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Working Paper

September 22, 2025, Filed Under: Working Paper

Firms’ Inflation and Wage Expectations During the Inflation Surge

EMPCT Working Paper Series No. 2025-04
65 pages | PDF Download | PDF in Browser


Citation:
Erwan Gautier, Frédérique Savignac, and Olivier Coibion, “Firms’ Inflation and Wage Expectations During the Inflation Surge”, May 2025


Abstract
Using a new survey of French firms’ inflation expectations that predates the inflation spike, we document i) evidence on the anchoring of inflation expectations during the inflation surge, and ii) the relevance of inflation expectations for firms’ decisions. First, we show that inflation expectations under-responded to the initial surge but then persistently overshot actual inflation dynamics. As inflation rose, firms initially perceived inflation to be less persistent than in previous years, an effect that dissipated over time. Second, we find that inflation expectations correlate with firms’ wage and price decisions. One-year expectations matter more than long-term expectations. During the inflation surge, wage and price decisions became increasingly disconnected from inflation expectations. This suggests that the scope for wage-price spirals is likely more limited than one might have expected from the surge in inflation and inflation expectations.

September 22, 2025, Filed Under: Working Paper

INFLATION, EXPECTATIONS AND MONETARY POLICY: WHAT HAVE WE LEARNED AND TO WHAT END?

EMPCT Working Paper Series No. 2025-05
75 pages | PDF Download | PDF in Browser


Citation:
Coibion, Olivier, Yuriy Gorodnichenko, “Inflation, Expectations and Monetary Policy: What Have We Learned and to What End?”, May 2025

Olivier Coibion
UT Austin and NBER

Yuriy Gorodnichenko
UC Berkeley and NBER


Abstract:
We review recent research and experiences linking inflation and expectations, emphasizing what has been learned since 2020. One clear lesson is that the inflation expectations of most economic agents have been and remain unanchored. The unanchored nature of inflation expectations, in combination with supply shocks, can explain much of the inflation surge and subsequent disinflation when viewed through the lens of an expectations-augmented Phillips curve, both in the U.S. and abroad. New policy frameworks are unlikely to address this feature of expectations. Only a communication strategy that breaks what we refer to as the “cycle of selective inattention” is likely to be successful, but it is probably already too late to stop the next inflation surge. 

September 9, 2025, Filed Under: Working Paper

The Economic Impact of Mass Deportations

EMPCT Working Paper Series No. 2025-09
69 pages | PDF Download | PDF in Browser


Citation: Cravino, Javier, Levchenko, Andrei A., Ortega, Francesc, and Pandalai-Nayar, Nitya, “The Economic Impact of Mass Deportations”, September 2025

Javier Cravino
University of Michigan
NBER

Andrei A. Levchenko
University of Michigan

Francesc Ortega
Queens College, CUNY

Nitya Pandalai-Nayar
The University of Texas at Austin


Abstract
This paper quantifies the effects of large-scale deportation policies on wages, prices, and
real incomes in the United States. We impute the legal status for each worker in the American
Community Survey by combining detailed individual information with group-level visa
records. In 2024, 3% of US workers were unauthorized, but these workers were highly concentrated
geographically, by industry, and by occupation. We then develop a multi-region,
multi-sector, multi-occupation quantitative framework with heterogeneous workers to study
the economic impacts of the removal of unauthorized workers. We state analytical results that
relate region- and occupation-specific real wage and sectoral relative price changes to shocks to
the supply of immigrant workers, observable shares of immigrant workers in occupations and
regions, and combinations of structural elasticities. Following the removal of 50% of unauthorized
immigrants, average native real wages decline in every state, and by 0.3% at the national
level. At the same time nationwide native wages in the most immigrant-intensive occupations
rise by up to 3.4% in our baseline calibration. The deportation shock increases the average
wages of immigrants , by 12.2% for the unauthorized workers remaining in the country, and
3.2% for the authorized. Consumer prices in the sectors with the highest unauthorized presence
– such as Farming – rise by about 1% relative to price of the average consumption basket,
while most other sectors experience negligible relative price changes. The overall cost of living
rises by about 0.7% more in the regions hosting the most unauthorized immigrants, compared
to regions with minimal presence of unauthorized workers.

August 25, 2025, Filed Under: Working Paper

The Impact of Geopolitical Risk on Consumer Expectations and Spending

EMPCT Working Paper Series No. 2025-08
28 pages | PDF Download | PDF in Browser


Gorodnichenko, Yuriy; Georgarakos, Dimitris; Kenny, Geoff; and Coibion, Olivier, “The Impact of Geopolitical Risk on Consumer Expectations and Spending”, August 2025

Yuriy Gorodnichenko®
UC Berkeley and NBER

Dimitris Georgarakos®
European Central Bank and CEPR

Geoff Kenny®
European Central Bank

Olivier Coibion®
UT Austin and NBER


Abstract: Using novel scenario-based survey questions that randomize the expected duration of
the Russian invasion of Ukraine and Middle East conflict, we examine the causal impact of
geopolitical risk on consumers’ beliefs about aggregate economic conditions and their own
financial outlook. Expecting a longer conflict leads European households to anticipate a worsening
of the aggregate economy, with higher inflation, lower economic growth, and lower stock prices.
They also perceive negative fiscal implications, anticipating higher government debt and higher
taxes. Ultimately, households view the geopolitical conflict as making them worse off financially
and it leads them to reduce their consumption.

August 22, 2025, Filed Under: Working Paper

The Dynamics of Technology Transfer: Multinational Investment in China and Rising Global Competition

EMPCT Working Paper Series No. 2025-07
76 pages | PDF Download | PDF in Browser


Citation: Choi, Jaedo; Cui, George; Shim, Younghun; and Shin, Yongseok, “The Dynamics of Technology Transfer: Multinational Investment in China and Rising Global Competition”, June 2025

Jaedo Choi
Federal Reserve Board

George Cui
International Monetary Fund

Younghun Shim
International Monetary Fund

Yongseok Shin
Washington University in St. Louis
Federal Reserve Bank of St. Louis


Abstract
US multinationals form joint ventures in China for market access and lower labor costs. However,
these ventures transfer knowledge to Chinese partners and local firms, increasing future
competition from China. While multinationals take into account these spillovers, they don’t account
for the impact on other US firms, potentially leading to over-investment from a US social
perspective. We establish three novel empirical facts on spillovers and competition effects. First,
Chinese parent firms of joint ventures become larger, export more, and grow technologically similar
to their US partners. Second, in industries with more joint ventures, even non-participating
Chinese firms grow larger and more technologically advanced. Third, US firms in these industries
experience negative impacts on their size, exports, and innovation. We then develop a two-country
growth model with oligopolistic competition and endogenous innovation and joint venture decisions.
For the US, joint ventures generate short-run gains that are outweighed by long-run losses
due to rising competition from China. Large US firms’ profits are higher with joint ventures, at
the expense of small firms’ profits and the real wage. Banning joint ventures from the beginning
would have raised US welfare by 1.2 percent but reduced China’s by 10.6 percent, as Chinese firms’
productivity growth is substantially delayed.

August 14, 2025, Filed Under: Working Paper

The Inflation Attention Threshold and Inflation Surges (Revised)

EMPCT Working Paper Series No. 2025-06
90 pages | PDF Download | PDF in Browser



Citation: Oliver Pfäuti, August 2025


Abstract
The recent inflation surge brought inflation back on people’s minds. I quantify when and
how much attention to inflation changes and derive the macroeconomic implications of these
attention changes. I estimate an attention threshold at an inflation rate of 4%, that attention
doubles when inflation exceeds this threshold, and that supply shocks have stronger and more
persistent effects on inflation in times of high attention. Developing a model featuring the
attention threshold, I show that the observed attention changes offer a joint explanation for
the recent inflation surge, its interplay with inflation expectations, and the long last mile of
disinflation.

March 28, 2025, Filed Under: Working Paper

Attention to the Macroeconomy

EMPCT Working Paper Series No. 2025-03
74 pages | PDF Download | PDF in Browser


Citation:
Link, Sebastian, Peichl, Andreas, Pfauti, Oliver, Roth, Christopher, Wohlfart, Johannes, “Attention to the Macroeconomy”, March 2025

Sebastian Link
ifo Institute –  Leibniz Institute for Economic Research at the University of Munich

Andreas Peichl
 ifo Center for Macroeconomics and Surveys

Oliver Pfäuti
The University of Texas at Austin

Christopher Roth
University of Cologne

Johannes Wohlfart
University of Cologne


Abstract
We collect novel measures of households’ and firms’ attention to the economy using open- ended survey questions, fielded during a large shock to inflation, and test the predictions of theories of rational, goal-optimal attention allocation. We find support for several predictions of such theories: attention to the macroeconomy exhibits large and persistent cross-sectional heterogeneity, which is related to agents’ degree of exposure to the economy and measures of information costs; attention to the macroeconomy responds strongly to shocks; more attentive respondents adjust their inflation expectations more frequently during the shock, are more confident in their beliefs, and hold smaller misperceptions about realized inflation. However, at odds with goal-optimality of attention, more attentive agents’ expectations about future inflation deviate more strongly from expert benchmarks. To explain these patterns, we present a model of selective memory, in which attention can be “non-goal-optimal”. In this model, prior experiences shape both attention allocation and belief formation, and attention to other variables can spill over to inflation expectations. We confirm these additional predictions in our data.

March 5, 2025, Filed Under: Working Paper

Fast and Slow Technological Transitions

EMPCT Working Paper Series No. 2025-02
74 pages | PDF Download | PDF in Browser


Citation:
Adão, Rodrigo, Martin Beraja, and Nitya Pandalai-Nayar, “Fast and Slow Technological Transitions”, February 2024

Rodrigo Adãoy
Booth School of Business

Martin Berajaz
MIT

Nitya Pandalai-Nayar
University of Texas at Austin


Abstract
Do economies adjust slowly to certain technological innovations and more rapidly to others?
We argue that the adjustment is slower when innovations mainly benefit production
activities requiring skills which are more different from those used in the rest of the economy.
The reason is that, when such skill specificity is stronger, the adjustment of labor markets
is driven less by the fast reallocation of older incumbent workers and more by the gradual
entry of younger generations to the benefitted activities. We begin by documenting that the
U.S. labor market adjusted differently to the arrival of Information & Communications Technologies
(ICT) in the late twentieth century than it did to innovations in manufacturing at the
beginning of that century. We then build an overlapping generations model of technological
transitions. It allows us to sharply characterize the effects of skill specificity on equilibrium
dynamics, match the evidence in a parsimonious way, and study its welfare implications. We
show that stronger skill specificity helps to explain why the ICT transition was more unequal
and slower, driven entirely by the gradual entry of younger generations who accrued more of
the welfare gains from ICT innovations.

February 20, 2025, Filed Under: Working Paper

How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach

EMPCT Working Paper Series No. 2025-01
66 pages | PDF Download | PDF in Browser


Citation:
Georgarakos, Dimitris, Kwang Hwan Kim, Olivier Coibion, Myungkyu Shim, Myunghwan Andrew Lee, Yuriy Gorodnichenko, Geoff Kenny, Seowoo Han, and Michael Weber, “How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach”, February 2025.

Dimitris Georgarakos
European Central Bank & CEPR

Kwang Hwan Kim
Yonsei University

Olivier Coibion
UT Austin & NBER

Myungkyu Shim
Yonsei University

Myunghwan Andrew Lee
New York University

Yuriy Gorodnichenko
UC Berkeley, CEPR, & NBER

Geoff Kenny
European Central Bank

Seowoo Han
Yonsei University

Michael Weber
Chicago Booth, CEPR, & NBER


Abstract
Using surveys of households across thirteen countries, we study how much individuals would be willing to pay to eliminate business cycles. These direct estimates are much higher than traditional measures following Lucas (2003): on average, households would be prepared to sacrifice around 5-6% of their lifetime consumption to eliminate business cycle fluctuations. A similar result holds for inflation: to bring inflation to their desired rate, individuals would be willing to sacrifice around 5% of their consumption. Willingness to pay to eliminate business cycles and inflation is generally higher for those whose consumption is more pro-cyclical, those who are more uncertain about the economic outlook, and those who live in countries with greater historical volatility. 

October 25, 2024, Filed Under: Working Paper

Weathering the Storm: Supply Chains and Climate Risk

EMPCT Working Paper Series No. 2024-08
82 pages | PDF Download | PDF in Browser


Citation:
Castro-Vencenzi, Juanma, Gaurav Khanna, Nicolas Morales, and Nitya Pandalai-Nayar , “Weathering the Storm: Supply Chains and Climate Risk” October, 2024

Juanma Castro-Vincenzi
University of Chicago

Gaurav Khanna
University of California, San Diego

Nicolas Morales
Federal Reserve Bank of Richmond

Nitya Pandalai-Nayar
University of Texas at Austin and NBER


Abstract
We characterize how firms structure supply chains under climate risk. Using new data on the universe of firm-to-firm transactions from an Indian state, we show that firms diversify sourcing locations, and that suppliers exposed to climate risk charge lower prices. We develop a general equilibrium spatial model of firm input sourcing under climate risk. Firms diversify identical inputs from suppliers across space, trading off the probability of climate disruptions against higher input costs. We quantify the model using data on 271 Indian regions. Wages are inversely correlated with sourcing risk, giving rise to a cost minimization-resilience tradeoff. Supply chain diversification unambiguously reduces real wage volatility, but ambiguously affects their levels, as diversification may come with high input costs. While diversification mitigates climate risk, it exacerbates the distributional consequences of climate change by reducing wages in regions prone to frequent shocks.

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