Research

Central banks across the globe introduced large-scale asset purchase programs to address the unprecedented circumstances experienced during the pandemic. Many of these programs were announced as open-ended in order to shock-and-awe market participants and restore confidence in financial markets. This paper examines whether these whatever-it-takes announcements had larger effects than traditional policy announcements with explicit limits on scale. We use a narrative approach to categorize the announcements made by twenty-two central banks in advanced and emerging economies during the pandemic. Using event study, propensity-score-matching, and local projection methods, we measure the short-term effects of policy announcements on exchange rates and sovereign bond yields. We find that on average a central bank's first whatever-it-takes announcement lowers 10-year bond yields by an additional 25 basis points relative to size-limited announcements, suggesting that communication of potential policy scale matters. Announcement impacts on both exchange rates and yields differ across advanced and emerging economies.

We estimate the responsiveness of net labor migration to regional differences in unemployment rates across the United States since the mid-1970s. Our baseline estimate suggests an elasticity of roughly -0.3. For typical labor force participation ratios, an increase of 100 unemployed workers in an area is associated with net out-migration of roughly 47 workers. Instrumenting for regional unemployment produces even higher estimates. Our estimates are stable over time, inclusive of the Great Recession. The estimates depend crucially on accurate data and accounting for long-term trends in migration and unemployment.

Safe assets are a cornerstone of the modern international financial system, but the set of global safe assets can change over time. I show that the perceived safety of an asset can exhibit short-to-medium-term fluctuations that have significant real implications. I construct a text-based index from newspaper mentions, the FLY, to measure global demand for safe assets and flight-to-safety episodes, and I estimate time-varying loadings on the index for a large set of sovereign bonds from both advanced and emerging economies. I identify switches in a bond's safety through changes in the sign and significance of its loading on the FLY. Safety switches are common, they happen across credit rating classes, and they are not fully captured by rating upgrades or downgrades. Safety switches are also associated with sizable movements in macroeconomic variables: positive switches (i.e. becoming safe) are associated with an increase in government spending but are not expansionary, while negative switches (i.e. becoming risky) lead to contractions in both government spending and output. In addition, debt grows after a positive switch, as countries take advantage of their newly-gained safe status; conversely, following a negative switch, debt falls and its maturity structure shortens persistently.

The creation of the euro was a historic event that required new members of the union to make considerable adjustments to their perceptions and expectations about prices, inflation, and the dynamics of the economy. Data from the European Commission Consumer Survey suggests that forecast errors behaved differently in core and periphery countries, with those in the latter being larger, more volatile, and more autocorrelated. In addition, there is a significant relationship between forecast errors and current account in both core and periphery countries, but with opposite signs: it is negative in the periphery and positive in the core. I rationalize this finding using a small open economy model with an adaptive learning block. The model shows that deviations from rational expectations generate a wedge in the real interest rate channel, altering dynamics relative to the rational expectations benchmark. Whether imbalances are amplified or attenuated depends on key parameter values and on the sign of the forecast errors. I use the model to track the evolution of agents' beliefs after the creation of the euro, showing how different countries learned their way into the union and adapted to the new inflation dynamics. The results have broader implications for the dynamics of external imbalances in small open economies when expectations are not fully rational.