Peter J. Klenow has been a consultant at the Federal Reserve Bank of Minneapolis since 2009. He served as a senior economist at the Minneapolis Fed from 2000 to 2003. Pete currently teaches economics at Stanford University, where he has held the Ralph Landau Chair in Economics since 2003. He has also taught at the University of Chicago. He has been an associate editor for the Quarterly Journal of Economics since 2008, and is currently an associate editor for Econometrica and the Journal of Political Economy. In the past he has served as an associate editor for the American Economic Review, the Journal of Economic Perspectives, the Review of Economic Dynamics, and the B.E. Journal in Macroeconomics.
Pete received his Ph.D. in economics from Stanford University in 1991. His work has appeared in several prominent economics journals, among them the American Economic Review, the Quarterly Journal of Economics, and the Journal of Political Economy. His research focuses on the macroeconomic implications of micro data on productivity and prices.
Employment and hours appear far more cyclical than dictated by the behavior of productivity and consumption. This puzzle has been called “the labor wedge” — a cyclical intratemporal wedge between the marginal product of labor and the marginal rate of substitution of consumption for leisure. The intratemporal wedge can be broken into a product market wedge (price markup) and a labor market wedge (wage markup). Based on the wages of employees, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because employee wages may be smoothed versions of the true cyclical price of labor, we instead examine the self-employed and intermediate inputs, respectively. Looking at the past quarter century in the United States, we find that price markup movements are at least as important as wage markup movements — including during the Great Recession and its aftermath. Thus, sticky prices and other forms of countercyclical markups deserve a central place in business cycle research, alongside sticky wages and matching frictions.
This study describes how the U.S. government measures real consumption growth and how it tries to take account of a complicating factor: that the goods and services offered to consumers change over time; new products are introduced and old products are improved. The 1996 Boskin Commission critique of this government methodology is described, along with the changes made in response to that critique. Also described is recent research related to how real consumption growth should be measured in the presence of new and better products.
Models with sticky prices predict that monetary policy changes will affect relative prices and relative quantities in the short run because some prices are more flexible than others. In U.S. micro data, the degree of price stickiness differs dramatically across consumption categories. This study exploits that diversity to ask whether popular measures of monetary shocks (for example, innovations in the federal funds rate) have the predicted effects. The study finds that they do not. Short-run responses of relative prices have the wrong sign. And monetary policy shocks seem to have persistent effects on both relative prices and relative quantities, rather than the transitory effects one would expect from differences in price flexibility across goods. The findings reject the joint hypothesis that the sticky-price models typically employed in policy analysis capture the U.S. economy and that commonly used monetary policy shocks represent exogenous shifts.