Current Working Papers

How Times Have Changed: The Impact of the 2026 Iran War on the U.S. Economy

Joint with Lutz Kilian and Michael Plante

[Online Appendix, DFE Blog]

New: June 23, 2026

Abstract: The 2026 Iran War has raised the question of how exposed the U.S. economy is to geopolitical oil supply disruptions. It is widely believed that the U.S. economy has become less vulnerable to such disruptions as it has reduced its dependence on oil and changed from a major net oil importer to a net oil exporter. We develop a two-country model of the global economy with large geopolitical oil supply disruptions that distinguishes between the U.S. economy and the rest of the world. We find that the response of U.S. real GDP growth to the disruption in global oil supplies today is only one-twentieth of what it would have been in 1980. Moreover, the response of U.S. real GDP growth today is only one-sixth of the decline in the rest of the world.

The Impact of the 2026 Iran War on U.S. Inflation: A Scenario Analysis

Joint with Lutz Kilian, Michael Plante, and Xiaoqing Zhou

[Online Appendix, VOXeu, DFE Blog]

New: April 6, 2026

Abstract: This paper shows how to assess the inflationary impact of the rise in the price of oil caused by the 2026 Iran War. We first generate projections of the quarterly price of oil from a calibrated DSGE model of the global economy under a range of scenarios and then incorporate these projections into a monthly VAR model of the impact of U.S. gasoline price shocks on inflation and inflation expectations. Our analysis speaks to the magnitude and persistence of the impact of higher oil prices on headline and core PCE inflation and on household inflation expectations.

Geopolitical Oil Price Risk and Economic Fluctuations

Joint with Lutz Kilian and Michael Plante

[Online Appendix, VOXeu, DFE Blog 1, DFE Blog 2]

Revised: March 27, 2026

Abstract: Market participants and policymakers are concerned about major oil production shortfalls driven by geopolitical events. Even when such events never materialize, unanticipated increases in the probability of a production shortfall may generate a surge in the price of oil and oil price uncertainty. Our analysis provides the first systematic account of the quantitative importance of time-varying geopolitical risk to oil production for the global economy. We quantify the impact of actual and anticipated global oil production shortfalls on the price of oil and global growth, including the 2026 closure of the Strait of Hormuz, under alternative scenarios.

The Postpandemic U.S. Immigration Surge: New Facts and Inflationary Implications

Accepted, NBER Macroeconomics Annual

Joint with Anton Cheremukhin, Sewon Hur, Ronald Mau, Karel Mertens, and Xiaoqing Zhou

[April 2025 World Economic Outlook, DFE Blog]

Revised: May 18, 2026

Abstract: The U.S. experienced an extraordinary surge in immigration from 2021 to 2024, which triggered widespread discussions about its macroeconomic impact, particularly on inflation. To determine the impact of the immigration surge, we first document the salient features of these new immigrants: they are primarily low-skilled relative to the existing workforce and more likely to be hand-to-mouth consumers. We then incorporate these features into a heterogeneous agent model with capital-skill complementarity. We find that the supply- and demand-side effects of the immigration surge roughly cancel out, causing a negligible response of inflation.

COVID-19: A View from the Labor Market

Joint with Joshua Bernstein and Nathaniel Throckmorton

Abstract: This paper examines the response of the U.S. labor market to a large and persistent job separation rate shock, motivated by the ongoing economic effects of the COVID-19 pandemic. We use nonlinear methods to analytically and numerically characterize the responses of vacancy creation and unemployment. Vacancies decline in response to the shock when firms expect persistent job destruction and the number of unemployed searching for work is low. Quantitatively, under our baseline forecast the unemployment rate peaks at 19.7%, 2 months after the shock, and takes 1 year to return to 5%. Relative to a scenario without the shock, unemployment uncertainty rises by a factor of 3. Nonlinear methods are crucial. In the linear economy, the unemployment rate "only'' rises to 9.2%, vacancies increase, and uncertainty is unaffected. In both cases, the severity of the COVID-19 shock depends on the separation rate persistence. 

Income Inequality and Current Account Imbalances

Joint with Michael Kumhof, Claire Lebarz, Romain Ranciere, and Nathaniel Throckmorton

Abstract: Econometric evidence shows that when higher income inequality and financial liberalization are added to a set of conventional explanatory variables, they predict significantly larger current account deficits in a cross-section of advanced economies. To study this mechanism, we develop a DSGE model where investors' income share increases at the expense of workers, and where workers respond by obtaining loans from domestic and foreign investors. This supports aggregate demand but generates current account deficits, especially if domestic financial markets are simultaneously liberalized. In emerging markets, because domestic workers cannot borrow, investors deploy their surplus funds abroad, leading to current account surpluses.