The Aggregate Implications of Regional Business Cycles

By Martin Beraja, Erik G. Hurst, Juan J. Ospina. Econometrica, 2019

206 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/a1d36b025759ca04c580dea2c8d200febd9754b3

Citations in the corpus

• The Slope of the Phillips Curve: Evidence from U.S. States (2020, unknown): “Beraja, Hurst, and Ospina (2019) use regional wage data to estimate wage Phillips curves.”
• Uniform Pricing in U.S. Retail Chains* (2019, unknown): “See, for example, Nakamura and Steinsson (2008), Stroebel and Vavra (forthcoming), and Beraja 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 lev”
• Venting Out: Exports During a Domestic Slump (2018, unknown): “Recent papers that, for the US, evaluate the rigidity of wages during the Great Recession are Beraja et al. (2019) and Grisby et al.”
• Regional Heterogeneity and Monetary Policy (2019, unknown): “The first is that general equilibrium, aggregate effects are differenced out when using regional variation—a point made by Beraja et al (2016).”
• Household Leverage and the Recession (2011, unknown): “Our use of regional data to estimate the model is related to the work of Beraja et al. (2019). These researchers apply a limited-information approach to estimate the degree of wage stickiness using state-level data, and then use those estimates as a prior in a full-information estimation with only a”
• How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels (2020, unknown): “29These results on downward wage and price rigidity in the bust implicitly assume that changes in wages and prices are related to changes in employment (see also Beraja et al. (2016)).”
• House Prices, Local Demand, and Retail Prices (2019, unknown): “(2015) and Beraja et al. (2019) could reflect time-varying confounding shocks, since supply and demand shocks imply opposite correlations between prices and unemployment.”
• Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned? (2019, unknown): “On the other hand, using geographic variation in local demand caused by factors other than government spending, Fitzgerald and Nicolini (2014), Stroebel and Vavra (2016), and Beraja et al. (2016) all find evidence of local prices responding to local demand conditions.”
• Employment Hysteresis from the Great Recession (2019, unknown): “Second, there is extrapolative uncertainty because of general equilibrium considerations (Nakamura and Steinsson 2014; Beraja et al. 2016).”
• Disentangling the Effects of a Banking Crisis: Evidence from German Firms and Counties (2018, unknown): “While the effects I estimate do not easily aggregate into national effects (Nakamura and Steinsson 2014; Beraja et al. 2015; Chodorow-Reich 2017), the combination of firm and county data is sufficient to establish the two main findings of indirect county-level effects and persistence. This paper als”
• Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data (2019, unknown): “The nominal wage flexibility we estimate using detailed micro data is broadly consistent with the flexibility of wages estimated in Beraja et al. (2016) using cross-region variation. Beraja et al. (2016) show that wage adjustments of the sort we identified cannot explain why aggregate wage growth re”
• Stock Market Wealth and the Real Economy: A Local Labor Market Approach (2019, unknown): “Our aggregation result for labor combines this finding with a third observation: since labor markets are local, the structural labor supply equation (4) remains unchanged as we switch from local to aggregate analysis (as emphasized by Beraja et al. (2016)).”