Research
The Fiscal Roots of Inflation
Published June 2022. Review of Economic Dynamics 45:22-40. Unexpected inflation comes basically all from discount rates: a higher real interest rate devalues government debt via inflation. Big deficits and lower inflation are not a puzzle: discount rates decline. Click the title for more details.
Published June 2022. Review of Economic Dynamics 45:22-40. I apply an asset pricing style return variance decomposition to the government debt valuation equation. Unexpected inflation comes basically all from discount rates: a higher real interest rate devalues government debt via inflation. Big deficits and lower inflation are not a puzzle: discount rates decline. Long term bonds soak up a lot of fiscal shocks, smoothing inflation forward. I also decompose recession related shocks, deficit and discount rate shocks. zip file containing programs and data.
A Fiscal Theory of Monetary Policy with Partially-Repaid Long-Term Debt
Published June 2022. Review of Economic Dynamics 45:22-40. Fiscal theory of monetary policy means interest rate targets, sticky prices, and fiscal theory. This paper adds long term debt and the crucial novelty: a surplus process by which the government borrows now and promises future surpluses to repay the debt, yet fiscal policy is active. The model generates reasonable response functions to fiscal and monetary policy shocks, and solves a long-standing problem in fiscal theory models. Click title for more information.
Published June 2022. Review of Economic Dynamics 45:22-40. Fiscal theory of monetary policy means interest rate targets, sticky prices, and fiscal theory. This paper adds long term debt and the crucial novelty: a surplus process by which the government borrows now and promises future surpluses to repay the debt, yet fiscal policy is active. The model generates reasonable response functions to fiscal and monetary policy shocks, and solves a long-standing problem in fiscal theory models. This, the “fiscal roots of inflation” and “the value of debt” are companions. Zip file with programs
The Value of Government Debt
Here I apply an asset pricing style price/dividend variance decomposition to the government debt valuation equation, to break the debt / GDP ratio into expected future surpluses and expected growth-adjusted discount rates. Variation in the value of debt / GDP is about half future surpluses and half discount rates. Growth variation does not show up.
Here I apply an asset pricing style price/dividend variance decomposition to the government debt valuation equation, to break the debt / GDP ratio into expected future surpluses and expected growth-adjusted discount rates. Variation in the value of debt / GDP is about half future surpluses and half discount rates. Growth variation does not show up. Zip file with programs and data.
Lessons of the long quiet zero bound
Comments for the session "Monetary Policy, Conventional and Unconventional" at the Spring 2018 Nobel Symposium on Money and Banking. A lightning summary of recent papers including "Fiscal theory of monetary policy" "Michelson-Morley" and "New Keynesian Liquidity Trap." Lots of pictures. Fun. Slides. Video of the presentation. Link to the whole conference including video and slides for all the presentations.
Comments for the session "Monetary Policy, Conventional and Unconventional" at the Spring 2018 Nobel Symposium on Money and Banking. A lightning summary of recent papers including "Fiscal theory of monetary policy" "Michelson-Morley" and "New Keynesian Liquidity Trap." Lots of pictures. Fun. Slides. Video of the presentation. Link to the whole conference including video and slides for all the presentations.
After the ACA: Freeing the market for health care
In The Future of Healthcare Reform in the United States Edited by Anup Malani and Michael H. Schill, p 161-201, University of Chicago Press. An essay on health care, first presented at the conference, The Future of Health Care Reform in the United States, at the University of Chicago Law School. Most of the policy discussion is focused on health insurance. But the health care market is dysfuctional, and needs to be fixed as well. Where are the Southwest Airlines, Walmart and Apple of health care, bringing cost saving, efficiency, and innovation? I argue that we need a big freeing up of health care markets. I also focus more than usual on supply restrictions. It doesn't do much good for people to pay with their own money if suppliers cannot respond to that demand. Last manuscript in case of copyright problems with the published version above.
In The Future of Healthcare Reform in the United States Edited by Anup Malani and Michael H. Schill, p 161-201, University of Chicago Press. An essay on health care, first presented at the conference, The Future of Health Care Reform in the United States, at the University of Chicago Law School. Most of the policy discussion is focused on health insurance. But the health care market is dysfuctional, and needs to be fixed as well. Where are the Southwest Airlines, Walmart and Apple of health care, bringing cost saving, efficiency, and innovation? I argue that we need a big freeing up of health care markets. I also focus more than usual on supply restrictions. It doesn't do much good for people to pay with their own money if suppliers cannot respond to that demand. Last manuscript in case of copyright problems with the published version above.
A Brief Parable of Overdifferencing
This is a short note, showing how money demand estimation works very well in levels or long (4 year) differences, but not when you first-difference the data. It shows why we often want to run OLS with corrected standard errors rather than GLS or ML, and it cautions against the massive differencing, fixed effects and controls used in micro data. It's from a PhD class, but I thought the reminder worth a little standalone note.
This is a short note, showing how money demand estimation works very well in levels or long (4 year) differences, but not when you first-difference the data. It shows why we often want to run OLS with corrected standard errors rather than GLS or ML, and it cautions against the massive differencing, fixed effects and controls used in micro data. It's from a PhD class, but I thought the reminder worth a little standalone note.
Time series for macroeconomics and Finance
Lecture notes for PhD time series course. This revision finally includes the figures!
Lecture notes for PhD time series course. This revision finally includes the figures!
Investments notes
Notes for MBA investments classes. Summary of background (statistics, regression, time series, matrices, maximization) and a concise treatment of some of the standard topics (bond notation and expectations hypothesis, bond pricing)
Notes for MBA investments classes. Summary of background (statistics, regression, time series, matrices, maximization) and a concise treatment of some of the standard topics (bond notation and expectations hypothesis, bond pricing)