Federal Reserve: Responding to High Inflation, with Some Thoughts on a Soft Landing, What Is Slide Four We Ask?

Federal Reserve: Responding to High Inflation, with Some Thoughts on a Soft Landing; What Is Slide Four We Ask?

References
Ahn, Hie Joo, and Leland Crane (2020). "Dynamic Beveridge Curve Accounting," Finance and Economics Discussion Series 2020-027. Washington: Board of Governors of the Federal Reserve System, March.

Ahn, Hie Joo, and James Hamilton (2020). "Heterogeneity and Unemployment Dynamics," Journal of Business & Economic Statistics, vol. 38 (July), pp. 554–69.

Barnichon, Regis, and Andrew Figura (2015). "Labor Market Heterogeneity and the Aggregate Matching Function," American Economic Journal: Macroeconomics, vol. 7 (October), pp. 222–49.

Elsby, Michael, Bart Hobijn, and Aysegul Sahin (2015). "On the Importance of the Participation Margin for Labor Market Fluctuations," Journal of Monetary Economics, vol. 72 (May), pp. 64–82.

Elsby, Michael, Ryan Michaels, and David Ratner (2015). "The Beveridge Curve: A Survey," Journal of Economic Literature, vol. 53 (September), pp. 571–630.

Elsby, Michael, Ryan Michaels, and Gary Solon (2009). "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, vol. 1 (January), pp. 84–110.

Fujita, Shigeru, and Garey Ramey (2009). "The Cyclicality of Separation and Job Finding Rates," International Economic Review, vol. 50 (May), pp. 415–30.

Sahm, Claudia (2019). "Direct Stimulus Payments to Individuals (PDF)," report. Washington: Brookings Institution, May.

Shimer, Robert (2012). "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, vol. 15 (April), pp. 127–48.

1. I am grateful to Andrew Figura for assistance in preparing the Beveridge curve material. These remarks represent my own views and not any position of the Federal Reserve Board or the Federal Open Market Committee. Return to text

2. For simplicity, I am ignoring flows into and out of the labor force, which can also influence the unemployment rate; see Elsby, Hobijn and Sahin (2015). Return to text

3. If the labor force is allowed to vary, then the expression is similar but somewhat more complicated. Return to text

4. For more on decomposing unemployment rate movements, see Shimer (2012); Elsby, Michaels and Solon (2009); Fujita and Ramey (2009); and Ahn and Crane (2020). Return to text

5. I will assume levels of $μ$ and $σ$ that are consistent with regressions of log( $\frac{H}{U}$ ) on log( $\frac{V}{U}$ ) using data on unemployment, JOLTS job openings, and transitions from unemployment into employment from 2009 to 2019. Specifically, I assume that $μ = 0.27$ , and $σ = 0.3$ . Return to text

6. For more on the effect of matching efficiency on unemployment and the Beveridge curve, see Barnichon and Figura (2015); Elsby, Michaels, and Ratner (2015); and Ahn and Hamilton (2020). Return to text

7. Specifically, I set the separations rate equal to 1.23 percent, a little above current levels. Return to text

8. The unemployment rate found on the slide is not a prediction and simply an illustrative example. Return to text

9. For more information on the Sahm rule, see Sahm (2019). Return to text

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Federal Reserve: Responding to High Inflation, with Some Thoughts on a Soft Landing; What Is Slide Four We Ask?

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