Showing papers by "Giorgio Topa published in 2011"

Labor Markets and Referrals

Abstract: The use of social networks and personal referrals in the labor market is very widespread. Both firms and workers may find it beneficial to use these informal channels to produce successful matches between job seekers and vacancies. This Chapter discusses the existing literature and highlights the most robust results. It describes the theoretical literature on the use of informal search methods, both in a micro and in a macro setting, as well as the empirical findings in this area. The empirical evidence comes both from direct surveys of workers and firms and from indirect estimates that exploit structural modeling as well as natural experiments. Finally, the Chapter discusses open questions and possible avenues for future research. JEL Codes: C21, D21, J64, R23

Measuring consumer uncertainty about future inflation

Abstract: We introduce a survey-based measure of uncertainty about future inflation, asking consumers for density forecasts across inflation outcomes. Consumers are willing and able to express uncertainty, showing high response rates and response patterns that are reliably related to qualitative measures of uncertainty. Heterogeneity in expressed uncertainty is associated with demographic characteristics and financial literacy, and measures of central tendency derived from density forecasts are strongly correlated with point forecasts. Furthermore, expressed uncertainty is positively related to point forecast levels and to larger revisions in point forecasts over time.

Measuring Mismatch in the U.S. Labor Market

Abstract: This paper measures mismatch between job-seekers and vacancies in the U.S. labor market. Mismatch is defined as the distance between the observed allocation of unemployed workers across sectors and the optimal allocation that solves a planner’s problem. The planner’s allocation rule requires (productive and matching) efficiency-weighted vacancy-unemploym ent ratios to be equated across sectors. More severe mismatch between vacant jobs and idle workers translates into higher unemployment by reducing the aggregate job-finding rate. In our empirical analysis, we use two sources of crosssectional data on vacancies, JOLTS and HWOL, together with unemployment data from the CPS. We find that mismatch across industries and occupations accoun ts for 0.6 to 1.7 percentage points of the recent rise (by about five percentage points) in the U.S. unem ployment rate, whereas geographical mismatch plays no role. The share of the rise in unemployment explained by mismatch is increasing in the education level.

Inflation Expectations and Behavior: Do Survey Respondents Act on Their Beliefs?

Abstract: We compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment. The survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment. More importantly, we find evidence that most respondents act on their inflation expectations showing patterns consistent with economic theory. Respondents whose behavior cannot be rationalized tend to have lower education and lower numeracy and financial literacy. These findings help confirm the relevance of inflation expectations surveys and provide support to the microfoundations of modern macroeconomic models.

The Empirical Content of Models with Multiple Equilibria in Economies with Social Interactions

Abstract: In this paper (1) we propose a feasible estimation procedure for a general class of models with social interaction (which might display multiple equilibria); (2) we evaluate

Expectations of Inflation: The Biasing Effect of Thoughts about Specific Prices

Abstract: National surveys follow consumers’ expectations of future inflation, because they may directly affect the economic choices they make, indirectly affect macroeconomic outcomes, and be considered in monetary policy. Yet relatively little is known about how individuals form the inflation expectations they report on consumer surveys. Medians of reported inflation expectations tend to track official estimates of realized inflation, but show large disagreement between respondents, due to some expecting seemingly extreme inflation. We present two studies to examine whether individuals who consider specific price changes when forming their inflation expectations report more extreme and disagreeing inflation expectations due to focusing on specific extreme price changes. In Study 1, participants who were instructed to recall any price changes or to recall the largest price changes both thought of various items for which price changes were perceived to have been extreme. Moreover, they reported more extreme year-ahead inflation expectations and showed more disagreement than did a third group that had been asked to recall the average change in price changes. Study 2 asked participants to report their year-ahead inflation expectations, without first prompting them to recall specific price changes. Half of participants nevertheless thought of specific prices when generating their inflation expectations. Those who thought of specific prices reported more extreme and more disagreeing inflation expectations, because they were biased toward various items associated with more extreme perceived price changes. Our findings provide new insights into expectation formation processes and have implications for the design of survey-based measures of inflation.

Inflation expectations: The biasing effect of thoughts about specific prices

Abstract: National surveys follow consumers’ expectations of future inflation, because these may directly affect the economic choices they make, indirectly affect macro-economic outcomes, and are considered in monetary policy. Yet, relatively little is known about how individuals form the inflation expectations they report on consumer surveys. Medians of reported inflation expectations tend to track official estimates of realized inflation, but show large heterogeneity between respondents, due to some expecting seemingly extreme inflation. We present two studies to examine whether individuals who consider specific price changes when forming their inflation expectations report more extreme and disagreeing inflation expectations due to focusing on specific extreme price changes. In Study 1, participants who were instructed to recall any price changes or to recall the largest price changes both thought of items for which price changes were perceived to have been extreme. Moreover, they reported more extreme year-ahead inflation expectations and showed more disagreement than did a third group that had been asked to recall the average change in price changes. Study 2 asked participants to report their year-ahead expectations of inflation, without first prompting them to recall specific price changes. Half of participants nevertheless thought of specific prices when generating their inflation expectations. Those who thought of specific prices reported more extreme and more disagreeing inflation expectations, because they were biased towards various items associated with more extreme perceived price changes. Our findings provide new insights into expectation formation processes and have implications for the design of survey-based measures of inflation.

The Empirical Content of Models with Multiple Equilibria in Economies with Social Interactions

Abstract: We study a general class of models with social interactions that might display multiple equilibria. We propose an estimation procedure for these models and evaluate its efficiency and computational feasibility relative to different approaches taken to the curse of dimensionality implied by the multiplicity. Using data on smoking among teenagers, we implement the proposed estimation procedure to understand how group interactions affect health-related choices. We find that interaction effects are strong both at the school level and at the smaller friends-network level. Multiplicity of equilibria is pervasive at the estimated parameter values, and equilibrium selection accounts for about 15 percent of the observed smoking behavior. Counterfactuals show that student interactions, surprisingly, reduce smoking by approximately 70 percent with respect to the equilibrium smoking that would occur without interactions.

Expectations of inflation: the biasing effect of thoughts about specific prices

Abstract: National surveys follow consumers’ expectations of future inflation, because they may directly affect the economic choices they make, indirectly affect macroeconomic outcomes, and be considered in monetary policy. Yet relatively little is known about how individuals form the inflation expectations they report on consumer surveys. Medians of reported inflation expectations tend to track official estimates of realized inflation, but show large disagreement between respondents, due to some expecting seemingly extreme inflation. We present two studies to examine whether individuals who consider specific price changes when forming their inflation expectations report more extreme and disagreeing inflation expectations due to focusing on specific extreme price changes. In Study 1, participants who were instructed to recall any price changes or to recall the largest price changes both thought of various items for which price changes were perceived to have been extreme. Moreover, they reported more extreme year-ahead inflation expectations and showed more disagreement than did a third group that had been asked to recall the average change in price changes. Study 2 asked participants to report their year-ahead inflation expectations, without first prompting them to recall specific price changes. Half of participants nevertheless thought of specific prices when generating their inflation expectations. Those who thought of specific prices reported more extreme and more disagreeing inflation expectations, because they were biased toward various items associated with more extreme perceived price changes. Our findings provide new insights into expectation formation processes and have implications for the design of survey-based measures of inflation.