The Aggregate Implications of Regional Business Cycles

Abstract

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.

How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels

“…This specification estimates the coefficient on a deregulation indicator variable that turns on when a state adopts a specific deregulation policy. 31 More specifically, the specification 30 These results on downward wage and price rigidity during the bust implicitly assume that changes in wages and prices are related to changes in employment (see also Beraja, Hurst, and Ospina (2016)). Table IA.XIII of the Internet Appendix explores Phillips curve regressions of wage and price inflation on the level of the unemployment rate, using the deregulation measure as an instrument for the level of the unemployment rate separately in the expansion and the contraction.…”

Uniform Pricing in U.S. Retail Chains*

“…A large body of prior work has considered the broader question of how responses to local and aggregate shocks may differ. See, for example,Nakamura and Steinsson (2008),Stroebel and Vavra (forthcoming), andBeraja et al (2019). Our contribution is to show that uniform pricing can change predictions of local responses and to provide an additional mechanism for different responses to shocks at different geographic levels.7 This figure omits revenue from products not in the RMS data, including prescription drugs and most produce.…”

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

“…Our paper follows the recent literature in empirical macroeconomic research which studies macroeconomic questions using disaggregate data (see e.g. Autor, Dorn and Hanson, 2013;Mian and Sufi, 2014;Beraja, Hurst and Ospina, 2016;Martin and Philippon, 2017). Another prominent example in this field is Nakamura and Steinsson (2014), who estimate a regional fiscal multiplier using state-level data.…”