Identification in Macroeconomics

Nakamura, Emi; Steinsson, Jón

doi:10.1257/jep.32.3.59

Cited by 324 publications

(148 citation statements)

References 100 publications

(65 reference statements)

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“…Such estimates ignore general equilibrium effects that cannot be separately identified in the crossregional regressions. For discussions of this point see Chodorow-Reich (2017) and Nakamura and Steinsson (2018).…”

Section: Introductionmentioning

confidence: 99%

Regional Consumption Responses and the Aggregate Fiscal Multiplier

Dupor¹,

Karabarbounis²,

Kudlyak³

et al. 2021

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We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in Nielsen and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases consumer spending by $0.18. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents and incomplete markets. Our model successfully generates the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets. The aggregate consumption multiplier is 0.4, which implies an output multiplier higher than one. The aggregate consumption multiplier is almost twice the local estimate because trade linkages propagate government spending across regions.

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Section: Introductionmentioning

confidence: 99%

Regional Consumption Responses and the Aggregate Fiscal Multiplier

Dupor¹,

Karabarbounis²,

Kudlyak³

et al. 2021

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show abstract

“… See Nakamura and Steinsson () for a related discussion on how both well‐identified moments and portable statistics are helpful to discriminate across models. …”

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confidence: 99%

The Aggregate Implications of Regional Business Cycles

Beraja

Hurst

Ospina

2019

ECTA

112

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Making inferences about aggregate business cycles from regional variation alone is difficult because of economic channels and shocks that differ between regional and aggregate economies. However, we argue that regional business cycles contain valuable information that can help discipline models of aggregate fluctuations. We begin by documenting a strong relationship across U.S. states between local employment and wage growth during the Great Recession. This relationship is much weaker in U.S. aggregates. Then, we present a methodology that combines such regional and aggregate data in order to estimate a medium‐scale New Keynesian DSGE model. We find that aggregate demand shocks were important drivers of aggregate employment during the Great Recession, but the wage stickiness necessary for them to account for the slow employment recovery and the modest fall in aggregate wages is inconsistent with the flexibility of wages we observe across U.S. states. Finally, we show that our methodology yields different conclusions about the causes of aggregate employment and wage dynamics between 2007 and 2014 than either estimating our model with aggregate data alone or performing back‐of‐the‐envelope calculations that directly extrapolate from well‐identified regional elasticities.

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“…Based on these results, they suggest that researchers should give more weight on models where demand shocks have a larger effect on output. As pointed out in Nakamura and Steinsson (), the use of disaggregate data may be particularly useful to discriminate between different theory models. They may, however, be less suited for answering questions about aggregate effects, since it is not clear how regional responses translates into aggregate responses.…”

Section: Related Literaturementioning

confidence: 99%

Testing the Empirical Relevance of the ‘Saving for a Rainy Day’ Hypothesis in US Metro Areas

Anundsen

Nymoen

2019

Oxf Bull Econ Stat

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The joint implication of the consumption Euler equation and cointegration between income and consumption is that savings predict future income declines, the ‘saving for a rainy day’ hypothesis. The empirical relevance of this hypothesis plays a key role in discussions of fiscal policy multipliers, and it holds under the null that the permanent income hypothesis is true. We find little support for this hypothesis using time series data for the 100 largest US Metropolitan Statistical Areas for the period 1980q1–2015q4. Our approach is to test for cointegration and weak exogeneity between income and consumption, and by exploring the direction of Granger causality between the two time series. We find that income more often predicts consumption and saving than the converse. We also give evidence that house price changes played a role in US income and consumption dynamics, before, during and after the Great Recession.

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Identification in Macroeconomics

Cited by 324 publications

References 100 publications

Regional Consumption Responses and the Aggregate Fiscal Multiplier

Regional Consumption Responses and the Aggregate Fiscal Multiplier

The Aggregate Implications of Regional Business Cycles

Testing the Empirical Relevance of the ‘Saving for a Rainy Day’ Hypothesis in US Metro Areas

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