arXiv subjects

Emmanuel Saez

Publications and source records attributed to Emmanuel Saez.

6 recordsLinked to original sources

arXiv2026

Beveridgean Phillips Curve

This paper develops a Beveridgean model of the Phillips curve. While the New Keynesian Phillips curve is based on monopolistic pricing under price-adjustment costs, the Beveridgean Phillips curve is based on directed-search pricing under price-adjustment costs. Under directed search, prices respond to slack instead of marginal costs. The resulting Phillips curve has three properties that match recent US evidence. First, it delivers the divine coincidence: inflation is on target whenever unemployment is at its efficient level---the full-employment rate of unemployment (FERU), the geometric mean of the unemployment and vacancy rates. Second, it is decreasing and convex in the unemployment-inflation plane: inflation responds more strongly to unemployment when the labor market is inefficiently tight than when it is inefficiently slack. The convexity is inherited from the Beveridge curve, which makes unemployment a decreasing and convex function of tightness. Third, shifts of the Beveridge curve move the FERU and therefore shift the unemployment-inflation Phillips curve. The model also implies that the Fed's dual mandate is internally consistent, that a soft landing from an inefficiently tight labor market is possible, and that the zero lower bound is not topsy-turvy.

econ.TH↗

arXiv2024

Has the Recession Started?

To answer this question, we develop a new Sahm-type recession indicator that combines vacancy and unemployment data. The indicator is the minimum of the Sahm indicator -- the difference between the 3-month trailing average of the unemployment rate and its minimum over the past 12 months -- and a similar indicator constructed with the vacancy rate -- the difference between the 3-month trailing average of the vacancy rate and its maximum over the past 12 months. We then propose a two-sided recession rule: When our indicator reaches 0.3pp, a recession may have started; when the indicator reaches 0.8pp, a recession has started for sure. This new rule is triggered earlier than the Sahm rule: on average it detects recessions 0.8 month after they have started, while the Sahm rule detects them 2.1 months after their start. The new rule also has a better historical track record: it perfectly identifies all recessions since 1929, while the Sahm rule breaks down before 1960. With August 2024 data, our indicator is at 0.54pp, so the probability that the US economy is now in recession is 48%. In fact, the recession may have started as early as March 2024.

econ.GN↗

arXiv2024

$u^* = \sqrt{uv}$

This paper aims to compute the unemployment rate $u^*$ that is consistent with full employment in the United States. First, it argues that the most appropriate economic translation of the legal notion of full employment is social efficiency. Here efficiency requires to minimize the nonproductive use of labor -- both unemployment and recruiting. The nonproductive use of labor is measured by the number of jobseekers and vacancies, $u + v$. Through the Beveridge curve, the numbers of vacancies and jobseekers are inversely related, $uv = \text{constant}$. With such symmetry the labor market is efficient when there are as many jobseekers as vacancies ($u = v$), inefficiently tight when there are more vacancies than jobseekers ($v > u$), and inefficiently slack when there are more jobseekers than vacancies ($u > v$). Accordingly, the full-employment rate of unemployment (FERU) is the geometric average of the unemployment and vacancy rates: $u^* = \sqrt{uv}$. Between 1930 and 2023, the FERU averages $4.1\%$ and is quite stable -- it always remains between $2.5\%$ and $6.6\%$.

econ.GN↗

arXiv2021

Beveridgean Unemployment Gap

This paper develops a sufficient-statistic formula for the unemployment gap -- the difference between the actual unemployment rate and the efficient unemployment rate. While lowering unemployment puts more people into work, it forces firms to post more vacancies and to devote more resources to recruiting. This unemployment-vacancy tradeoff, governed by the Beveridge curve, determines the efficient unemployment rate. Accordingly, the unemployment gap can be measured from three sufficient statistics: elasticity of the Beveridge curve, social cost of unemployment, and cost of recruiting. Applying this formula to the United States, 1951--2019, we find that the efficient unemployment rate averages 4.3%, always remains between 3.0% and 5.4%, and has been stable between 3.8% and 4.6% since 1990. As a result, the unemployment gap is countercyclical, reaching 6 percentage points in slumps. The US labor market is therefore generally inefficient and especially inefficiently slack in slumps. In turn, the unemployment gap is a crucial statistic to design labor-market and macroeconomic policies.

econ.GN↗

arXiv2021

An Economical Business-Cycle Model

This paper develops a new model of business cycles. The model is economical in that it is solved with an aggregate demand-aggregate supply diagram, and the effects of shocks and policies are obtained by comparative statics. The model builds on two unconventional assumptions. First, producers and consumers meet through a matching function. Thus, the model features unemployment, which fluctuates in response to aggregate demand and supply shocks. Second, wealth enters the utility function, so the model allows for permanent zero-lower-bound episodes. In the model, the optimal monetary policy is to set the interest rate at the level that eliminates the unemployment gap. This optimal interest rate is computed from the prevailing unemployment gap and monetary multiplier (the effect of the nominal interest rate on the unemployment rate). If the unemployment gap is exceedingly large, monetary policy cannot eliminate it before reaching the zero lower bound, but a wealth tax can.

econ.TH↗

arXiv2019

Resolving New Keynesian Anomalies with Wealth in the Utility Function

At the zero lower bound, the New Keynesian model predicts that output and inflation collapse to implausibly low levels, and that government spending and forward guidance have implausibly large effects. To resolve these anomalies, we introduce wealth into the utility function; the justification is that wealth is a marker of social status, and people value status. Since people partly save to accrue social status, the Euler equation is modified. As a result, when the marginal utility of wealth is sufficiently large, the dynamical system representing the zero-lower-bound equilibrium transforms from a saddle to a source---which resolves all the anomalies.

econ.TH↗