How Does Moral Hazard Impact Critical Market Banking Performance? [American Business Review] (2024)

• Abstract: The degree to which financial institutions form expectations of policy intervention despite their own risk appetites lies at the heart of macrofinancial regulations such as the Dodd-Frank and Consumer Protection Acts. The effectiveness of these policies hinge on the assumption that large banks are the only banks that are too-big-to-fail (TBTF). However, alternative perspectives posit that banks may be too-complex-to-fail, regardless of their size. To remedy competing TBTF definitions, we propose a new criterion to identify potential TBTF banks by their relative involvement in so-called critical markets, considerate of both bank size and complexity. We estimate a restricted translog semiparametric smooth coefficient seemingly unrelated regressions model (SPSC SUR) wherein model elasticities are functions of nonperforming assets, a proxy for moral hazard, to derive nonperformance-adjusted returns-to-scale estimates for critical market banks from 2001 through 2023. Over our full sample, the median critical market bank tends to operate under increasing returns-to-scale while most critical market banks exhibit decreasing or constant returns-to-scale. Results taken over the past two decades suggest that most TBTF banks have exhausted their economies of scale concurrently alongside the shrinking competitive landscape.

Which Producer Prices Lead Consumer Prices? [Empirical Economics] (2024)

• Abstract: This study investigates the dynamics of producer price inflation, and its role in predicting future consumer prices. Despite recognized stylized facts, recent empirical assessments of producer price inflation, a valid proxy for supply chain volatility, yield conflicting conclusions regarding the presence of pass-through. To address this gap, we use monthly data from January, 2002 through December, 2021, and employ a heterogeneous agent vector autoregressive model to disaggregate the producer price index into its fifteen weighted commodity groups and quantify short-run pass-through, identify causal direction, construct impulse-response functions, and conduct forecast error variance decompositions. In contrast to conventional measures, many disaggregated producer price series exhibit significantly stronger magnitudes, and statistical significance in both impulse-response functions and pass-through coefficients. Notably, consumer price responses to disaggregated producer price shocks demonstrate heightened significance relative to the aggregate producer price series. More interestingly, unlike, the aggregate producer price series, we identify several weighted disaggregated series that unidirectionally influence or "cause" consumer price inflation providing valuable information for forecasters, and policymakers. Finally, we ascertain that three specific disaggregated producer price indices alone account for approximately two-thirds of the variation in consumer price inflation forecasts. These findings underscore the importance of disaggregation in macroeconomic reduced-form modeling, and the potential for aggregation bias in highly aggregated series to mute key variation in underling disaggregated components.

Do Producer Prices Lead Consumer Prices? A Replication Under Data Revisions [New York Economic Review]  (2024)

• Abstract: In 1995, Todd E. Clark of the Kansas City Federal Reserve wrote a seminal piece that asked the simple question: do producer prices lead consumer prices? Clark (1995) would become the foundation for the literature body on producer price inflation pass-through. Clark’s principal findings illustrated that basic inflation forecasts were not always improved in forecast models that included producer price inflation relative to models that omitted producer prices altogether. These mixed results challenged the textbook notion that producer prices lead consumer prices. However, despite Clark’s findings, over twenty-five years of new data has been made available alongside considerable revisions to the producer price index. The combination of new data and revisions to existing data makes a replication, and extension of Clark’s work appealing, particularly considering the new inflation pangs plaguing the developed world currently, as well as continued strain to global value chains, which should be indirectly captured in producer price variation. Our replications results are similar in spirit to Clark (1995) while our contributions by extending Clark (1995) through the present produce mixed results, but at a lower rate of error than Clark (1995). These results suggest that the question of "when," rather than "if" producer prices lead consumer prices would be a high-potential avenue for future research.

Supply Chain Shocks and Retail Resilience: The Dynamics of Global Value Chains and Inventories [Journal of Applied Business and Economics] (2024)

• Abstract: We examine the role and relationship of global value chains and inventories by delving into the dynamic effects of upstream manufacturing shocks on downstream retailer performance. Motivated by the pivotal role inventories play in firm demand management, our research employs a novel two-step methodology involving a reduced-form semiparametric smooth coefficient model, and a structural vector autoregressive model. The findings, based on monthly data spanning from January 1999 to December 2021, reveal a profound, and enduring impact of manufacturing supply chain shocks on the retail sector. Following a unit supply chain shock, downstream retailers experience a substantial and lasting increase in inventory accumulation, accompanied by a short-term decline, and subsequent stabilization in sales. Moreover, post-shock, retailers experience a permanent decrease in output, underscoring the far-reaching, and persistent consequences of disruptions in upstream supply chain agents on downstream retail operations.

Internal and External Determinants of Short-Run Inflation in Pennsylvania  [Pennsylvania Economic Review] (Forthcoming)

• Abstract: Using new quarterly data on consumer price inflation for the state of Pennsylvania, we study the persistence and sensitivity of consumer price inflation to both internal and external determinants of potential pass-through. Leveraging an autoregressive distributed lag modeling framework that approximates an augmented state-specific Phillips Curve, we find that the dynamics of house price inflation, and the unemployment gap are the two strongest sources of internal inflation pass-through while producer price inflation, and money supply growth are the two strongest sources of external inflation pass-through. Relative to neighboring states, we find the persistence of inflation to be the strongest in Pennsylvania suggesting that goods prices are highly rigid. Policymakers in Pennsylvania would be advised to consider the importance of the local housing market and employment gap when constructing and monitoring the trajectory of prices in the state. Furthermore, policymakers would also be advised to enact policies aimed at reigning in inflation over longer intervals given the persistence of the state's inflation rate.

Using Microsoft Excel to Enhance a General Education Economics Course [Journal of Economics Teaching] (2024)

• Abstract: General education economics courses like “Survey of Economics” or “Principles of Economics” are notoriously difficult environments for fostering student engagement and retaining student interest. From the standpoint of students, the value-add of economics as a field, and frameworks for economic thinking may not be obvious, nor will the connections between economic theory, and the world outside the classroom be apparent. This work outlines a simple exercise to incorporate into general education economics courses that nurtures student engagement and exposes students to basic spreadsheet applications such as Microsoft Excel for the purposes of data manipulation, generation, visualization, and description. This exercise is designed to be conducted like a “lab” with explicit instructions, and an in-class tutorial. The data students are provided, and end-results should relate course content to real-world phenomena, better enabling students to see the value between the course material and its application outside of the classroom. 

The Potential Role of Manufacturers’ Orders in the Linear-Quadratic Flexible Accelerator Model [Research in Applied Economics] (2023)

• Abstract: The linear-quadratic flexible accelerator model has been a staple for empirical analysis within the inventories literature. A key assumption of the model is that sales are a proxy for demand, thus inventories are generated in instances where production does not equilibrate with demand. We seek to improve upon the benchmark linear-quadratic model by introducing firm orders, thus allowing for differentiation between realized and expected demand. Estimation results suggest that the omission of orders heavily biases the coefficient sign and magnitude associated with sales. Furthermore, the estimated adjustment speed of orders is both larger in magnitude and statistical significance than for sales. The disparity in the rates of adjustment between expected and realized demand provides a new contribution towards understanding the adjustment speed puzzles pervasive in the literature. Finally, the addition of orders provides stronger evidence of a cointegrating relationship in a trivariate system of equations versus a standard bivariate system containing strictly inventories and sales. However, exogenous order shocks do not seem to meaningfully impact inventory investment, nor sales. Furthermore, forecast error variance for sales, and inventories are not well explained by orders. These results suggest that orders are important in explaining the underlying data generating processes for sales, and inventories, as well as the long-run relationship between inventory, and sales, but offer little in forecasting potential.

Unraveling Producer Price Inflation: Quantification, Structural Breaks, and Causal Direction [Economics] (2023)

• Abstract: Producer price inflation has long been considered a leading indicator for consumer price inflation. However, the evidence supporting the cost-push theory of inflation over extended periods is inconclusive and lacks direct quantification. To address this gap, we employ structural break and causality tests, regression analysis, and local projection impulse-response functions. Our analysis allows us to precisely identify instances when producer prices lead consumer prices and quantify short-run and long-run pass-through rates. We find relatively robust evidence of a producer price pass-through rate between 8 and 12%. However, there are significant periods where unidirectional pass-through does not hold. Local projections reveal that producer price pass-through is small but persistent in states where producer prices lead consumer prices, and larger but shorter-lived in states where there is no causal directionality. Our findings enhance the understanding of producer price pass-through to consumer inflation, providing valuable insights for policymakers and market participants interested in accurately forecasting and managing inflationary pressures.

The Evolution of Inventory Dynamics in a Post-Crisis Economy [Economics Bulletin] (2022)

• Abstract: Inventories are of historical importance when describing business cycles and production volatility. While research in inventories is relatively mature, the growing attention to global value chains and commodity shortages in recent quarters warrants a return and critical reassessment of inventories as a business cycle feature. Herein, we estimate the persistence, volatility, and adjustment rates of inventories over different subsamples, paying particular attention to the period following the Financial Crisis. We find through the estimation of a flexible accelerator model that inventories continue to exhibit strong persistence while the persistence of sales has simultaneously diminished. Using standard volatility metrics within the literature, we illustrate that production volatility relative to sales volatility over long subsamples is highest from 2007 onward. Finally, we uncover evidence from several vector error correction models that the adjustment speed and cointegrating relationship between inventory and sales has deteriorated in the years following the Financial Crisis. This evidence suggests the need for a structural model that can identify the mechanisms underlying these critical changes in inventory dynamics during the post-crisis era.

Do Jet Fuel Price Movements Help Forecast Airline Fares and the Demand for Air Travel? (With Bebonchu Atems and Lance Bachmeier) [Applied Economics Letters] (2019)

• Abstract: The paper studies the predictive content of jet fuel prices for the U.S. aviation industry through in-sample and out-of-sample forecasting exercises. Our results suggest the possibility of limited improvements in the predictions of airline fares, and little evidence of predictability from jet fuel prices to measures of air travel demand.

How Does Moral Hazard Impact Critical Market Banking Performance? [Revisions Requested at American Business Review]

Learning by Doing, Productivity, and Growth: New Evidence on the Link between Micro and Macro Data (With Brad Humphreys and Scott Schuh)

Collectible Pricing in Secondary Markets: The Role of Firm Commitment (With Adam Nowak and Kole Reddig)

Do Improvements to Broadband Access Actually Enhance Standards of Living in Developed Nations? (With Andrew Vassallo)

The Asymmetric Effects of Supply Chain Shocks on Self-Employment (With Bebonchu Atems)

Do Elections Encourage Public Actors to be More Responsive? (With Bryan McCannon) 

Dueling Measures of Inflation Pass-Through: Sri Lanka's NCPI and CCPI (With Dinushka Paranavitana)

Midwest Macroeconomic Meetings (Fall 2024)

Pennsylvania Economic Association (Summer 2024)

Western Economic Association International (Summer 2023)

Pennsylvania Economic Association (Summer 2023)

Southern Economics Association (Fall 2022)

Western Economic Association International (Summer 2022)

Missouri Valley Economic Association (Fall 2021)

North American Association of Sports Economists (Summer 2021)

Institute for Industrial and Systems Engineers (Summer 2018)

International Journal of Sports Finance (2)

Asian Journal of Business, Economics, and Accounting