Adam Hale Shapiro

Contact Information:
Research Department
Federal Reserve Bank of Boston
600 Atlantic Avenue
Boston, MA 02210
(617) 308 - 8905
adam.shapiro@bos.frb.org

Fields:
Macroeconomics, Industrial Organization, Applied Econometrics

References:
Robert G. King, Jeffrey C. Fuhrer, Simon Gilchrist

Vita

Research

Does Competition Reduce Price Discrimination? New Evidence from the Airline Industry (joint with Kristopher S. Gerardi) (Primary Job Market Paper)
Submitted to the Journal of Political Economy

We analyze the effects of market structure on price dispersion in the airline industry, using panel data from 1993 through 2006. The results found in this paper contrast with those of Borenstein and Rose (1994), who found that price dispersion increases with competition. We find that competition has a negative effect on price dispersion, in line with the textbook treatment of price discrimination. Specifically, the effects of competition on price dispersion are most significant on routes that we identify as having consumers characterized by relatively heterogenous elasticities of demand. On routes with a more homogeneous customer base, the effects of competition on price discrimination are largely insignificant. We conclude from these results that competition acts to erode the ability of a carrier to price discriminate, resulting in reduced overall price dispersion.

 

Estimating the New Keynesian Phillips Curve: A Vertical Production Chain Approach (Alternate Job Market Paper)
Journal of Money, Credit, and Banking. Forthcoming.

It has become customary to estimate the New Keynesian Phillips Curve (NKPC) with GMM using a large instrument set that includes lags of variables that are ad hoc to the firm's pricing decision problem. Researchers have also conventionally used real unit labor cost (RULC) as the proxy for real marginal cost even though it is difficult to support its significance. This paper introduces a new proxy for the real marginal cost term as well as a new instrument set, both of which are based on the micro foundations of the vertical chain of production.I find that the new proxy, based on input prices as opposed to wages, provides a more robust and significant fit to the model. Instruments that are based on the vertical chain of production appear to be both more valid and relevant towards the model.

 

Markups and the Business Cycle: The Case of the Airline Industry (joint with Kristopher S. Gerardi)

We analyze the airline industry in order to determine the effects of the business cycle on markup variations. It is well known that airlines profits are highly pro-cyclical, however, to our knowledge, this has not been linked with markup variations. Most macroeconomic studies show evidence of a counter-cyclical markup, however, our study suggests that the markup in the airline industry is pro-cyclical. Using a panel analysis, we show that the output gap explains a large positive degree of price dispersion on routes with a heterogeneous consumer base. On routes with a homogenous consumer base there is a less significant relationship. Our analysis suggests that markups charged on price insensitive consumers rise during peaks in the business cycle.

 

Subprime Outcomes: Risky mortgages, Homeownership Experiences and Foreclosures (joint with Kristopher S. Gerardi and Paul Willen)

This paper provides the first rigorous assessment of the homeownership experiences of subprime borrowers. We consider homeowners who used subprime mortgages to buy their homes, and estimate how often these borrowers end up in foreclosure. In order to evaluate these issues, we analyze homeownership experiences in Massachusetts over the 1989 to 2007 period using a competing risks, proportional hazard framework. We present two main findings. First, homeownerships that begin with a subprime purchase mortgage end up in foreclosure almost 20 percent of the time, or more than 6 times as often as experiences that begin with prime purchase mortgages. Second, house price appreciation plays a dominant role in generating foreclosures. In fact, we attribute most of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 to the decline in house prices that began in the summer of 2005.

"Subprime Outcomes" in the News:

Eric Rosengren's Speech to MassINC

Randall S. Kroszner's Testimony Before the Committee on Financial Services. December 6, 2007

The Economist "Economics Focus: 'Subprime Solutions'"

The Boston Globe "Falling House Prices Driving Crisis"

The Boston Globe "Boston Fed chief casts lone dissenting vote on rate cut"

The Wall Street Journal "Dissecting the Bailout Plan" (Op/Ed piece by Alan Reynolds)

The New York Times "Frozen Rates, Falling Prices" (Op/Ed piece by Peter Schiff)

The New York Times Paul Krugman's Blog

BusinessWeek "The Real Reason Borrowers Default"

The Wall Street Journal "Let Houses Find a Bottom" (Op/Ed piece by Holman W. Jenkins)

The Economist "Foreclosures in America: Searching for Plan B"

Ben Bernanke's Speech at the NCRC Annual Meeting

The LA Times "Critics say Bush is out of touch on the economy"

 

 

 

Work In Progress

Measuring Real Marginal Cost in the New Keyensian Model. How Important is Labor's Share?

The Implications of Real Unit Input Cost for Inflation Targeting

The Evolution of the Subprime Mortgage Market in Massachusetts (joint with Chris Foote, Kris Gerardi, and Paul Willen)