Choongryul Yang | Senior Economist | Federal Reserve Board

We study the role of homeownership in the effectiveness of monetary policy on households' expectations based on individual-level microdata in the U.S. We find that homeowners lower their near-term inflation expectations and optimism about the labor market outlook in response to a rise in mortgage rates, while renters are less likely to do so. We further show that forward guidance shocks lead to similar differences between homeowners and renters. Our results suggest that homeowners pay attention to news on interest rates and adjust their expectations accordingly in a manner consistent with the intended effect of monetary policy. We characterize this empirical finding with a rational inattention model where mortgage payments create an incentive for homeowners to acquire information on monetary policy, unlike renters. This housing-driven endogenous attentiveness is the key mechanism behind the compelling empirical link among homeownership, attention, and the transmission of monetary policy.

@article{AXY2024,
author = {Hie Joo Ahn and Shihan Xie and Choongryul Yang},
title = {Effects of monetary policy on household expectations:
The role of homeownership},
journal = {Journal of Monetary Economics},
doi = {https://doi.org/10.1016/j.jmoneco.2024.103599},
url = {https://www.sciencedirect.com/science/article/pii/S0304393224000527},
year = {2024}
note = {Forthcoming}
}

Redistribution and the Monetary–Fiscal Policy Mix
Quantitative Economics, July 2023, Vol. 14, Issue 3, 817–853.
with Saroj Bhattarai and Jae Won Lee
pdf| abstract| cite| [FEDS WP] [CAMA WP] [CESifo WP]

We show that the effectiveness of redistribution policy is tied to how much inflation it generates, and thereby, to monetary-fiscal adjustments that ultimately finance the transfers. In the monetary regime, taxes increase to finance transfers while in the fiscal regime, inflation rises, imposing inflation taxes on public debt holders. We show analytically that the fiscal regime generates larger and more persistent inflation than the monetary regime. In a two-sector model, we quantify the effects of the CARES Act in a COVID recession. We find that transfer multipliers are larger, and that moreover, redistribution is Pareto improving, under the fiscal regime.

@article{BLY2023,
author = {Bhattarai, Saroj and Lee, Jae Won and Yang, Choongryul},
title = {Redistribution and the monetary-fiscal policy mix},
journal = {Quantitative Economics},
volume = {14},
number = {3},
pages = {817-853},
doi = {https://doi.org/10.3982/QE2030},
url = {https://onlinelibrary.wiley.com/doi/abs/10.3982/QE2030},
eprint = {https://onlinelibrary.wiley.com/doi/pdf/10.3982/QE2030},
year = {2023}
}

Rational Inattention, Menu Costs, and Multi-Product Firms: Micro Evidence and Aggregate Implications
Journal of Monetary Economics, May 2022, Vol. 128, 105–123.
Winner of the 2020 SCE Student Prize [Link]
pdf| abstract| cite|

Using a New Zealand firm-level survey, I show that firms producing more goods have both better information about inflation and more frequent but smaller price changes. To explain these empirical findings, I develop a general equilibrium menu cost model with rationally inattentive multi-product firms. I show that the interaction of nominal and informational rigidities leads to a new selection effect: price adjusters are better informed than non-adjusters. This selection endogenously generates a leptokurtic distribution of desired price changes, which amplifies monetary non-neutrality. Compared to a one-product baseline, the real effects of monetary shocks are 12% smaller in a two-product model.

@article{Yang2022,
title = {Rational inattention, menu costs, and multi-product firms:
Micro evidence and aggregate implications},
journal = {Journal of Monetary Economics},
volume = {128},
pages = {105-123},
year = {2022},
issn = {0304-3932},
doi = {https://doi.org/10.1016/j.jmoneco.2022.04.004},
url = {https://www.sciencedirect.com/science/article/pii/S0304393222000587},
author = {Choongryul Yang},
}

Local Scars of the US Housing Crisis
Journal of Monetary Economics, April 2021, Vol. 119, 40–57.
with Saroj Bhattarai and Felipe Schwartzman
pdf| abstract| cite| [Richmond Fed WP]

The 2006-09 US housing crisis had scarring local effects. For a given county, a housing shock generating a 10% reduction in housing wealth from 2006 through 2009 led to a 4.4% decline in employment by 2018 and a commensurate decline in value added. This persistent local effect occurred despite the shock having no significant impact on labor productivity. The local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and long-run convergence in the local labor market slack instead took place entirely through population losses in affected regions. Moreover, the 2002-06 housing boom does not generate significant employment gains, indicating that the employment losses relative to 2006 are also losses relative to the counterfactual case in which there was no housing cycle.

@article{BSY2021,
title = {Local scars of the US housing crisis},
journal = {Journal of Monetary Economics},
volume = {119},
pages = {40-57},
year = {2021},
issn = {0304-3932},
doi = {https://doi.org/10.1016/j.jmoneco.2021.02.001},
url = {https://www.sciencedirect.com/science/article/pii/S0304393221000167},
author = {Saroj Bhattarai and Felipe Schwartzman and Choongryul Yang},
}

What Can Measured Beliefs Tell Us About Monetary Non-Neutrality?
with Hassan Afrouzi and Joel P. Flynn
Reject and resubmit at American Economic Review
pdf (Jun ’24)| abstract | [NBER WP] [FEDS WP]

This paper studies how measured beliefs can be used to identify monetary non-neutrality. In a general equilibrium model with both nominal rigidities and endogenous information acquisition, we analytically characterize firms' optimal dynamic information policies and how their beliefs affect monetary non-neutrality. We then show that data on the cross-sectional distributions of uncertainty and pricing durations are both necessary and sufficient to identify monetary non-neutrality. Finally, implementing our approach in New Zealand survey data, we find that informational frictions approximately double monetary non-neutrality and endogeneity of information is important: models with exogenous information would overstate monetary non-neutrality by approximately 50%.

We develop a fast, tractable, and robust method for solving the transition path of dynamic rational inattention problems in linear-quadratic-Gaussian settings. As an application of our general framework, we develop an attention-driven theory of dynamic pricing in which the Phillips curve slope is endogenous to systematic aspects of monetary policy. In our model, when the monetary authority is more committed to stabilizing nominal variables, rationally inattentive firms pay less attention to changes in their input costs, which leads to a flatter Phillips curve and more anchored inflation expectations. This effect, however, is not symmetric. A more dovish monetary policy flattens the Phillips curve in the short-run but generates a steeper Phillips curve in the long-run. In a calibrated version of our general equilibrium model, we find that our mechanism quantifies a 75% decline in the slope of the Phillips curve in the post-Volcker period, relative to the period before it.

Land Development and Frictions to Housing Supply over the Business Cycle
with Hyunseung Oh and Chamna Yoon
pdf (Feb ’24)| abstract| appendix| featured in Bloomberg| [FEDS WP]

Using a novel data set of U.S. residential land developments, we document that the average time to develop residential properties—which includes both the time spent preparing land infrastructures and construction—is about three years, consistent with sizable lags in housing investment projects. We show that the time to develop is highly dispersed across locations, a finding that helps quantify the housing supply elasticity that is relevant for assessing local housing variations over the business cycle. We also show that incorporating long and dispersed time to develop into an otherwise standard housing investment model helps rationalize some empirical facts on the housing market. Our model implies that policies to boost housing supply are less effective in immediately stabilizing house prices for regions where land development takes a long time.

Shocks, Frictions, and Policy Regimes: Understanding Inflation after the COVID-19 Pandemic
with Taeyoung Doh
pdf (Sep ’24)| abstract| [KC Fed WP]

We set-up a two-sector New Keynesian model with input-output linkages and monetaryfiscal policy interactions to study the post-COVID-19 inflation. We test alternative calibrations of the model based on the fit of aggregate inflation, using shock estimates obtained by fitting goods inflation. Our preferred model suggests that fiscal shocks not offset by monetary policy account for the initial inflation surge in the first half of 2021 while supply-side shocks have emerged as main drivers of inflation since then. Multiple factors ("supply-side disruption", "expansionary policy", and "sectoral reallocation shock") played an important role at different phases of the recent inflationary episode.

Macroeconomic Effects of Capital Tax Rate Changes
with Saroj Bhattarai, Jae Won Lee, and Woong Yong Park
pdf (May ’22)| abstract| [FEDS WP] [Dallas Fed WP] [CESifo WP]

We study aggregate, distributional, and welfare effects of a permanent reduction in the capital tax rate in a dynamic equilibrium model with capital-skill complementarity. Such a tax reform leads to expansionary long-run aggregate effects but is coupled with an increase in the skill premium. Moreover, the expansionary long-run aggregate effects are smaller when distortionary labor or consumption tax rates have to increase to finance the capital tax rate cut. An extension to a model with heterogeneous households shows that consumption inequality increases in the long-run. We study transition dynamics and show that short-run effects depend critically on the monetary policy response: whether the central bank allows inflation to directly facilitate government debt stabilization and how inertially it raises interest rates. Finally, we contrast the long-term aggregate welfare gains with short-term losses and show that welfare gains for the skilled go together with welfare losses for the unskilled.

Tax Shocks and Financial Heterogeneity
with Cooper Howes

Income Inequality and Government Spending Multipliers