure levels, with significant disparities in the range of 0.57 and 1.23 percentage-point differences between 2005-2008 and 2011, respectively. Second, volatility in real expenditure growth is higher for lower-expenditure households than for higher-expenditure ones. Third, there was significant heterogeneity in the recovery of real expenditure in the two years following the outbreak of COVID-19.
