Working Papers
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How Partisanship Shapes Economic Expectations: Evidence from the 2025 U.S. Tariff Announcement
Paper · Video (CEPR Central Bank Communications Seminar) · Mosbacher Institute Takeaway ·
Abstract
We study how households update expectations about the economic effects of tariffs following the "Liberation Day" policy announcement. Using an online survey experiment, we document substantial disagreement in subjective economic models, driven primarily by political affiliation. Providing evidence-based information leads to belief updating, but the form of updating depends on prior beliefs and the perceived novelty and interpretation of the information. When respondents largely agree on the direction of an effect—as in inflation—information is used to revise perceived magnitude. When prior beliefs are more dispersed—as in unemployment—updating occurs mainly through directional changes, often involving revisions in the underlying economic mechanism. These dynamics widen partisan gaps in inflation expectations but partially reduce differences in unemployment expectations, with no corresponding changes in political approval.
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Deception Aversion
Paper ·
Abstract
In communicating private information, opportunities to lie by misreporting the truth also present opportunities to deceive by inducing inaccurate beliefs. While many studies document truth-telling despite material costs—commonly attributed to lying aversion—such behavior may also reflect aversion to deceiving others. Disentangling the two preferences is challenging because deception depends on the sender's unobserved second-order beliefs. In a novel game, we show theoretically how to identify deception aversion from choice data alone, under minimal assumptions on beliefs. In a laboratory experiment, we find strong evidence of deception aversion: many subjects lie to avoid deception; structural estimates imply that 30% are deception-averse.
Publications
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Revisiting Wage Rigidity and Welfare in Currency Unions: The Role of Downward Nominal Wage Rigidity
Paper ·
Abstract
This paper studies the welfare implications of downward nominal wage rigidity (DNWR) in a currency union. Using firm-level survey data from the European Union, we document the prevalence of DNWR and incorporate it into a small open economy New Keynesian model with staggered wage adjustment. Consistent with previous literature, a model without DNWR generates a hump-shaped relationship between welfare loss and wage sluggishness. Once DNWR is introduced and the constraint binds sufficiently frequently, however, this trade-off largely disappears. By constraining downward wage adjustment, DNWR compresses wage and price inflation volatility, making employment fluctuations the dominant source of welfare loss. As a result, welfare losses increase monotonically with wage sluggishness. We further show that these effects are state-dependent and that DNWR flattens the Phillips curve, amplifying the real effects of demand shocks in a currency union.
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Beyond the Spike at Zero: Understanding Nominal Wage Rigidity through Empirical and Model-Based Approaches
Published version · Pre-print · State-level DNWR measures (data) ·
Abstract
I examine the cyclical properties of nominal wage change distributions across time and US states using nationally representative household surveys from 1979 to 2018. The novel finding is that the share of workers with no wage changes, which accounts for the large spike at zero in the nominal wage change distribution, is more countercyclical than the share of workers with wage cuts. I analyze heterogeneous agent models with six alternative wage-setting schemes and conclude that the model with downward nominal wage rigidity is the most consistent with empirical findings regarding the shape and cyclicality of wage change distributions.
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Fueling Expectations: The Causal Impact of Gas Prices on Inflation Expectations
Published version · Pre-print · Slides · Mosbacher Institute Takeaway ·
Abstract
We investigate the effects of temporary state-level gas tax suspensions on inflation expectations. Using a difference-in-differences strategy, we show that households in states that lower the gas tax reduce their inflation expectations, but the impact of the policy depends on how much of the tax cut was passed through to prices. We provide new causal evidence of the link between gas prices and household inflation expectations and demonstrate that gas prices play a more significant role in shaping inflation expectations than previously suggested in the literature. We also show experimental evidence that informing households about the tax reduction leads them to adjust their inflation expectations downward. However, we do not find evidence that temporary gas tax suspensions had a stimulative effect on consumption. These findings underscore the potential for alternative policy levers to influence household beliefs and behavior.
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State-Dependent Government Spending Multipliers: Downward Nominal Wage Rigidity and Sources of Business Cycle Fluctuations
Published version · Pre-print · NBER Working Paper 30025 · Slides · Mosbacher Institute Takeaway · Replication package ·
Abstract
In a New Keynesian model with downward nominal wage rigidity (DNWR), we show that government spending is more effective in stimulating output in a low-inflation recession relative to a high-inflation recession. The government spending multiplier is large when DNWR binds, but the nature of recession matters due to the opposing response of inflation, and consequently for real wages. Using U.S. historical time series data, we provide evidence of larger spending multipliers in low inflation recessions and the importance of the depth of recessions. We also employ cross-sectional data from U.S. states to document supporting evidence on multipliers and our proposed mechanism.
- The Impact of Retail E-Commerce on Relative Prices and Consumer Welfare
Selected Work in Progress
- Work Schedule Rigidity and Fertility (with Eunseong Ma)
- Inflation and Effective Labor Supply (with Chae Won Baek and Vitaliia Yaremko), AEA RCT Registry 0017600
- Fertility Expectation Distortions and Low Fertility: An Information Experiment on Fertility Intentions (with Suanna Oh, Kwanghwan Kim, Taekyung Kim, Myunghwan Lee, Myungkyu Shim,a nd Inkyung Yoo, Data collection supported by the Bank of Korea.