Research  

Abstract: How do non-assumable fixed-rate mortgages affect the transmission of interest rates into house prices? Higher rates increase the value of existing fixed-rate debt, create an asymmetry between buyers and existing owners. We use administrative data to study the effect of this asymmetry on existing-home prices and sales during the 2021-23 tightening cycle. Using unexpected increases in the long-term Treasury rate, we find that existing owners value low-rate mortgages: lower fixed rates reduce sales, discourage moves from owning to renting, and increase existing owners' willingness to accept. This causes higher price growth in local housing markets where existing mortgages become more valuable during tightening. For variation in the local mortgage distribution, we develop new instruments based on family size shocks that cause moves in periods with different long-term rates. Our estimates imply that eliminating the value of existing fixed-rate mortgages would reverse 30% of 2021-23 house price growth. We estimate a structural model of dynamic housing demand to measure the net price effect of higher rates, which both increase the value of existing fixed-rate debt and discourage homeownership. Existing models without fixed-rate mortgages predict a 20-37% price decline due to 2021-23 tightening. We predict a 4% decrease. Fixed-rate mortgages thus attenuate negative price effects of rate hikes, but do not explain 2021-23 price growth.

SSRN working paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5075679

A Market Interpretation of Treatment Effects (with Casey B. Mulligan, November 2024)

Abstract: Markets, likened to an invisible hand, often appear to contradict econometric assumptions that rule out spillovers of one person’s treatment on another’s outcomes.  This paper provides a simple statistical framework highlighting that controls are indirectly affected by the treatment through the market.  Further, the effect of the treatment on the treated reveals only part of the consequence for the treated of treating the entire market.  When combined with economic theory, our framework leads to a new application of Marshall’s Laws of Derived Demand that relates econometric estimates of treatment effects in the marketplace to the substitution and scale effects of demand theory.  We show how treatment-effect estimators can diverge – both in magnitude and direction – from the causal effects of treatment on the treated or counterfactual policies treating all market participants.  The framework shows how the consequences of targeted treatments reveal the effects of marketwide treatments, and the role of market frictions in that inference.  Examples from labor, public finance, economic geography, development, and the macro literature on the “missing intercept” are provided.

NBER working paper: A Market Interpretation of Treatment Effects | NBER 

FEDS working paper: The Fed - A Market Interpretation of Treatment Effects

Previous Version: Difference-in-Differences in the Marketplace (NBER: Difference-in-Differences in the Marketplace | NBER, FEDS: The Fed - Difference-in-Differences in the Marketplace)

Reject and Resubmit, AER

Press coverage: Wall Street Journal.

Abstract: How fully and quickly do supply chains transmit commodity price movements into inflation? In a production network with sticky prices, we show that the network delays full propagation of commodity price shocks to downstream firms. This delay from downstreamness occurs even when firms are forward-looking, and myopia amplifies it. We confirm the theory using shift-share designs exploiting firms' differential exposures to commodities through their networks. We find forward-looking responses to oil price movements but myopic responses for other commodities. Applying our model, we show that delayed network propagation of oil price movements forecasts the future path of core inflation.

SSRN working paper: Delayed Inflation in Supply Chains: Theory and Evidence by Robert Minton, Brian Wheaton :: SSRN 

NBER 2024 Economics of Supply Chains Talk: 2024 Economics of Supply Chains, Robert Minton, "Delayed Inflation in Supply Chains: Theory and Evidence" | NBER 

Abstract: We argue that wage rigidity induced by the minimum wage is an important channel for the transmission of monetary policy.  Intuitively, while expansionary monetary policy leads flexible prices to increase, the nominal minimum wage is held fixed by legislation and therefore falls in real terms. We present empirical evidence that the effect of monetary policy on employment is significantly larger in states with a high cost share of minimum wage workers. This result is robust a wide variety of specifications, including allowing for state-specific and time-varying effects of monetary policy, adding a Bartik control capturing employment changes driven by states' differing industry compositions, and instrumenting the minimum wage cost share with the state's legislated minimum wage.  In our preferred specification, this channel accounts for 39% of the total effect of monetary policy when the minimum wage cost share is high. Verifying the mechanism, we find larger effects of monetary policy on near-minimum-wage employment relative to higher-wage employment.  We conclude that declining minimum wage shares have reduced the efficacy of monetary policy, and more generally that rigid wages are a crucial channel through which monetary policy operates.

Minimum Wages and Internal Migration (with Brian Wheaton, June 2023)

Abstract: We study whether minimum wage changes affect state-to-state migration flows in the United States – a revealed preference approach to whether a state’s low-wage workers find the state’s minimum wage increases to be beneficial. First, we use a model of migration and minimum wages to show that an increase in the minimum wage causes net migration to decline when firms are competitive and to rise when firms are monopsonistic. Second, we assess which of these predictions is more consistent with the data. Using the American Community Survey and the Current Population Survey, we observe the migration patterns of individuals and develop a machine learning algorithm to predict the wages they would earn if working prior to moving. Focusing on individuals predicted to earn no more than $3 above the minimum wage, we apply four distinct research designs (state- and federally-induced difference-in-differences and triple-differences) and find robust evidence that a $1 minimum wage increase leads to a 1.5 percentage point increase in net migration. This accords with the monopsonistic case of the model. Consistent with moving costs deterring changes in residence, we find that the effect is driven by declines in outmigration from states that increase their minimum wages.