Template-Type: ReDIF-Paper 1.0 Author-Name: Jonathan Church Author-Name-First: Jonathan Author-Name-Last: Church Title: Market-Based Inflation Expectations and Inflation Realities: A Comparison of the Treasury Breakeven Inflation (TBI) Rate Curve and the Consumer Price Index before, during, and after the Great Recession Abstract: This paper examines the extent to which market-based inflation expectations overshot or undershot actual inflation in the years before, during, and after the financial crisis of 2008-09. Specifically, it compares the U.S. Treasury Breakeven Inflation (TBI) Rate Curve, a unique measure of market-based inflation expectations that computes monthly breakeven inflation rates for short and long-term maturity horizons in 6-month increments, to the U.S. Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers, U.S. City Average, All Items, in the 175 months from July 2003 to January 2018. The analysis has three main findings. First, it finds that average deviations between TBI breakeven rates and respective annual CPI inflation rates per maturity horizon never exceeded 80 basis points, and for horizons of 2 years or more, never exceeded 55 basis points. Moreover, median deviations per maturity horizon never exceeded 70 basis points (except at the 1-year maturity horizon). In short, market-based inflation expectations, as measured by the U.S. Treasury Department TBI Curve, reasonably approximated realized inflation in the years before and after the financial crisis. Second, estimates tend to overshoot for short-term maturity horizons and undershoot for long-term maturity horizons, which likely reflects the effects of a liquidity premium on Treasury Inflation-Protected Securities (TIPS) in the early years of inflation-indexed debt issuance. Third, the dispersion of deviations, as measured by standard deviation and range, decreases as the maturity horizon increases. Thus, inflation expectations approximated inflation reality during the years before, during and after the crisis, with greater precision for long-term rates than short-term rates. At the height of the financial crisis, however, volatility, as measured by tracking risk (i.e. the standard deviation of the differences between breakeven rates and realized inflation rates), was high for the 6-month and 1-year maturity horizons. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190010.pdf File-Format: Application/pdf Number: 511 Handle: RePEc:bls:wpaper:511 Template-Type: ReDIF-Paper 1.0 Author-Name: Kevin E. Cahill Author-Name-First: Kevin E. Author-Name-Last: Cahill Author-Name: Michael D. Giandrea Author-Name-First: Michael D. Author-Name-Last: Giandrea Author-Name: Joseph F. Quinn Author-Name-First: Joseph F. Author-Name-Last: Quinn Title: Retirement Patterns of the Early and Middle Baby Boomers Abstract: Do the retirement patterns of the early and middle Baby Boomers resemble those of older cohorts? One well-documented finding from the retirement literature is that most Americans with career jobs later in life exit the labor force gradually, in stages. These stages include phased retirement, bridge employment, and labor market reentry. Phased retirement entails a reduction in hours on one’s current job; bridge employment refers to a job with a new employer between career employment and complete labor force exit; and reentry refers to a return to the labor force following an initial period of retirement. Bridge employment has been the most common form of gradual retirement during the past three decades, a time when more older Americans are staying in the labor force later in life. A key question for policymakers is whether the retirement patterns of the Baby Boomers will resemble those of the cohorts that preceded them. We address this question using data on four cohorts of older Americans from the Health and Retirement Study (HRS), a nationally-representative longitudinal survey that began in 1992, with updates every two years since then. We find that the Baby Boomers are also retiring in nontraditional fashions, as their predecessors did, albeit with a later start to their transitions from career employment. This finding sheds light on how retirement pathways are emerging as societal aging accelerates. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190020.pdf File-Format: Application/pdf Number: 512 Handle: RePEc:bls:wpaper:512 Template-Type: ReDIF-Paper 1.0 Author-Name: Matthew Dey Author-Name-First: Matthew Author-Name-Last: Dey Author-Name: Mark A. Loewenstein Author-Name-First: Mark A. Author-Name-Last: Loewenstein Title: On Job Requirements, Skill, and Wages Abstract: Occupations are bundles of inseparable skill requirements and tasks. We propose a novel approach for studying the relationship between wages and bundles of occupational skills and tasks. We predict occupational wages using a regression tree approach which also provides an empirically powerful aggregation scheme where detailed occupations with similar wages and job requirements are combined into 15 large occupation groups. Our empirical analysis is carried out on a dataset obtained by combining O*Net information on job attributes with the occupational wage and employment information from Occupational Employment Statistics. Not having a priori information on which O*Net variables belong in a wage equation, the first step in our analysis is to perform factor analysis on a number of O*NET categories that represent basic job skill requirements and job attributes. The second step is to use a regression tree to group the detailed SOC occupations into broader aggregates. These occupational aggregates are then used to non-parametrically analyze the well-known hollowing out phenomenon and the increase in log wage variance from 2005 to 2017. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190030.pdf File-Format: Application/pdf Number: 513 Handle: RePEc:bls:wpaper:513 Template-Type: ReDIF-Paper 1.0 Author-Name: Brendan Williams Author-Name-First: Brendan Author-Name-Last: Williams Author-Name: Erick Sager Author-Name-First: Erick Author-Name-Last: Sager Title: A New Vehicles Transaction Price Index: Offsetting the Effects of Price Discrimination and Product Cycle Bias with a Year-Over-Year Index Abstract: Using a new transaction level dataset on new vehicle purchases from J.D. Power, this paper documents violations of assumptions underlying cost-of-living theory and constructs a new price index that address these violations. First, we show that there are significant differences in consumer characteristics at different points in a typical product cycle, which suggests profit maximizing behavior through intertemporal price discrimination. When the composition of consumers changes each month, observed prices do not represent the purchases of a typical consumer at each point in time. Consumer segmentation violates assumptions necessary for measuring cost-of-living and can introduce bias into matched model price indexes. Second, we construct a price index that uses product age to control for consumer heterogeneity at different points of a product's life cycle. Specifically, we compare the price of a vehicle at a particular point in its life cycle to its previous-year's model at the same point in its life cycle, which we implement by assuming stability in the pattern of model year introduction and comparing each vehicle to its model year equivalent as of 12 months prior. Finally, this year-over-year price index does not convey information about short-run fluctuations in new vehicle prices, so we reincorporate highfrequency price change into the index by using a novel filtering technique. This new index averages 0.24 percentage points lower growth than the current CPI for new vehicles on an annual basis. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190040.pdf File-Format: Application/pdf Number: 514 Handle: RePEc:bls:wpaper:514 Template-Type: ReDIF-Paper 1.0 Author-Name: Robert S. Martin Author-Name-First: Robert S. Author-Name-Last: Martin Title: Revisiting taste change in cost-of-living measurement Abstract: This paper derives conditional cost-of-living indexes (COLI) for the Constant Elasticity of Substitution model in the presence of taste change. Recent proposals to incorporate changing tastes reflect a different conceptual target (an unconditional COLI) from a consumer price index (a conditional COLI), and a strong implicit assumption (cardinal utility). Using Nielsen retail scanner data for food and beverage products, I find that tastes can dominate prices in unconditional COLI estimates, while they have smaller impacts on conditional COLI. Using CPI data, I find that category-level tastes have a relatively minor average effect on an all-items price index. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190050.pdf File-Format: Application/pdf Number: 515 Handle: RePEc:bls:wpaper:515 Template-Type: ReDIF-Paper 1.0 Author-Name: Peter A. Zadrozny Author-Name-First: Peter A. Author-Name-Last: Zadrozny Author-Name: Baoline Chen Author-Name-First: Baoline Author-Name-Last: Chen Title: WEIGHTED-COVARIANCE FACTOR DECOMPOSITION OF VARMA MODELS APPLIED TO FORECASTING QUARTERLY U.S. REAL GDP AT MONTHLY INTERVALS Abstract: Suppose a vector autoregressive moving-average (VARMA) model is estimated for m observed variables of primary interest for an application and n-m observed secondary variables to aid in the application. An application indicates the variables of primary interest but usually only broadly suggests secondary variables that may or may not be useful. Often, one has many potential secondary variables to choose from but is unsure which ones to include in or exclude from the application. The paper proposes a method called weighted-covariance factor decomposition (WCFD), comparable to Stock and Watson's (2002a,b) method here called principle-components factor decomposition (PCFD), for reducing the secondary variables to fewer factors in order to obtain a parsimonious estimated model that is more effective in an application. The WCFD method is illustrated in the paper by forecasting quarterly-observed U.S. real GDP at monthly intervals using monthly-observed 4 coincident and 8 leading indicators from the Conference Board (2018). The results show that root mean-squared errors of GDP forecasts of PCFD-factor models are 0.9%-11.3% higher than those of WCFD-factor models especially as estimation-forecasting periods pass from the pre-2007 Great Moderation through the 2007-2009 Great Recession to the 2009-2016 Slow Recovery. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190060.pdf File-Format: Application/pdf Number: 516 Handle: RePEc:bls:wpaper:516 Template-Type: ReDIF-Paper 1.0 Author-Name: Jake Schild Author-Name-First: Jake Author-Name-Last: Schild Title: Inequality Aversion vs Altruism: Experimental Evidence Abstract: The literature on dictator games has long debated whether inequality aversion or altruism is the motivation behind giving, but generally assumes the two preferences are mutually exclusive. This paper proposes an alternative theory suggesting subjects can express both altruism and inequality aversion. To test this theory a novel version of a three-player dictator game is introduced. The dictator chooses how to distribute a fixed endowment between two recipients, and is able to earn a private return based on the amount of inequality resulting from the allocation decision. To ensure inequality averse preferences can be separately identified from self-regarding behavior, the domain of decision environments is restricted to those in which the dictator receives the highest payout. Results show more than half of subjects express behavior in line with both altruism and inequality aversion. Furthermore, the results suggest the social preferences displayed can be influenced by the order of decision environments. The implications of these findings stress the importance of accounting for interactions between social preferences as well as a counterbalanced experimental design. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190070.pdf File-Format: Application/pdf Number: 517 Handle: RePEc:bls:wpaper:517 Template-Type: ReDIF-Paper 1.0 Author-Name: Susan E. Fleck Author-Name-First: Susan E. Author-Name-Last: Fleck Author-Name: Don A. Fast Author-Name-First: Don A. Author-Name-Last: Fast Title: Measuring Export Price Movements with Administrative Trade Data Abstract: The International Price Program (IPP) surveys establishments to collect price data of merchandise trade and calculates import and export price indexes (MXPI). In an effort to expand the quantity and quality of MXPI, we research the potential to augment the number of price indexes by calculating thousands, and potentially millions, of prices directly from export administrative trade transaction data maintained by the Census Bureau. This pilot research requires reconsideration of the long-held view that unit value price indexes are biased because product mix changes account for a large share of price movement. The research addresses this methodological concern and identifies others by analyzing two semi-homogeneous product categories among the 129 5-digit BEA End Use export categories. The results provide a road map of a consistent and testable approach that aligns with the concepts used in existing MXPI measures, maximizes the use of high volume data, and mitigates the risk of unit value bias. The authors then propose one methodological approach and compare more than a dozen indexes constructed with the methodology against the published IPP export price index benchmarks. Preliminary analysis of all 129 5-digit BEA End Use categories for exports shows potential for calculating export price indexes for 50 of the 5-digit classification categories, of which 21 are currently not published. Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190080.pdf File-Format: Application/pdf Number: 518 Handle: RePEc:bls:wpaper:518 Template-Type: ReDIF-Paper 1.0 Author-Name: Martina Mysíková Author-Name-First: Martina Author-Name-Last: Mysíková Author-Name: Tomáš Želinský Author-Name-First: Tomáš Author-Name-Last: Želinský Author-Name: Thesia I. Garner Author-Name-First: Thesia I. Author-Name-Last: Garner Author-Name: Kamila Fialová Author-Name-First: Kamila Author-Name-Last: Fialová Title: Subjective Equivalence Scales and Income Poverty in Eastern vs Western European Countries Abstract: This study uses the intersection approach to estimate Subjective Poverty Lines and implicit subjective equivalence scales for European countries. The subjective poverty lines are derived from the Minimum Income Question included in the 2017 EU–Statistics on Income and Living Conditions data. Subjective equivalence scales differ across the European region, showing lower economies of scale for Eastern European countries. When the estimated subjective equivalence scales are applied to derive the official at-risk-of-poverty (AROP) rather than the OECD-modified scale, the ranking of countries changes only moderately. However, subjective poverty (SP) rates based on the derived subjective lines change the ranking of European countries markedly. SP rates show a much clearer pattern of the East-West division of Europe. The results suggest that country-specific economies of scale should be considered in studies of economic well-being, particularly those focused on income poverty Creation-Date: 2019 File-URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190090.pdf File-Format: Application/pdf Number: 519 Handle: RePEc:bls:wpaper:519