What Do We Learn from Cross-Regional Empirical Estimates in Macroeconomics?

59 Pages Posted: 23 Mar 2020 Last revised: 13 Dec 2021

See all articles by Adam M. Guren

Adam M. Guren

Boston University - Department of Economics

Alisdair McKay

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Emi Nakamura

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)

Jón Steinsson

Columbia University

Date Written: March 2020

Abstract

Recent empirical work uses variation across cities or regions to identify the effects of economic shocks of interest to macroeconomists. The interpretation of such estimates is complicated by the fact that they reflect both partial equilibrium and local general equilibrium effects of the shocks. We propose an approach for recovering estimates of partial equilibrium effects from these cross-regional empirical estimates. The basic idea is to divide the cross-regional estimate by an estimate of the local fiscal multiplier, which measures the strength of local general equilibrium amplification. We apply this approach to recent estimates of housing wealth effects based on city-level variation, and derive conditions under which the adjustment is exact. We then evaluate its accuracy in a richer general equilibrium model of consumption and housing. The paper also reconciles the positive cross-sectional correlation between house price growth and construction with the notion that cities with larger price volatility have lower housing supply elasticities using a model in which housing supply elasticities are more dispersed in the long run than in the short run.

Suggested Citation

Guren, Adam M. and McKay, Alisdair and Nakamura, Emi and Steinsson, Jón, What Do We Learn from Cross-Regional Empirical Estimates in Macroeconomics? (March 2020). NBER Working Paper No. w26881, Available at SSRN: https://ssrn.com/abstract=3559170

Adam M. Guren (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

HOME PAGE: http://people.bu.edu/guren/

Alisdair McKay

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

Emi Nakamura

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jón Steinsson

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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