Full Citation
Title: The Aggregate Implications of Regional Business Cycles
Citation Type: Working Paper
Publication Year: 2016
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ISSN:
DOI: 10.3386/w21956
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Abstract: Making inferences about aggregate business cycles from regional variation alone is diffcult 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 US states between local employment and wage growth during the Great Recession. This relationship is much weaker in US 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 US 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.
Url: http://www.nber.org/papers/w21956.pdf
User Submitted?: No
Authors: Beraja, Martin; Hurst, Erik; Ospina, Juan
Series Title: NBER Working Paper Series
Publication Number: 21956
Institution: National Bureau of Economic Research
Pages:
Publisher Location: Cambridge, MA
Data Collections: IPUMS USA, IPUMS CPS
Topics: Labor Force and Occupational Structure, Other
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