Jiri Slacalek

Disagreement among Forecasters in G7 Countries

We investigate determinants of disagreement—cross-sectional dispersion of individual forecasts—about key economic indicators. Disagreement about economic activity, in particular about GDP growth, has a distinct dynamic from disagreement about prices: inflation and interest rates. Disagreement about GDP growth intensifies strongly during recessions. Disagreement about prices rises with their level, declines under independent central banks, and both its level and its sensitivity to macroeconomic variables are larger in countries where central banks became independent only around the mid-1990s. Our findings suggest that credible monetary policy contributes to anchoring of expectations about inflation and interest rates. Disagreement for both groups of indicators increases with uncertainty about the actual series.

The Dynamics of European Inflation Expectations

We investigate the relevance of Carrolls sticky information model of inflation expectations for four major European economies (France, Germany, Italy and the United Kingdom). In contrast to the most rational expectation models, households in the sticky information environment update their expectations occasionally rather than instantaneously due to the costs of acquiring and processing information. Using survey data on household and expert inflation expectations we argue that the model adequately captures the dynamics of household inflation expectations. We estimate two alternative parametrizations of the sticky information model which differ in the stationarity assumptions about the underlying series. Our baseline stationary estimation suggests that the average frequency of information updating for European households is roughly once in 18 months. The vector error-correction model implies households update information about once a year.

The Distribution of Wealth and the Marginal Propensity to Consume

We present a macroeconomic model calibrated to match both microeconomic and macroeconomic evidence on household income dynamics. When the model is modified in a way that permits it to match empirical measures of wealth inequality in the U.S., we show that its predictions (unlike those of competing models) are consistent with the substantial body of microeconomic evidence which suggests that the annual marginal propensity to consume (MPC) is much larger than the 0.02_0.04 range implied by commonly-used macroeconomic models. Our model also (plausibly) predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across categories of households (e.g., low-wealth versus high-wealth households). JEL Classification: D12, D31, D91, E21

Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects

We argue that the U.S. personal saving rate’s long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s - 2007), and recent substantial increase (2008 - 2011) can all be interpreted using a parsimonious ‘buffer stock’ model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is affected by the gap between ‘target’ and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate’s long-term decline, while fluctuations in net wealth and uncertainty capture the bulk of the business-cycle variation.

Labor supply after transition: evidence from the Czech Republic

We extend the scarce evidence on labor supply in post-transition countries by estimating the wage elasticity of labor force participation in the Czech Republic. Using the household income survey data of 2002, we find that a one-percent rise in the gross wage increases the probability of working by 0.16 and 0.02 percentage points for women and men, respectively. Taking into account the tax and benefit system, these semi-elasticities fall to 0.06 for women and 0.01 for men. We interpret the dierence between the estimates from the two specifications as a summary measure of the welfare system disincentives. The estimated wage elasticities lie at the lower end of the range of values reported for mature market economies. This finding is consistent with the stylized fact that the labor supply in countries with high labor force participation rates, such as in the Czech Republic, tends to be less sensitive to wages.

Price Convergence in the Enlarged Internal Market

In this paper we investigate the effects of EU enlargement on price convergence. The internal market is expected to boost integration and increase efficiency and welfare through a convergence of prices in product markets. Two principal drivers are crucial to explain price developments. On the one hand, higher competition exerts a downward pressure on prices because of lower mark ups. On the other hand, the catching up process of low income countries leads to a rise in the price levels and higher inflation over a transition period. Using comparative price levels for individual product categories price convergence can be established. However, the speed of convergence is rather slow, with half lives around 10 years. The enlargement has slightly stimulated the convergence process, and this impact is robust across different groups of countries. Moreover, the driving forces of convergence are explored. In line with theoretical predictions, the rise in competition exerts a downward pressure on prices, Chile catching up of low income countries leads to a rise in price levels

Buffer-stock saving in a Krusell–Smith world

We modify the widely-used Krusell and Smith (1998) model (KS) to accommodate an income process with permanent and transitory components. Appropriately calibrated permanent shocks help explain a substantial part of the empirical wealth heterogeneity unexplained in the baseline KS model.