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Empirical Advances in Addressing Policy Questions
Friday, Jan. 6, 2023
8:00 AM - 10:00 AM (CST)
American Economic Association
Federal Reserve Bank of Dallas
Do Tax Increases Tame Inflation?
“Yes” for personal income taxes but “No” for corporate income taxes. Using narrative identified US federal tax changes post-WWII and disaggregated sectoral data on consumer and producer prices, we show that higher average personal income tax rates generate lower prices across the board, but higher average corporate tax rates do not. There is also significant sectoral heterogeneity in the size of the effects. Finally, only personal tax increases lower inflation expectations, while corporate tax increases lead to persistent declines in stock prices. Our results are consistent with personal taxes affecting aggregate demand and corporate taxes persistently affecting supply conditions.
Do Government Spending Multipliers Depend on the Sign of the Shock?
Much recent attention has been devoted to estimating the size of government purchases multipliers, with a large focus on whether they depend on the underlying circumstances. In this paper, we consider another possible nonlinearity – asymmetry – where declines in government spending have different effects on economic activity than rises in government spending. We find no evidence of asymmetric government spending multipliers, in contrast to the findings of some recent work. We begin by considering how to estimate asymmetric effects using local projections and point out a number of subtle, but important, complications that have been overlooked by some of the previous literature. We also consider a polynomial based approach to test for non-linearities in the government spending multiplier based on the sign of the shock.
Fiscal Stimulus and the Systematic Response of Monetary Policy
Economic theory suggests that the effects of fiscal stimulus can vary substantially with the systematic response of monetary policy. Empirical estimates of the causal effects of fiscal shocks implicitly embed a particular monetary reaction: they provide treatment effects that average across in-sample monetary policy. Building on McKay and Wolf (2022), I discuss how evidence on monetary policy shocks can be used to predict the effects of fiscal stimulus under arbitrary monetary policy reaction. I review the underlying theory, propose a simple empirical strategy, and present an application.
The Importance of Fed Chair Speeches as a Monetary Policy Tool
Typical studies of the effects of monetary policy on financial markets and the macroeconomy focus on FOMC announcements as the source of monetary policy variation. In this paper, I estimate the effects and importance of speeches and Congressional testimony by the Fed Chair as a source of monetary policy variation from 1988 to 2019. I show that, for many assets, speeches by the Fed Chair are even more important than FOMC announcements, in that they account for a greater fraction of the monthly variation in those assets’ prices. Thus, the previous literature’s focus on FOMC announcements alone has been ignoring arguably the most important source of monetary policy variation in the data.
E0 - General
C0 - General