Results: 299
Prior Fraud Exposure and Precautionary Credit Market Behavior
10/27/2022
This paper studies how past experiences with privacy shocks affect individuals’ take-up of precautionary behavior when faced with a new privacy shock in the context of credit markets. We focus on experiences with identity theft and data breaches, two kinds of privacy shocks that either directly lead to fraud or put an individual at an elevated risk of experiencing fraud. Using the announcement of the 2017 Equifax data breach, we show that individuals with either kind of prior fraud exposure were...
Income Volatility as a Barrier to Food Stamp Takeup
10/27/2022
Families with greater volatility in their incomes had more switches in food stamp eligibility and lower rates of food stamp usage when they were eligible....
Things That Have Never Happened Before Happen All the Time
10/27/2022
Remarks at the Central Bank of Nigeria’s Second National Risk Management Conference (delivered via videoconference)....
Debtor Fraud in Consumer Debt Renegotiation
10/26/2022
We study how forcing financially distressed consumer debtors to repay a larger fraction of debt can lead them to misreport data fraudulently. Using a plausibly exogenous policy change that required debtors to increase repayment to creditors, we document that debtors manipulated data to avoid higher repayment. Consistent with deliberate fraud, data manipulators traveled farther to find more lenient insolvency professionals who, historically, approved more potentially fraudulent filings. Finally, ...
Economics Is Much More than You Think
10/25/2022
Harvard University Professor Claudia Goldin explained how she worked to eliminate 'informational barriers' to the economics field....
Bullard Discusses Labor Markets, U.S. Economy and Inflation on Wharton Business Radio
10/21/2022
During an Oct. 21 interview on Wharton Business Radio, St. Louis Fed President Jim Bullard shared his views on various aspects of the U.S. economy and monetary policy. He said strong labor markets are giving the Fed some leeway to fight inflation. He reiterated his view that the FOMC should get to a level of the federal funds rate that puts meaningful downward pressure on inflation. Bullard also discussed GDP growth in 2022, low productivity numbers, various measures of inflation, the yield curv...
Financial Market Reactions to the Russian Invasion of Ukraine
10/21/2022
This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war, and asset price reactions strengthened from the first week—when there were hopes for a quick resolution—to the second week, when prices generally peaked and began to partially revert to prewar values. Exposure to commodity trade and trade with Russia and Ukraine determined market perceptions of the riskiness of equity and foreign exchange as...
Disparities in COVID-19’s Impact on Employment and Household Consumption
10/21/2022
This article investigates the socio-demographic differences in household responses to the COVID-19 pandemic regarding employment and consumption. We find that the significant racial disparities in employment observed during the pandemic can be explained, in part, by differences in household income, composition, education, and occupational sorting. Nonetheless, we document pervasive racial, income, and educational gradients when focusing on household food insecurity and individuals' reliance on s...
In Conversation: Mary C. Daly with UC Berkeley’s Fisher Center for Real Estate & Urban Economics
10/21/2022
Presentation at UC Berkeley’s Fisher Center for Real Estate & Urban Economics, Berkeley, California, October 21, 2022, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco....
Labor Market May Remain Tight until Labor Demand Cools Further
10/21/2022
U.S. labor demand—measured by job openings or vacancies—has started to cool but is still elevated compared with pre-pandemic levels. At the same time, labor supply—measured by the labor force participation rate remains below pre-pandemic levels. This weakness in the labor force participation rate may persist, as it reflects lower participation among older individuals. Accordingly, the imbalance between demand and supply in the labor market may continue until labor demand cools further....
Bridging the Skills Gap
10/21/2022
Remarks at the “Skilling the Gap: Building Local Talent for In-Demand Careers,” Columbia-Greene Community College, Hudson, New York....
How Connected Are Counties in the Fifth District?
10/20/2022
Access to expanded employment opportunities and local goods and services is an important factor explaining why certain rural areas are able to retain people and grow. However, this access is far from uniform across rural areas. One way of assessing the economic linkages across areas is by examining intercounty commuting flows. This post classifies rural areas based on commuting flows and uses this information to establish the degree of spatial interactions or connectivity across areas....
The Beveridge Curve and Structural Barriers in the Labor Market
10/20/2022
Beveridge curves for vulnerable groups, especially single mothers, differ from the overall workforce, meaning structural barriers to the job matching process exist....
Accounting for Wealth Concentration in the United States
10/20/2022
We assess the empirical relevance of different macroeconomic modeling approaches to wealth concentration, using the joint distribution of earnings, capital income and net worth in combination with an OLG model of household heterogeneity. We find large earnings disparities to be the primary source of US wealth concentration. This reflects the fact that labor income, from salaries but also from entrepreneurship, is a major income source for top income and wealth groups in the data. Bequests and di...
Diverse, Resilient Houston Looking at Moving Beyond Traditional Energy Base
10/20/2022
Dallas Fed President Lorie K. Logan met with Houston business and community leaders earlier this month in the first of 12 stops on her 360° in 365 Listening Tour.Di...
Long COVID Appears to Have Led to a Surge of the Disabled in the Workplace
10/20/2022
Although most of those infected with COVID-19 have recovered relatively quickly, a substantial share has not, and remains symptomatic months or even years later, in what is commonly referred to as long COVID. Data on the incidence of long COVID is scarce, but recent Census Bureau data suggest that sixteen million working age Americans suffer from it. The economic costs of long COVID is estimated to be in the trillions. While many with long COVID have dropped out of the labor force because they c...
How Have Racial and Ethnic Earnings Gaps Changed after COVID-19?
10/20/2022
Racial and ethnic earnings disparities have been salient features of the U.S. economy for decades. Between the pandemic-driven recession in 2020 and the rising inflation since 2021, workers’ real and nominal earnings have seen rapid change. To get a sense of how recent economic conditions have affected earnings disparities, we examine real and nominal weekly earnings trends for Asian, Black, Hispanic, and white workers. We find that average real weekly earnings have been declining in the past ye...
Bullard Discusses Policy Rate Needed to Lower Inflation with Bloomberg TV
10/19/2022
St. Louis Fed President Jim Bullard discussed the policy rate needed to get inflation down during an Oct. 19 interview on Bloomberg TV. He gave the interview at the St. Louis Fed ahead of the annual Homer Jones Memorial Lecture.In the September Summary of Economic Projections, the Federal Open Market Committee seemed to be coalescing around further rate increases at upcoming meetings, even by the end of the year, Bullard said. He noted that most of that has been priced into markets. He said he w...
Welcoming Remarks
10/19/2022
St. Louis Fed President Jim Bullard welcomed Eswar S. Prasad, who delivered the 2022 Homer Jones Memorial Lecture. Prasad is Tolani Senior Professor of Trade Policy and professor of economics at Cornell University. He is also a senior fellow at the Brookings Institution. Prasad’s 2021 book, The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance, was the subject of his lecture....
Interview with St. Louis Fed President James Bullard
10/19/2022
None...
The Recent Rise of U.S. National Wealth
10/19/2022
The latest large surge in the U.S. wealth-to-GDP ratio has dwarfed the peaks seen in the past....
“Bouncing Forward” from Disasters on Hawai?i’s Big Island: Lessons for Equitable Recovery and Future Resilience
10/19/2022
Recovery planning and implementation on the island of Hawai?i following a federally declared disaster provides an example of equitable, forward-looking disaster preparation and resilience. Community development professionals in other geographies can learn from the way planners and nonprofits used a regional equity approach to improving household and community resilience, broke down silos to have flexible funding from multiple sources ready for future disasters, and worked to build community thro...
A New Measure of Consumers’ (In)Attention to Inflation
10/19/2022
Since the onset of the SARS-CoV-2 (COVID-19) pandemic in March 2020, the Federal Reserve Bank of Cleveland has been running a daily survey that asks consumers for their views on how they are responding to COVID-19 and how COVID-19 is likely to affect the economy. Among the many questions asked, the survey solicits consumers’ inflation expectations. This is an important data set given that such expectations, while affected by current and past inflation, have long been believed to influence future...
The Innocent Greenbacks Abroad: U.S. Currency Held Internationally
10/18/2022
When foreigners hold on to U.S. banknotes, those dollar holdings essentially become an interest-free loan to the U.S. government....
The Impact of the Age Distribution on Unemployment: Evidence from US States
10/18/2022
Economists have studied the potential effects of shifts in the age distribution on the unemployment rate for more than 50 years. Most of this analysis uses a "shift-share" method, which assumes that the demographic structure has no indirect effects on age-specific unemployment rates. This paper uses state-level data to revisit the influence of the age distribution on unemployment in the United States. We examine demographic effects across the entire age distribution rather than just the youth sh...
Whose Wages Are Falling Behind the Least amid Surging Inflation?
10/18/2022
For a majority of workers, wages didn’t increase as fast as inflation in the 12 months ended in second quarter 2022. Here, we dig deeper to see how outcomes may have differed across groups of workers....
What Have Workers Done with the Time Freed up by Commuting Less?
10/18/2022
The COVID-19 pandemic has dramatically changed the way Americans spend their time. One of the most enduring shifts has occurred in the workplace, with millions of employees making the switch to work from home. Even as the pandemic has waned, more than 15 percent of full-time employees remain fully remote and an additional 30 percent work in hybrid arrangements (Barrero, Bloom, and Davis). These changes have substantially reduced time spent commuting to work; in the aggregate, Americans now spend...
Inflation Is Still High and Widespread
10/17/2022
A new analysis examines inflationary pressures as demand for services continues to recover after its sharp fall during the COVID-19 pandemic....
Comparing Measures of Housing Inflation
10/17/2022
Measuring the price of shelter for homeowners is difficult, even when housing markets are stable. A new measure of shelter price inflation uses mortgage, tax, and insurance payments, rather than the implied rental value of homes used in the consumer price index (CPI). The payments method suggests year-over-year shelter price inflation rose 4.3% nationally in July, compared with the CPI’s 5.8% estimate. Conditions in rental markets likely explain this difference. Comparing the varying results nat...
A Comment on 'Wealth Inequality and Endogenous Growth' by Byoungchan Lee
10/17/2022
How does wealth inequality affect economic growth? Byoungchan Lee answers this question by developing a heterogeneous-agent model and augmenting it with endogenous firm innovation. The novel channel is that rising wealth concentration reduces aggregate demand, which gives firms a disincentive to spend on R&D and therefore leads to slower productivity growth. In this discussion, we first explain the difference in calibration strategy between Lee’s approach and the common approach in the literatur...
What Is the Outlook for China’s External Surplus?
10/17/2022
The sharp slowdown in China’s property sector has reignited debate over the country’s future role as a net provider of savings to the global economy. The debate revolves around whether a sustained decline in property investment will spur a long-term increase in China’s current account surplus, given the country’s high savings rate. However, China’s rapidly aging population presents opposing forces that complicate this story. The shift of a large share of its population from working life to reti...
Remarks at Citi Macro Forum
10/14/2022
None...
Interview with St. Louis Fed President James Bullard
10/14/2022
None...
A Two-Tranche View of National Debt
10/14/2022
None...
How the CHIPS and Science Act Will Target Economic Development in Distressed Labor Markets
10/13/2022
As part of this past summer's CHIPS and Science Act, Congress not only funneled $50 billion of federal funding into U.S. semiconductor production, but also allocated $1 billion for a new place-based policy – the Recompete Pilot Program (RPP). The RPP, unrelated to semiconductor production, seeks to boost competitiveness and growth in several of the nation's persistently economically distressed areas. The program intends to target long-term comprehensive economic development and job creation in s...
Monetary Policy Surprises and Inflation Expectations
10/13/2022
The private sector may slightly underestimate the short-term impact of monetary policy surprises on inflation but may predict longer-term effects fairly well....
The Impact of Racial Segregation on College Attainment in Spatial Equilibrium
10/12/2022
We incorporate race into an overlapping-generations spatial-equilibrium model with neighborhood spillovers. Race matters in two ways: (i) the Black-White wage gap and (ii) homophily—the preferences of individuals over the racial composition of their neighborhood. We find that these two forces generate a Black-White college gap of 22 percentage points, explaining about 80% of the college gap in the data for the St. Louis metro area. Counterfactual exercises show that the wage gap and homophily ex...
With Abundant Reserves, Do Banks Adjust Reserve Balances to Accommodate Payment Flows?
10/12/2022
As a result of the global financial crisis (GFC), the Federal Reserve switched from a regime of scarce reserves to one of abundant reserves. In this post, we explore how banks’ day-to-day management of reserve balances with respect to payment flows changed with this regime switch. We find that bank behavior did not change on average; under both regimes, banks increased their opening balances when they expected higher outgoing payments and, similarly, decreased these balances with expected higher...
What If? Monetary Policy in Hindsight
10/11/2022
If the Federal Reserve had expected the upcoming inflation surge back in March 2021, would it have acted differently? A new method to tackle such “what if” questions suggests that it may have been preferable to only moderately raise the federal funds rate during 2021, even with perfect foresight. In that case, inflation would have been about 1 percentage point lower as of June 2022, while unemployment would be about 2 percentage points higher. This result reflects the importance of the Fed’s dua...
An Update on the Economy and Monetary Policy: Perseverance in Returning to Price Stability
10/11/2022
It is likely no surprise that I will focus my prepared remarks on inflation and how monetary policymakers will persevere in fostering a return to price stability....
Automakers' Bold Plans for Electric Vehicles Spur Battery Boom
10/11/2022
Meeting ambitious manufacturing goals will require batteries—lots of them—as an electric vehicle (EV) can use hundreds to thousands of individual lithium-ion batteries....
New SCE Charts Include a Measure of Longer-Term Inflation Expectations
10/11/2022
Today, the New York Fed introduces several new data series and interactive charts depicting findings from its Survey of Consumer Expectations (SCE). The SCE is a representative, internet-based monthly survey of a rotating panel of about 1,300 household heads in the United States. Since January 2014, we have been reporting findings from our monthly survey on U.S. households’ views on inflation, household income and spending growth, their expectations about the housing and labor market, and a rang...
Promoting Payment Inclusion in the United States
10/07/2022
In recent decades, entities in both the public and private sectors have worked to promote payment inclusion in the United States, whether by expanding the supply of transaction accounts or boosting consumer demand for them. However, more research and data collection are needed to better define and measure payment inclusion as well as evaluate how effective efforts have been to improve it....
How to Get the (High-Skilled) Workers?
10/06/2022
Over the past year, the labor market has been extremely tight, with record high job openings and historically low unemployment. So, it's no surprise that firms have struggled to find workers. To overcome hiring challenges, firms have been using various strategies, the most common of which is wage increases. Those strategies may be paying off to some extent: Our Fifth District business surveys suggest that the worst of the challenge finding workers has passed. Nonetheless, firms are still reporti...
Estimating the Affordability of Child Care across U.S. States
10/06/2022
Wages and child-to-staff ratios are key drivers of child care costs at licensed centers. A model shows the relationship between these factors and costs as a share of household income....
Marijuana Industry Has Boosted Economic Activity in the Tenth Federal Reserve District
10/06/2022
Since Colorado became the first state to open recreational marijuana stores in January 2014, the marijuana industry has expanded across the nation and to other states in the Tenth Federal Reserve District, including Missouri, New Mexico, and Oklahoma. Within the Tenth District, this expansion has increased commercial real estate demand and tax revenues and created jobs, but has also presented challenges for the industry and local communities....
Computer Saturation and the Productivity Slowdown
10/06/2022
One of the current puzzles in economics is the recent worldwide slowdown in productivity, compared to the late 1990s and early 2000s. This productivity loss is economically large: if productivity growth had stayed at the same level as in 1995-2004, American GDP would have increased by trillions of dollars. In this post, I discuss a new paper that links this productivity slowdown to saturation in electronics adoption across most industries. I show that most of the productivity growth from electro...
(Trade) War and Peace: How to Impose International Trade Sanctions
10/05/2022
Trade sanctions are a common instrument of diplomatic retaliation. To guide current and future policy, we ask: What is the most cost-efficient way to impose tradesanctions against Russia? To answer this question, we build a quantitative model of international trade with input-output connections. Sanctioning countries simultaneously choose import tariffs to maximize their income and to minimize Russia’s income, with different weights placed on these objectives. We find, first, that for countries ...
The Employment Consequences of Anti-Dumping Tariffs: Lessons from Brazil
10/05/2022
Can anti-dumping tariffs increase employment? We compile data on all antidumping (AD) investigations in Brazil matching it to firm-level administrative employment information. Using difference-in-differences, we find that an AD tariff decreases imports and increases employment in the protected sector. Moreover, downstream firms decrease employment, while upstream ones are not affected. To quantify the aggregate effect of these tariffs, we build a model with international trade, input-output link...
On Political and Economic Determinants of Redistribution: Economic Gains, Ideological Gains, or Institutions?
10/05/2022
I describe a structural method to quantify the contribution of different elements of social choice to the level of redistribution. Estimating a DSGE model with microdata on the support for redistribution, I find that if voters disregarded their ideological views on welfare policies, redistribution in the U.S. would increase 117%. Because ideology is a more important determinant of voting behavior than income, increasing voter turnout or capping campaign contributions would have a small effect on...
Measuring the Ampleness of Reserves
10/05/2022
Over the past fifteen years, reserves in the banking system have grown from tens of billions of dollars to several trillion dollars. This extraordinary rise poses a natural question: Are the rates paid in the market for reserves still sensitive to changes in the quantity of reserves when aggregate reserve holdings are so large? In today’s post, we answer this question by estimating the slope of the reserve demand curve from 2010 to 2022, when reserves ranged from $1 trillion to $4 trillion....
How the Russia-Ukraine War Helped Fuel Record Fertilizer Prices
10/04/2022
The Russia-Ukraine war further tightened the global supply of fertilizer, pushing prices to record highs in March 2022 and causing concern for U.S. farmers....
Understanding Climate Damages: Consumption versus Investment
10/04/2022
Existing climate-economy models use aggregate damage functions to model the effects of climate change. This approach assumes climate change has equal impacts on the productivity of firms that produce consumption and investment goods or services. We show the split between damage to consumption and investment productivity matters for the dynamic consequences of climate change. Drawing on the structural transformation literature, we develop a framework that incorporates heterogeneous climate damage...
An Update on the Federal Reserve’s Efforts to Modernize the Payment System
10/04/2022
This morning, I will discuss some efforts the Federal Reserve has underway, in collaboration with the industry and other payments stakeholders, to modernize the payment system, a critical part of the infrastructure in the U.S. Of course, the views I present will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee (FOMC)....
More Workers Find Their Wages Falling Even Further Behind Inflation
10/04/2022
While the past 25 years have witnessed episodes that show either a greater incidence or larger magnitude of real wage declines, the current time period is unparalleled in terms of the challenge employed workers face....
Eviction Expectations in the Post-Pandemic Housing Market
10/04/2022
Housing is the single largest element of the typical household’s budget, and data from the SCE Household Spending Survey show that this is especially true for renters. As the housing market heated up in the latter stages of the pandemic, home prices and rents both began to rise sharply. For renters, some protection from these increases was afforded by national, state, and in some cases local eviction moratoria, which greatly reduced the risk of households losing access to stable housing if they ...
East Asia Outpaces Other Regions in International Patenting
10/03/2022
As foreign patenting continues to grow, East Asia has become both the main origin of innovations and the main destination for patent protection....
The Singularity of the Dual Mandate
10/03/2022
Economic security depends on both jobs and stable prices. Together, these two congressionally mandated goals constitute the Fed’s dual mandate. This mandate is not a choice between two desirable things. It is a balance meant to deliver on a singular goal—a sustainable and expanding economy that works for everyone....
A Bedrock Commitment to Price Stability
10/03/2022
Remarks at the 2022 U.S. Hispanic Chamber of Commerce National Conference, Phoenix, Arizona....
Applied Macro-Econometrics: A Conference Recap
10/01/2022
Economists from the Richmond Fed and research universities met for a conference in Richmond during CORE Week in September. Conference participants presented and discussed papers on a variety of topics related to applied econometrics. This Economic Brief summarizes those presentations....
Trade, Specialization, Property Rights and Wealth Inequality: A Conference Recap
10/01/2022
Economists from the Richmond Fed, research universities and other institutions met in Richmond for a conference in September focused on insights from macroeconomic development. Researchers presented on the topics of trade, firm specialization, property rights and wealth inequality. This Economic Brief summarizes those presentations....
Price Changes and Monetary Non-Neutrality
10/01/2022
Economists have not reached a consensus on the effectiveness of monetary policy for stimulating short-run consumption. While quantitative models are typically disciplined through average pricing moments in the data, this is not sufficient to draw conclusions on monetary non-neutrality. In this article, we quantify the importance of the age-dependence of pricing moments for monetary policy. In particular, we show that newer products change their prices more often and by a larger amount. Furthermo...
How Do Real Exchange Rates Vary in Hard and Soft Sovereign Defaults?
10/01/2022
Sovereign defaults differ tremendously in creditor losses. Existing research has established that hard defaults (large creditor loss defaults) are associated with worse outcomes for GDP per capita than soft defaults. In this article, we document that hard defaults also feature worse real exchange rate depreciations....
Beyond the Hype: An Introduction to Crypto Assets
10/01/2022
Crypto assets have increasingly occupied news headlines and the minds of many consumers. While initially introduced as a payment system, crypto assets are seen by many as an enticing investment opportunity. This issue of Page One Economics® introduces crypto assets, blockchain technology, and the emerging crypto universe....
Bad Times, Bad Jobs? How Recessions Affect Early Career Trajectories
10/01/2022
Workers who enter the labor market during recessions experience lasting earnings losses, but the role of non-pay amenities in either exacerbating or counteracting these losses remains unknown. Using population-scale data from Germany, we find that labor market entry during recessions generates a 6 percent reduction in earnings cumulated over the first 15 years of experience. Implementing a revealed-preference estimator of employer quality that aggregates information from the universe of worker m...
Local Zoning Laws and the Supply of Multifamily Housing in Greater Boston
10/01/2022
Housing affordability is a significant issue in many U.S. metropolitan areas, including Greater Boston. Affordability has always been a major challenge for low-income renters; however, even middle-income families now face considerable affordability hurdles, particularly in metro areas with strong labor markets. Where people live has important implications for their health, schooling, and economic mobility. Researchers and policymakers have devoted attention to the role of land-use practices, suc...
The Curious Case of the Rise in Deflation Expectations
10/01/2022
We study the behavior of U.S. consumers’ inflation expectations during the high inflation period of 2021-22 using data from the Survey of Consumer Expectations. Short- and, to a lesser extent, mediumterm inflation expectations rose as inflation surged in 2021. Disagreement and uncertainty about future inflation increased significantly. Then, in 2022, even as inflation continued to climb, medium- and longerterm inflation expectations unexpectedly fell and medium- and longer-term deflation expecta...
All-to-All Trading in the U.S. Treasury Market
10/01/2022
While the U.S. Treasury market remains the deepest and most liquid securities market in the world, several episodes of abrupt deterioration in market functioning over recent years have brought the market’s resilience into focus. The adoption of all-to-all trading in the Treasury market could be one avenue to strengthen market resilience. Conceptually, all-to-all trading would allow any market participant to trade directly with any other market participant. This could be particularly helpful in t...
Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance
10/01/2022
We study how intermediaries—mortgage servicers—shaped the implementation of mortgage forbearance during the COVID-19 pandemic and use servicer-level variation to trace out the causal effect of forbearance on borrowers. Forbearance provision varied widely across servicers. Small servicers and nonbanks, especially nonbanks with small liquidity buffers, facilitated fewer forbearances and saw a higher incidence of forbearance-related complaints. Easier access to forbearance substantially increased m...
After the Eviction Moratorium: How Are Renters Faring?
09/29/2022
An estimated 2.7 million U.S. households received an eviction filing in 2018. When the COVID-19 pandemic hit in March 2020, a wave of federal, state, and local regulations halted the eviction process as renters coped with employment disruption and income loss. The federal eviction moratorium ended in August 2021, which raises the question: How have renters in the Fifth District been faring over the past year? Evidence suggests that evictions are increasing back to pre-pandemic levels but are not...
Peaks in Housing Construction as a Recession Signal
09/29/2022
Two measures of housing construction have tended to peak before U.S. recessions after 1970, but the time from those peaks to a recession’s onset has differed....
Bullard Discusses Policy Rate Increases and U.S. Inflation
09/29/2022
St. Louis Fed President Jim Bullard discussed the pace of increases in the Fed’s policy rate and the impact on inflation. He made the comments during a virtual discussion at an HSBC Global Emerging Markets Forum.Bullard said the U.S. inflation rate was way above the Federal Open Market Committee’s 2% target, which is why the FOMC has moved aggressively to raise its policy rate. He also pointed to forecasts made by FOMC members in September’s Summary of Economic Projections that suggest additiona...
The Singularity of the Dual Mandate
09/29/2022
Presentation at Boise State University, Boise, Idaho, September 29, 2022, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco....
Mounting Signs Point to a Texas Economic Slowdown
09/29/2022
The most recent jobs report showed state employment was flat in August. The unemployment rate rose slightly to 4.1 percent (from 4.0 percent in July), and labor force and wage growth also eased....
Hybrid Working, Commuting Time, and the Coming Long-Term Boom in Home Construction
09/29/2022
The long commuting times from outer suburbs to the central business districts of large metropolitan areas have depressed single-family home construction over the last two decades. The shift to hybrid working during the COVID-19 pandemic, however, has reduced the time many people spend commuting and potentially increased their willingness to live farther from employers. Lightly settled land at the peripheries of metropolitan areas may become more desirable for development, relaxing a long-standin...
Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints
09/28/2022
We quantify the role of heterogeneity in households’ financial constraints in explaining the large decline in consumption between 2006 and 2009. Using household-level data, we show that in addition to a direct effect of changes in house prices, there are sizable indirect effects from general equilibrium feedback and bank health. About 60% of the aggregate response of consumption to changes in house prices is explained by ex-ante and ex-post financial constraints, where only a specific set of hou...
Introductory Remarks: 2022 Community Banking Research Conference
09/28/2022
St. Louis Fed President Jim Bullard welcomed community bankers, researchers, policymakers and bank regulators to the 10th annual Community Banking Research Conference. Held in-person and virtually this year, the conference is sponsored by the Federal Reserve System, the Conference of State Bank Supervisors (CSBS) and the Federal Deposit Insurance Corp.Bullard discussed some of the challenges and opportunities that community banks have faced since the event’s inception. He recognized several conf...
Nonlinear Budget Set Regressions for the Random Utility Model
09/28/2022
This paper is about the nonparametric regression of a choice variable on a nonlinear budget set when there is general heterogeneity, i.e., in the random utility model (RUM). We show that utility maximization makes this a three-dimensional regression with piecewise linear, convex budget sets with a more parsimonious specification than previously derived. We show that the regression allows for measurement and/or optimization errors in the outcome variable. We characterize all of the restrictions o...
Short-Dated Term Premia and the Level of Inflation
09/28/2022
Since the advent of derivatives trading on short-term interest rates in the 1980s, financial commentators have often interpreted market prices as directly reflecting the expected path of future interest rates. However, market prices generally embed risk premia (or “term premia” in reference to measures of risk premia over different horizons) reflecting the compensation required to bear the risk of the asset. When term premia are large in magnitude, derivatives prices may differ substantially fro...
Bullard Speaks about the Fed Funds Rate and Inflation
09/27/2022
St. Louis Fed President Jim Bullard discussed the Fed’s progress in tightening monetary policy to bring down high inflation. He spoke while participating virtually at a forum hosted by Barclays and the Centre for Economic Policy Research in London.“No matter how you look at it, we have a serious inflation problem in the U.S., and we’re missing our (2%) inflation target and the credibility of our inflation targeting regime is at risk,” Bullard said. He added that this level of inflation hasn’t be...
Biden Student Loan Relief Plan Allows Increased Borrowing, Less Repayment
09/27/2022
The Biden plan is expected to boost participation in the income-driven repayments that lower the payment burden. Imposing a cap on a borrower’s income to qualify for cancellation or increasing the cancellation amount for low-income borrowers could alleviate the regressive nature of broad loan cancellation....
Immigration Disruptions and the Wages of Unskilled Labor in the 1920s
09/27/2022
An era of mass immigration into the United States ended with the onset of World War I in Europe, followed by the passage of restrictive immigration laws in 1921 and 1924. We analyze various sources of wage data collected in the 1910-1929 period to explore the impact of this significant disruption of the flow of immigration on the wages of unskilled labor. Our approach to identification entails examining differences in wages across local labor markets and industries differentially exposed to the ...
Revisiting Federal Student Loan Forgiveness: An Update Based on the White House Plan
09/27/2022
On August 24, 2022, the White House released a plan to cancel federal student loans for most borrowers. In April, we wrote about the costs and who most benefits from a few hypothetical loan forgiveness proposals using our Consumer Credit Panel, based on Equifax credit report data. In this post, we update our framework to consider the White House plan now that parameters are known, with estimates for the total amount of forgiven loans and the distribution of who holds federal student loans befo...
The Racial Wealth Gap, Financial Aid, and College Access
09/26/2022
We examine how the racial wealth gap interacts with financial aid in American higher education to generate a disparate impact on college access and outcomes. Retirement savings and home equity are excluded from the formula used to estimate the amount a family can afford to pay. All else equal, omitting those assets mechanically increases the financial aid available to families that hold them. White families are more likely to own those assets and in larger amounts. We document this issue and exp...
Remote Work and Housing Demand
09/26/2022
The COVID-19 pandemic reshaped the way households work. Nearly a third of employees still worked from home part time or full time as of August 2022. This has significantly increased housing demand and is a key factor explaining why U.S. house prices grew 24% between November 2019 and November 2021. Analysis shows that the shift to remote work may account for more than half of overall house price increases and similar increases in rents. This fundamental evolution in work-related housing demand m...
Perspectives on the Economy, and on the Opportunities Ahead
09/26/2022
Speech to the Greater Boston Chamber of Commerce. In her first speech as president of the Boston Fed, Susan Collins touched on a broad range of topics, including monetary policy, her vision as leader of the Boston Reserve Bank, and the work being done at the Bank to support a vibrant regional and national economy....
Inflation, Inflation Expectations, and Monetary Policymaking Strategy
09/26/2022
Today, it is probably not surprising that I plan to speak about inflation and the appropriate strategy for monetary policy when there is uncertainty about the path of both inflation and inflation expectations....
Is China Running Out of Policy Space to Navigate Future Economic Challenges?
09/26/2022
After making progress slowing the pace of debt accumulation prior to the pandemic, China saw its debt levels surge in 2020 as the government responded to the severe economic slowdown with credit-led stimulus. With China currently in the midst of another sharp decline in economic activity due to its property slump and zero-COVID strategy, Chinese authorities have responded again by pushing out credit to soften the downturn despite already high levels of debt on corporate, household, and governme...
Central Bank Digital Currency: Financial Inclusion vs. Disintermediation
09/24/2022
An overlapping-generations model with income heterogeneity is developed to analyze the impact of introducing a Central Bank Digital Currency (CBDC) on financial inclusion, and its potential adverse effect on bank funding. We highlight the role of two design parameters: the fixed cost of CBDC usage and the interest rate it pays, and derive principles for maximum inclusion and for mitigating the inclusion-intermediation trade-off. Agents’ choice of money instrument is endogenously driven by income...
Lagging Labor Force Participation in Maryland and Virginia
09/23/2022
By July 2022, the U.S. had officially regained the jobs lost in the pandemic, the unemployment rate matched its pre-pandemic low, and the size of the labor force (the sum of employed and unemployed looking for work) was almost back to its pre-pandemic level. The same was true for many states in the Fifth District. Maryland, Virginia, and West Virginia had recovered nearly all the jobs lost in February and March of 2020, while North and South Carolina had more than fully recovered. Unemployment r...
Commodity Prices Have Limited Influence on U.S. Food Inflation
09/23/2022
Food prices increased at the fastest pace in more than two decades from July 2021 to July 2022. We show that this increase has not been driven by commodity prices but by an increase in consumer spending on food at home and increases in costs along the supply chain. Our results suggest that food inflation could ease if consumers shift more purchases back to food service establishments and if costs in food processing and marketing abate. Conversely, food inflation could remain high if broader meas...
Decomposing Supply and Demand Driven Inflation
09/22/2022
The extent to which either supply or demand factors drive inflation has important implications for economic policy. I propose a framework to decompose inflation into supply- and demand-driven components. I generate two new data series, the supply and demand-driven contributions to personal consumption expenditures (PCE) inflation, which quantify the degree to which either demand or supply is driving inflation in a current month. The series show expected time-series patterns. The demand-driven co...
A Model of the Gold Standard
09/21/2022
The gold standard emerged as the international monetary system by the end of the 19th century. We formally study its properties in a micro-founded model and find that the scarcity of the world gold stock not only results in a suboptimal output of goods that are purchased with money but also subjects the domestic economy of a country to external shocks. The creation of inside money in the form of private credit instruments adds to the money supply, usually resulting in a Pareto improvement, but o...
How to Bridge the Digital Divide? Assessing the Affordable Connectivity Program
09/15/2022
Last year's Infrastructure Investment and Jobs Act (IIJA) allocated $65 billion toward addressing disparities in broadband access across the nation. A key component of the legislation, the Affordable Connectivity Program (ACP), subsidizes broadband subscriptions for low-income households. However, participation in the program has been low so far, suggesting that the ACP may not yet be reaching many of the underserved households that the legislation targeted.This article explores the background o...
The Impact of COVID on Productivity and Potential Output
09/15/2022
The U.S. economy came into the pandemic, and looks likely to leave it, on a slow-growth path. The near- term level of potential output has fallen because of shortfalls in labor that should reverse over time. Labor productivity, to a surprising degree, has followed an accelerated version of its Great Recession path with initially strong growth followed by weak growth. But, as of mid-2022, it appears that the overall level of labor and total factor productivity are only modestly affected. The sign...
Price Setting with Customer Capital: Sales, Teasers, and Rigidity
09/09/2022
This paper studies price setting in an equilibrium search model of frictional product markets with long-term customer relationships. The theory gives rise to temporary sales when pricing is constrained to be anonymous across a firm’s customer base. Equilibrium prices are inefficiently high, giving rise to overselling and excess trade, and the emergence of sale pricing can improve allocations by limiting this overselling. Pricing is also characterized by an asymmetry involving a stable regular pr...
A Rescue or a Trap?—An Analysis of Parent PLUS Student Loans
09/09/2022
Parents taking out loans for their children’s college educations may face an excessive debt burden that jeopardizes their own financial security. This paper examines the experience of Parent Loan for Undergraduate Students (PLUS) borrowers using administrative data from a large student loan guaranty agency. We find that PLUS borrowers are more likely to default if their children attend low-resource institutions, typically ones where lower-income enrollments predominate. Although parent PLUS gene...
How Can Safe Asset Markets Be Fragile?
09/08/2022
The market for U.S. Treasury securities experienced extreme stress in March 2020, when prices dropped precipitously (yields spiked) over a period of about two weeks. This was highly unusual, as Treasury prices typically increase during times of stress. Using a theoretical model, we show that markets for safe assets can be fragile due to strategic interactions among investors who hold Treasury securities for their liquidity characteristics. Worried about having to sell at potentially worse prices...
Pell Grants and Community College Success: Improving Metrics via our Community College Survey
09/08/2022
Community colleges play a key role in economic development and workforce training. Yet measuring the success of community colleges has long been a challenging task due to data quality issues and the complicated array of programs offered. Recently, the Richmond Fed embarked on creating a survey tool to improve the data that are available on Fifth District community colleges....
What Is the Impact of Monetary Policy on Households’ Desired Labor Supply?
09/08/2022
Do people adjust how much they want to work when the central bank’s monetary policy stance shifts? More specifically, does an interest rate hike induce individuals to work more or fewer hours? And does this effect differ across households with different levels of income (or earnings)? In this article, we discuss our recent research that explores these and related questions. One notable finding is that employed individuals at the bottom of the income distribution want to work more when monetary p...
Consumption and Hours in the United States and Europe
09/08/2022
We document large differences between the United States and Europe in allocations of expenditures and time for both market and home activities. Using a life-cycle model with home production and endogenous retirement, we find that the cross-country differences in consumption tax, social security system, income tax and TFP together can account for 68-95 percent of the cross-country variations and more than half of the average differences between Europe and the United States in aggregate hours and ...
Leaning Against the Data: Policymaker Communications under State-Based Forward Guidance
09/08/2022
A purported benefit of state-based forward guidance is that the private sector adjusts the expected stance of policy without further policymaker communications. This assumes a shared understanding of how policymakers are interpreting the data and that policymakers are consistent in their assessment of the data. Using textanalysis, we test whether the FOMC’s introduction of state-based forward guidance in December 2012 changed the tone of policymaker communications. We find that policymakers tend...
The Ample Reserves Framework and Balance Sheet Reduction: Perspective from the Open Market Desk
09/08/2022
Remarks at the Cato Institute’s 40th Annual Monetary Conference (delivered via videoconference)....
An Update on the Economic Outlook and Monetary Policy
09/07/2022
Thank you for the opportunity to speak with you today on the MNI webcast. I will focus my opening remarks on how monetary policy will foster a return to price stability, and I look forward to the question-and-answer portion of the session to hear what is on your mind....
Polarized Contributions but Convergent Agendas
09/06/2022
The political process in the United States appears to be highly polarized: Data show that the political positions of legislators have diverged substantially, while the largest campaign contributions come from the most extreme donor groups and are directed to the most extreme candidates. Is the rise in campaign contributions the cause of the growing political polarization? In this paper, we show that, in standard models of campaign contributions and electoral competition, a free-rider problem amo...
Inflation and Wage Growth Since the Pandemic
09/06/2022
Following the worst of the COVID-19 pandemic, inflation has surged to 1980s levels in advanced economies. Motivated by vast differences in pandemic support across countries, we investigate the subsequent response of inflation and the feedback to wages. We exploit these differences to identify the effect these programs had on inflation and to examine the link between wages and inflation. Our empirical approach is based on a novel dynamic difference-in differences method based on local projections...
Wage Growth When Inflation Is High
09/06/2022
In a tight labor market, workers are able to respond to price increases by bargaining for higher wages. Analyzing conditions since the pandemic shows that, in the recent environment of elevated inflation and low unemployment, wages have become much more sensitive to expected price inflation than in the past. The impact of inflation expectations on wages also appears to have become longer lasting....
How Should Monetary Policy Respond to a Contraction in Labor Supply?
09/06/2022
Conventional wisdom holds that a central bank should tighten monetary policy after a surprise decline in labor supply to offset the inflationary effects of the decline. However, this policy prescription comes from models of monetary policy that abstract from labor force participation. We examine the policy implications of worker entry into and exit from the labor force. We find that cyclical changes in labor force participation call for a less restrictive policy response to a decline in labor su...
Inflation in Services Likely to Rise Further Despite Slowing Goods Prices
09/06/2022
Given rising demand for in-person services, the slow pass-through of surging house prices to rent and owners’ equivalent rent (OER), and higher health care worker wages, services inflation is likely to increase further....
Downward Wage Rigidities and Recession Dynamics in Advanced and Emerging Economies*
09/02/2022
Downward wage rigidity limits the downward adjustment of wages, especially during recessions. Although macroeconomic models generally suggest that wage rigidity exacerbates employment losses and generates asymmetric business cycles, direct empirical evidence is scarce. In this paper, we construct a data set covering 53countries, including both emerging markets and advanced economies, to measure and compare downward real wage rigidities across countries. We find that wage rigidities are widesprea...
Credit Guarantee and Fiscal Costs
09/02/2022
This paper studies the effectiveness of government-backed credit guarantees to the infrastructure sector, a policy tool adopted by a range of countries during recessions. We proposea two-sector model with financial intermediary frictions so that infrastructure producers relyon bank loans to finance their risky production. Governments can intervene in the credit market by providing a partial guarantee on those bank loans. We find that a credit guaranteeincreases infrastructure production, leading...
Foreign Reserve Management and U.S. Money Market Liquidity: A Cost of Exorbitant Privilege
09/02/2022
We show theoretically and empirically that the dollar’s status as the global reserve currencycan lead to economically significant changes in U.S. money market liquidity. We develop amodel in which U.S. money market spreads respond to foreign central banks’ exchange-ratemanagement decisions. Foreign central banks remove liquidity from U.S. money markets andcause spreads to widen by selling Treasuries to supply liquidity to their financial systems.Our analysis focuses on the major oil exporting co...
The Reversal Interest Rate
09/01/2022
The reversal interest rate is the rate at which accommodative monetary policy reverses andbecomes contractionary for lending. We theoretically demonstrate its existence in a macroeconomic model featuring imperfectly competitive banks that face financial frictions. When interest rates are cut too low, further monetary stimulus cuts into banks’ profit margins, depressing their net worth and curtailing their credit supply. Similarly, when interest rates are low for too long, the persistent drag on...
Scarcity and Intertemporal Choice
09/01/2022
Scarcity is a ubiquitous experience, and existing evidence largely suggests that people become more myopic when they feel their resources are scarce. Importantly, evidence for this proposition comes primarily from contexts in which scarcity threatens needs that require resources imminently. The current work examines instances in which scarcity threatens needs along a broader time horizon. Archival data from the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute and five pre-regist...
Analyzing Fiscal Policy Matters More Than Ever: The Fiscal Theory of the Price Level and Inflation
09/01/2022
he fiscal theory of the price level is a theoretical framework for understanding how monetary and fiscal policies interact in the determination of macroeconomic outcomes. The key insight is that future fiscal conditions determine the current price level, whereby monetary and fiscal policy are connected by the government budget constraint....
Building A Pipeline Between Producer and Consumer Prices
09/01/2022
Do rapidly rising producer prices signal pain ahead for consumers? We take a fresh look at the relationship between producer and consumer price indexes. We document a correlation between upstream producer prices and the Fed's preferred measure of consumer price inflation (the personal consumption expenditure price index). Using a statistical model, we find that that levels and growth rates of producer prices have a statistically significant impact on consumer price inflation. Gaps between the tw...
Anticipated FOMC Policy, Inflation and Credibility
09/01/2022
Following through on its September 2020 plan, the FOMC waited to raise interest rates until March 2022, when inflation was high and unemployment was below its perceived long-run level. However, by early fall 2021, markets were predicting a rate increase, and policymakers were signaling an increase in their Summary of Economic Projections. In contrast to the 1980s and 1990s, when the Fed fought inflation scares even as actual inflation trended down, long-term inflation expectations have been rela...
Changing Recruiting Practices and Methods in the Tight Labor Market
09/01/2022
The unusually tight labor market has generated a wide range of challenges for employers attempting to hire workers. A survey conducted jointly by the Richmond Fed and the Richmond Society for Human Resources Management in June 2022 continues our series on recruiting methods and practices. There is little doubt that recruiting effort for each open position has intensified in the last year, and firms have had to engage new and different techniques to attract candidates and fill open positions....
Operational Loss Recoveries and the Macroeconomic Environment: Evidence from the U.S. Banking Sector
09/01/2022
Using supervisory data from large U.S. bank holding companies (BHCs), we document that operational loss recovery rates decrease in macroeconomic downturns. This procyclical relationship varies by business lines and loss event types and is robust to alternative data aggregations, macroeconomic measurement horizons and estimation methodologies. Further analysis shows that resource constraints faced by BHC risk management functions are a plausible explanation for these patterns. Our findings offer ...
The Financial Stability Implications of Digital Assets
09/01/2022
The value of assets in the digital ecosystem has grown rapidly amid periods of high volatility. Does the digital financial system create new potential challenges to financial stability? This paper explores this question using the Federal Reserve’s framework for analyzing vulnerabilities in the traditional financial system. The digital asset ecosystem has recently proven itself to be highly fragile. However, adverse digital asset market shocks have had limited spillovers to the traditional financ...
Approximating Grouped Fixed Effects Estimation via Fuzzy Clustering Regression
09/01/2022
We propose a new, computationally-efficient way to approximate the “grouped fixed-effects” (GFE) estimator of Bonhomme and Manresa (2015), which estimates grouped patterns of unobserved heterogeneity. To do so, we generalize the fuzzy C-means objective to regression settings. As the regularization parameter m approaches 1, the fuzzy clustering objective converges to the GFE objective; moreover, we recast this objective as a standard Generalized Method of Moments problem. We replicate the empiric...
Risk-Free Rates and Convenience Yields Around the World
09/01/2022
This paper constructs risk-free interest rates implicit in index option prices for ten of the major G11 currencies. We compare these rates to the yields of government bonds to provide international estimates of the convenience yield earned by safe assets. Average convenience yields across countries are highly correlated with the average interest rate in each country, ranging from 2 basis points in low-rate Switzerland to 61 basis points in high-rate Australia, with the moderate-rate United State...
800,000 Years of Climate Risk
09/01/2022
We use a long history of global temperature and atmospheric carbon dioxide (CO2) concentration to estimate the conditional joint evolution of temperature and CO2 at a millennial frequency. We document three basic facts. First, the temperature–CO2 dynamics are non-linear, so that large deviations in either temperature or CO2 concentrations take a long time to correct–on the scale of multiple millennia. Second, the joint dynamics of temperature and CO2 concentrations exhibit multimodality around h...
Activist Manipulation Dynamics
09/01/2022
Two activists with correlated private positions in a firm’s stock, trade sequentially before simultaneously exerting effort that determines the firm’s value. We document the existence of a novel linear equilibrium in which an activist’s trades have positive sensitivity to her block size, but such orders are not zero on average: the leader activist manipulates the price to induce the follower to acquire a larger position and thus add more value. We examine the implications of this equilibrium for...
Returning to Price Stability
08/31/2022
Since I last spoke at this breakfast four years ago, much has transpired. At that time, the economy was in the ninth year of an expansion; labor markets were strong; and inflation was finally moving up to our 2 percent goal after running below this goal for some time. The Fed was continuing to increase its policy rate, the fed funds rate, to be consistent with these healthy economic conditions and the outlook. The economic expansion continued for another two years, until the pandemic changed all...
Specification Choices in Quantile Regression for Empirical Macroeconomics
08/31/2022
Quantile regression has become widely used in empirical macroeconomics, in particular for estimating and forecasting tail risks to macroeconomic indicators. In this paper we examine various choices in the specification of quantile regressions for macro applications, for example, choices related to how and to what extent to include shrinkage, and whether to apply shrinkage in a classical or Bayesian framework. We focus on forecasting accuracy, using for evaluation both quantile scores and quantil...
Price Pressures for U.S. Exporters and a Strong Dollar Have Increased Inflation in Foreign Countries
08/31/2022
As the higher demand for imported goods during the pandemic has moderated, U.S. export prices have become an important factor in determining inflationary pressures from the United States. As of 2022:Q2, export prices increased by 11.8 percent annualized, far exceeding the historical average of 3.75 percent. Further, 58 percent of the increase in export prices can be attributed to the recent appreciation of the U.S. dollar, while the remaining 42 percent can be attributed to price pressures for U...
Consumer Bankruptcy, Mortgage Default and Labor Supply
08/30/2022
We specify and estimate a lifecycle model of consumption, housing demand and labor supply in an environment where individuals may file for bankruptcy or default on their mortgage. Uncertainty in the model is driven by house price shocks, education specific productivity shocks, and catastrophic consumption events, while bankruptcy is governed by the basic institutional framework in the U.S. as implied by Chapter 7 and Chapter 13. The model is estimated using micro data on credit reports and mort...
Shift to Working from Home Diminished Large Cities' Productivity Premium
08/30/2022
Since the start of the pandemic, the reduced presence of in-office workers has reduced the wage premium attached to large cities and may have diminished the productivity edge of these areas....
Finding a Soft Landing along the Beveridge Curve
08/29/2022
As U.S. economic growth slows this year, a key question is whether job openings can fall from historical highs without a substantial rise in unemployment. Analyzing the current Beveridge curve relationship between unemployment and job openings presents a meaningful possibility that labor market pressures can ease and achieve a “soft landing” with only a limited increase in unemployment. This view is supported by high rates of job matching in the U.S. labor market in 2022, despite ongoing employm...
Understanding Growth Through Automation: The Neoclassical Perspective
08/26/2022
We study how advancements in automation technology affect the division of aggregate income between capital and labor in the context of long-run growth. Our analysis focuses on the fundamental trade-off between the labor-displacing effect of automation and its positive productivity effect in an elementary task-based framework featuring a schedule of automation prices across tasks linked to the state of technology. We obtain general conditions for the automation technology and technical change dri...
Are Equity Option Returns Abnormal? IPCA Says No
08/26/2022
We show that much of the profitability in equity option return strategies, which try to capture option mispricing by taking exposure to underlying volatility, can be explained by an IPCA model. The alpha reduction, relative to competing static factor models, is between 50% and 75% depending on the computing model and the type of option position....
Freeway Revolts! The Quality of Life Effects of Highways
08/24/2022
Why do freeways affect spatial structure? We identify and quantify the local disamenity effects of freeways. Freeways cause slower growth in central neighborhoods (where local disamenities exceed regional accessibility benefits) compared with outlying neighborhoods (where access benefits exceed disamenities). A quantitative model calibrated to Chicago attributes one-third of the effect of freeways on central-city decline to reduced quality of life. Barrier effects are a major factor in the disam...
Foreclosure Kids: Examining the Early Adult Credit Usage of Adolescents Affected by Foreclosure
08/24/2022
We investigate the long-term effects of foreclosure-induced relocations on adolescents and their subsequent use of credit. We ask whether individuals who experience a foreclosure-induced move between the ages of 10 and 17 are more likely to exhibit signs of credit scarring later in life. To establish a set of counterfactual outcomes, we implement propensity score matching with exact matching on certain characteristics and regression adjustment of the remaining covariate imbalances. We then compa...
Data Aggregators: The Connective Tissue for Open Banking
08/24/2022
Open banking, which allows third-party financial apps to access consumer financial data electronically andsecurely, relies on data aggregators to establish connections with consumers’ financial institutions and extract consumer data. Data aggregators are critical to enhancing consumer financial services and increasing competition—both among financial service providers and across payment methods. However, their role raises some concerns related to data security, data privacy, and competition....
Making Sense of Eviction Trends during the Pandemic
08/23/2022
Eviction filings have largely returned to their prepandemic levels in 2022 after a long period of being below trend. In this Economic Commentary, I describe the trends in eviction filings collected so far during the pandemic and pandemic-era policies aimed at mitigating the damage of the pandemic on housing stability. I show that restrictions on evictions, common early in the pandemic, are associated with lower levels of eviction filings; that recent rent-price growth is associated with higher l...
Vaccines Were Key to Curbing COVID-19 in Europe; Other Measures Also Useful
08/23/2022
Vaccine uptake was the most important factor in reducing effective transmission rates in 2021, though the other factors helped bring infections under control....
The Impact of Weather on Retail Sales
08/22/2022
Variation in weather could cause greater disruptions to a range of economic outcomes as severe weather events become more frequent or more extreme. Analyzing daily sales at a national apparel and sporting goods brand’s stores reveals that weather effects on store sales are surprisingly persistent, even after accounting for shoppers simply changing when and where they make their purchases. Moreover, sales at stores that have more experience with adverse weather events have a lower response, sugge...
Interest Rate Surprises: A Tale of Two Shocks
08/22/2022
Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks an...
Vacancy Chains
08/19/2022
Replacement hiring—recruitment that seeks to replace positions vacated by workers who quit—plays a central role in establishment dynamics. We document this phenomenon using rich microdata on U.S. establishments, which frequently report no net change in their employment, often for years at a time, despite facing substantial gross turnover in the form of quits. We devise a tractable model in which replacement hiring is driven by a novel structure of frictions, combining firm dynamics, on-the-job s...
Uncertainty, Shock Prices and Debt Structure: Evidence from the U.S.-China Trade War
08/19/2022
Using the recent U.S.-China trade war as a laboratory, we show that policy uncertainty shocks have a significant impact on stock prices. This impact is less negative for firms that heavily rely on bank debt whereas non-bank debt does not have a mitigating effect. Moreover, the mitigating effect of bank debt is concentrated among zombie firms. A zombie firm that derives half of its capital from bank debt has no negative stock price reaction to increased uncertainty. These results are consistent w...
Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics
08/18/2022
We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a tempora...
Driving, Dropouts, and Drive-Throughs: Mobility Restrictions and Teen Human Capita
08/17/2022
We provide evidence that graduated driver licensing (GDL) laws, originally intended to improve public safety, impact both high school completion and teen employment. Many teens use automobiles to commute both to school and to employment. Because school and work decisions are interrelated, the effects of automobile-specific mobility restrictions are ex ante ambiguous. Combining variation in the timing of both GDL law adoption and changes in compulsory school laws into a triple-difference research...
Has COVID Reversed Gentrification in Major U.S. Cities? An Empirical Examination of Residential Mobility in Gentrifying Neighborhoods During the COVID-19 Crisis
08/17/2022
This paper examines whether neighborhoods that had been gentrifying lost their appeal during the pandemic because of COVID-induced health risks and increased work-from-home arrangements. By following the mobility pattern of residents in gentrifying neighborhoods in 39 major U.S. cities, we note a larger increase of 1.2 percentage points in the outmigration rate from gentrifying neighborhoods by the end of 2021, relative to nongentrifying ones, with out-of-city moves accounting for over 71 percen...
Credit Card Debt Puzzle: Liquid Assets to Pay Bills
08/17/2022
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Recent Appreciation in the U.S. Dollar Unlikely to Have Large Effect on Domestic Inflation
08/17/2022
The U.S. dollar has appreciated more than 8.5 percent since May 2021, raising questions about potential effects on domestic inflation. If imports are billed in foreign currencies, then a strong dollar could reduce import prices and therefore domestic inflation. However, U.S. imports are almost entirely invoiced in U.S. dollars, dampening this effect. We find that the recent appreciation in the U.S. dollar has a negligible effect on domestic inflation as measured by the core price index for perso...
Clicking for Credit: Experiences of Online Lender Applicants from the Small Business Credit Survey
08/16/2022
This report presents findings on the experiences of small businesses seeking credit from online lenders, based on data from the 2021 Small Business Credit Survey (SBCS). According to findings, firms that apply to online lenders are more likely to be newer and have fewer employees, lower revenues, and weaker credit scores. In addition, Black- and Hispanic-owned firms are more likely than white- and Asian-owned firms to report that they applied to an online lender. Furthermore, contrary to prior S...
Two Years into COVID, What’s the State of U.S. Businesses?
08/15/2022
More than two years after the outbreak of COVID-19, concerns remain that U.S. businesses are substantially more vulnerable and less productive than in the past. Using extensive data on private and public firms allows for a detailed assessment of these concerns. According to a number of performance measures, businesses borrowing from large U.S. banks appear relatively healthy, increased leverage is concentrated among safer companies rather than riskier ones, and probabilities of default are close...
Mortgage Borrowers’ Use of COVID-19 Forbearance Programs
08/15/2022
The guarantee of mortgage forbearance provided in the CARES Act is an unprecedented provision of flexibility for government-insured mortgage borrowers and has been successful thus far at limiting delinquencies during the COVID-19 pandemic. The terms of this forbearance are favorable to borrowers, and there is little required in terms of documentation of hardship, making requesting forbearance an attractive option even if borrowers are not facing hardship and do not need forbearance to remain cur...
Means-Tested Transfers, Asset Limits, and Universal Basic Income
08/15/2022
Asset limits in means-tested transfers can allow for the distribution of scarce aid to families most in need but may offer a disincentive to beneficiaries to build savings necessary to weather economic shocks. In this Economic Commentary, we examine the net worth of transfer recipients along the income distribution and review the economic literature on the matter with a discussion of universal basic income (UBI) as a policy alternative. Using the 2018 Survey of Income and Program Participation, ...
Black Workers, Mothers Leaving Early Education and Child Care Jobs amid Health Risks, Low Pay
08/11/2022
Understanding which teachers were likelier to leave the industry over the past two years and the factors that could have influenced their decision to leave are at the heart of this study....
Government Assistance and Moral Hazard: Evidence from the Savings and Loan Crisis
08/11/2022
When regulators intervene to rescue failing financial institutions, they may lead banks to expect future assistance and increase their risk-taking. To avoid incentivizing risky behavior, regulators often try to signal that they will not assist banks in a future crisis. Regulations passed during the savings and loan (S&L) crisis in the 1980s provide a rare example of policies that in fact discouraged risk-taking. After a wave of S&L failures, the Federal Savings and Loan Insurance Corporation (FS...
The Causal Effects of Lockdown Policies on Health and Macroeconomic Outcomes
08/10/2022
We assess the causal impact of epidemic-induced lockdowns on health and macroeconomic outcomes and measure the trade-off between containing the spread of an epidemic and economic activity. To do so, we estimate an epidemiological model with time-varying parameters and use its output as information for estimating SVARs and LPs that quantify the causal effects of nonpharmaceutical policy interventions. We apply our approach to Belgian data for the COVID-19 epidemic during 2020. We find that additi...
A Slowdown in Job Vacancies Is Likely to Coincide with Higher Unemployment and Slower Wage Growth
08/10/2022
Recently, some market observers have proposed that job vacancies could decline, and ease wage growth, without a commensurate increase in the unemployment rate. However, we find that the typical relationship of declining job vacancies and higher unemployment holds even at exceptionally low levels of the unemployment rate. A notable decline in job postings will likely coincide with an easing of tightness in the labor market, a higher unemployment rate, and slowing wage growth....
The Effect of Minimum Wages on Consumer Bankruptcy
08/09/2022
We use cross-state differences in minimum wage (MW) levels and county-level consumer bankruptcy rates from 1991-2017 to estimate the effect of changes in minimum wages on consumer bankruptcy by exploiting policy discontinuities at state borders. We find that Chapter 7 bankruptcy rates are significantly lower in counties belonging to states with higher MW compared to neighboring counties in the lower MW state: a 10 percent increase in MW decreases the bankruptcy rate by around 4 percent. Before t...
Getting Schooled: The Role of Universities in Attracting Immigrant Entrepreneurs
08/08/2022
We study immigrant founders of venture-capital backed firms using a new and detailed data set that we assemble on the backgrounds of founders. Immigrant founders have been critical to the entrepreneurial ecosystem, accounting for roughly 20% of all venture capital-backed founders over the past 30 years. We document the channels through which immigrant founders arrive in the United States and how those channels have changed over time. Higher education has served as the primary entry channel for i...
Will Workers Demand Cost-of-Living Adjustments?
08/08/2022
Households are currently expecting inflation to run high in the short run but to remain muted over the more distant future. Given this divergence, what role do short-run and long-run household inflation expectations play in determining what workers expect for future wages? Data show that wage inflation is sensitive to movements in household short-run inflation expectations but not to those over longer horizons. This points to an upside risk for inflation, as workers negotiate higher wages that b...
House Price Responses to Monetary Policy Surprises: Evidence from the U.S. Listings Data
08/05/2022
Existing literature documents that house prices respond to monetary policy surprises with a significant delay, taking years to reach their peak response. We present new evidence of a much faster response. We exploit information contained in listings for the residential properties for sale in the United States between 2001 and 2019 from the CoreLogic Multiple Listing Service Dataset. Using high-frequency measures of monetary policy shocks, we document that a one standard-deviation contractionary ...
Does Job Quality Affect Occupational Mobility?
08/04/2022
Job quality, a well-known topic in workforce development circles, is an underutilized but useful lens with which to examine labor market conditions. Given the record number of resignations and available job openings, especially in the lower-paid industry sectors, along with popular labor market narratives around the Great R’s (Resignation, Renegotiation, Reshuffle), I wonder to what extent job quality plays a role in the occupational mobility of workers. Occupational mobility includes all poten...
Fintech in a Changing World
08/03/2022
Patrick T. Harker, president and chief executive officer of the Philadelphia Fed, told an audience at the Sixth Annual Fintech Conference in Philadelphia that “fintech can help foster financial inclusion.” Especially when used with alternative methods of evaluating creditworthiness, “the opportunities to use fintech to reach the economically constrained and financially marginalized are truly exciting,” he said....
COVID-19 Fiscal Expansion and Inflation Expectations in Japan
08/03/2022
The Japanese government’s strong response to the economic fallout from COVID-19 presents an opportunity to examine whether expansionary fiscal policies raise long-term inflation expectations. Analyzing market-based estimates of long-term inflation expectations in Japan shows that announcements of government fiscal stimulus under COVID-19 had no meaningful impact on investors’ long-term inflation expectations. This illustrates the challenge of moving long-term expectations after they become ancho...
Improving Inflation Forecasts Using Robust Measures
08/03/2022
Both theory and extant empirical evidence suggest that the cross-sectional asymmetry across disaggregated price indexes might be useful in the forecasting of aggregate inflation. Trimmed-mean inflation estimators have been shown to be useful devices for forecasting headline PCE inflation. But does this stem from their ability to signal the underlying trend, or does it mainly come from their implicit signaling of asymmetry (when included alongside headline PCE)? We address this question by augmen...
Why Worry about Financial Exclusion?
08/03/2022
Should policymakers aim to expand access to bank accounts? When financial exclusion is due to frictions that prevent banking from operating efficiently, intervention may be justified. Applying simple economic principles, we highlight possible frictions that may give rise to inefficient exclusion in the United States, and we assess their importance using insights from data and the academic and policy literature....
The Unequal Effect of Interest Rates by Race, Gender
08/01/2022
Household spending typically falls as interest rates rise, but the responses vary by race and gender. Data show that households with mortgages headed by white women cut their spending on durable goods about a quarter percentage point in the three years following a 1 percentage point increase in interest rates. This is a much larger reduction than for households with mortgages headed by white men or Black men or women. The differences highlight the challenge of understanding how policy interest r...
What Is Driving U.S. Inflation amid a Global Inflation Surge?
08/01/2022
In June 2022, the 12-month inflation rate of the U.S. Consumer Price Index (CPI) hit 9.1%, its highest level in over 40 years. The U.S. is not alone: Across the industrialized world, inflation is accelerating during the recovery from the pandemic recession. Although inflation is surging globally, the sources of inflation are different in each country....
Sources of Fluctuation in Short-Term Yields and Recession Probabilities
08/01/2022
An inverted yield curve—defined as an episode in which long-maturity Treasury yields fall below their short-maturity counterparts—is a powerful near-term predictor of recessions. While most previous studies focus on the predictive power of the spread between the long- and short-term Treasury yields, Engstrom and Sharpe (2019) have recently shown that a measure of the nominal near-term forward spread (NTFS), given by the difference between the six-quarter-ahead forward Treasury yield and the curr...
Heterogeneity and the Effects of Aggregation on Wage Growth
08/01/2022
This paper focuses on the implications of alternative methods of aggregating individual wage data for the behavior of economy-wide wage growth. The analysis is motivated by evidence of significant heterogeneity in individual wage growth and its cyclicality. Because of this heterogeneity, the choice of aggregation will affect the properties of economy-wide wage growth measures. To assess the importance of this consideration, we provide a decomposition of wage growth into aggregation effects and c...
Evergreening
07/31/2022
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to less productive and more indebted firms. We detect such lending behavior using loan-level supervisory data for the United States. Low-capitalized banks systematically distort firms’ risk assessments to window-dress their balance sheets. To avoid further reductions in their capital ratios, such banks extend relatively more credit to underreported borrowers. We incorpo...
Attention Allocation and Heterogenous Consumption Responses
07/29/2022
Recessions often have detrimental effects on both employment and equity returns, forcingindividuals to make decisions about how to balance risks to their labor and capital income.In this paper, we study how individuals allocate their limited attention between capital income and labor income risks in a two-period consumption-saving model with recursive utility.Specifically, we examine how the optimal attention and consumption-saving decisions are influenced by individuals’ attention capacity, wea...
Regional Spotlight: Making Ends Meet
07/15/2022
How does the local cost of living affect a household’s standard of living?...
Regional Spotlight: Making Ends Meet
07/15/2022
How does the local cost of living affect a household’s standard of living?...
Politics and Income Distribution
07/15/2022
We take a closer look at how political reforms affect labor’s share of national income....
Labor Market Recovery During the COVID-19 Pandemic
07/15/2022
After most recessions, the labor market recovers slowly. Was the COVID-19 recession different?...
Quantifying "Quantitative Tightening" (QT): How Many Rate Hikes Is QT Equivalent To?
07/15/2022
None...
The Supply and Demand of Agricultural Loans
07/14/2022
Credit plays a critical role in the agricultural sector, but many studies suggest that farmers are credit constrained. We examine the degree to which changes in non-real-estate agricultural loans at commercial banks are driven by changes in supply and demand, using information provided by agricultural lending surveys conducted by the Federal Reserve Banks of Chicago, Kansas City, and Minneapolis. Building on recent studies of loan officer opinion surveys, we estimate the changes in agricultural ...
Cutting-Edge Methods Did Not Improve Inflation Forecasting during the COVID-19 Pandemic
07/14/2022
Amaze Lusompa and Sai A. Sattiraju investigate whether innovations in time-varying parameter models led to improved inflation forecasting during the pandemic. They find that despite their promise prior to the pandemic, forecasting innovations did not improve the accuracy of inflation forecasts relative to a baseline time-varying parameter model during the pandemic. Their results suggest that forecasters may need to develop a new class of forecasting models, introduce new forecasting variables, o...
The Distributional Impact of the Minimum Wage in the Short and Long Run
07/14/2022
We develop a framework with rich worker heterogeneity, firm monopsony power, and putty-clay technology to study the distributional impact of the minimum wage in the short and long run. Our production technology is disciplined to be consistent with the small estimated employment effects of the minimum wage in the short run and the large estimated elasticities of substitution across inputs in the long run. We find that in the short run, a large increase in the minimum wage has a small effect on em...
Increased Loan Demand and Higher Interest Rates May Benefit Ag Banks
07/13/2022
Extreme weather, geopolitical conflicts, supply chain disruptions, and rising interest rates all directly affectU.S. agriculture, which may in turn affect banks that make agricultural loans. Demand for loans from agbanks could rise following events that reduce net farm income or increase banks’ ability to reprice loans,such as supply chain disruptions or higher interest rates. But competition with other banks and nonbankfinancial institutions may offset some of these benefits....
Residential Instability in the Bay Area through the COVID-19 Pandemic
07/11/2022
This report draws on a unique, longitudinal dataset of over 250,000 San Francisco Bay Area residents to examine residential instability—including moving, crowding, and financial health—in the Bay Area during the pandemic. Our research finds a substantial decrease in moving during the pandemic, particularly for residents of extremely low socioeconomic status (SES). At the same time, we report a concerning rise in residents living in crowded conditions and experiencing declining credit scores. The...
Assessing Market Conditions ahead of Quantitative Tightening
07/11/2022
Quantitative tightening (QT)—the reduction in the Federal Reserve’s balance sheet—will transfer a significant amount of Treasury and agency mortgage-backed securities to investors. This transfer will be larger than the first endeavor with QT in 2017 and will occur at a time when financial markets are strained, suggesting this round of QT has the potential to be more disruptive compared with the benign start to the 2017 runoff....
Dynastic Home Equity
07/09/2022
Using a nationally representative panel of consumer credit records for the US from 1999 to 2021, we document a positive correlation between child and parent homeownership. We propose a new causal mechanism behind this relationship based on parents extracting home equity to help finance their child's home purchase and quantify this mechanism in several ways. First, controlling for cohort, zip code, age, and the creditworthiness of parents and children, we find that children whose parents extract ...
The Shift to Remote Work Lessens Wage-Growth Pressures
07/08/2022
The recent shift to remote work raised the amenity value of employment. As compensation adjusts to share the amenity-value gains with employers, wage-growth pressures moderate. We find empirical support for this mechanism in the wage-setting behavior of US employers, and we develop novel survey data to quantify its force. Our data imply a cumulative wage-growth moderation of 2.0 percentage points over two years. This moderation offsets more than half the real-wage catchup effect that Blanchard (...
Lessons Learned from Mortgage Borrower Policies and Outcomes during the COVID-19 Pandemic
07/07/2022
This article reviews the aid offered to the roughly 50 million homeowners with mortgages included in a forbearance program, and the Federal Reserve’s actions that pushed down mortgage rates, allowing many mortgage holders to reduce their monthly payments by refinancing. We deem these policies to be quite effective in relieving financial distress and allowing homeowners to stay in their homes, especially in contrast with the policies pursued during the Great Recession. We emphasize that these pol...
Minimum Wages and Labor Markets in the Twin Cities
07/07/2022
Using merged administrative datasets from Minnesota, we bring new evidence on the labor market effects of large minimum wage increases by examining the policy changes implemented by Minneapolis and Saint Paul. We begin by using synthetic difference-in-differences methods to estimate counterfactual outcomes at the zip code level from Minnesota and at the city level from the rest of the country. The minimum wage did not affect employment in most industries but exerted a negative impact on restaura...
Long-Haulers and Labor Market Outcomes
07/07/2022
There have been growing concerns about long-haulers or individuals with long-term COVID-19 health complications (long-haul COVID). While the medical field has been investigating the health complications, there has been limited research on the relationship between long-haul COVID and labor market outcomes. To investigate this relationship, I used the University of Southern California Understanding America Study COVID-19 longitudinal survey to provide a snapshot of mid-2021. I first find about 24....
Did High Leverage Render Small Businesses Vulnerable to the COVID-19 Shock?
07/01/2022
Using supervisory data on small and mid-sized nonfinancial enterprises (SMEs), we find that those SMEs with higher leverage faced tighter constraints in accessing bank credit after the COVID-19 outbreak in spring 2020. Specifically, SMEs with higher pre-COVID leverage obtained a smaller volume of new loans and had to pay a higher spread on them during the pandemic period. Consistent with an inward shift in loan supply, these effects were concentrated in loans originated by banks with below-media...
How Common Was Blockbusting in the Postwar U.S.?
07/01/2022
This article documents the prevalence of blockbusting—the orchestration of racial turnover in urban neighborhoods—throughout many major U.S. cities from the 1950s through the 1970s....
Inflation in 1972: A Cautionary Tale
07/01/2022
The path of inflation over the past two years looks strikingly similar to the path observed during the 1970s,when the Federal Open Market Committee shifted its focus away from fighting inflation before pricepressures were fully under control. Although policymakers in both the 1970s and today have facedextraordinary challenges, future perceptions of current policy will likely be defined primarily by theoutcome of the Committee’s attempts to curb inflation, rather than the circumstances surroundin...
Evaluating Quantitative Easing: The Importance of Accounting for Forward Guidance
06/30/2022
During the COVID-19 pandemic crisis, policymakers used large-scale asset purchases (LSAPs) along with forward guidance about the future path of the federal funds rate to help stabilize financial markets. However, policymakers and economists have yet to reach a consensus on the efficacy of LSAPs in providing accommodation and improving macroeconomic outcomes. Because announced changes in LSAPs often coincide with changes in forward guidance, the market responses to these two tools can be difficul...
Is Our Fiscal System Discouraging Marriage? A New Look at the Marriage Tax
06/29/2022
We develop, apply, and test a new measure of the marriage tax: the reduction in future spending from getting married. Our measure is a comprehensive, actuarial (expected) present value. It incorporates all major and most minor US tax and benefit programs, weighing the present value of additional net taxes from marrying along each marital survivor path by the path’s probability. And it assumes clone marriage—marrying oneself—to ensure the living-standard loss from marrying is unaffected by spousa...
The Role of Inflation Expectations in Monetary Policymaking: A Practitioner’s Perspective
06/29/2022
I thank the ECB Forum on Central Banking for inviting me to participate on this panel. In my brief prepared remarks, I will discuss the role of inflation expectations from the practitioner’s perspective. The views I present will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee (FOMC)....
Disagreement among Households May Foreshadow a Rise in Inflation Expectations
06/29/2022
Households’ expectations about future inflation can influence realized inflation, so many policymakerstrack median household inflation expectations. However, the median changes slowly if households learnabout economic fundamentals gradually. A widening distribution of household inflation expectations mayforeshadow an increase in the median. During 2021, for example, disagreement about inflationexpectations rose months before the median increased appreciably....
Planning for Surprises, Learning from Crises: The 2021 Financial Stability Conference
06/28/2022
This Commentary summarizes the academic papers and keynote talks delivered at the 2021 Financial Stability Conference hosted by the Office of Financial Research and the Federal Reserve Bank of Cleveland, held virtually on November 17–19, 2021....
Making Sense of Negative Nominal Interest Rates
06/23/2022
Several advanced economies implemented negative nominal interest rates in the middle of the last decade, seeking to provide further monetary accommodation once cuts in positive territory had been exhausted. Negative rates affect banks in novel ways, mostly because during times of negative policy rates the interest rate that banks pay households on their deposits usually remains close to zero. In this review, we analyze the large literature that studies the impact of negative nominal interest rat...
Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation
06/23/2022
Using a novel experimental setup, we study the direction of causality between consumers’ inflation expectations and their income growth expectations. In a large, nationally representative survey of US consumers, we find that the rate of passthrough from expected inflation to expected income growth is incomplete, on the order of 20 percent. There is no statistically significant effect going in the other direction. Passthrough varies systematically with demographic and socioeconomic factors, with ...
Potential Impacts of the War in Ukraine on the Fourth District
06/23/2022
This District Data Brief examines the trade connections between Ukraine and Russia and the Fourth Federal Reserve District, which includes Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia. It appears that supplies to the District will be substantially reduced for several items that Ukraine and Russia export, such as primary metals and fertilizer. We should expect prices to rise for these goods, as they have already for petroleum. However, there are genera...
Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations
06/22/2022
Using novel survey evidence on consumer inflation expectations disaggregated by personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations usually exceed any individual category expectation. We explore procedures for aggregating category inflation expectations, and find that the inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is systematically related to socioeconomic char...
The Transmission of Financial Shocks and Leverage of Financial Institutions: An Endogenous Regime-Switching Framework
06/02/2022
We conduct a novel empirical analysis of the role of leverage of financial institutions for the transmission of financial shocks to the macroeconomy. For that purpose, we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities that depend on the state of the economy. We propose new identification techniques for regime switching models.Recently developed theoretical models emphasize the role of bank balance sheets for the build-up o...
How to Increase Housing Affordability: Understanding Local Deterrents to Building Multifamily Housing
06/01/2022
This paper studies how local land-use regulations and community opposition affect the trade-offs to building single-family, multifamily, and affordable housing and how their effects on rents differ from their effects on house prices. Using lot-level zoning regulations and a boundary discontinuity design at regulation boundaries in Greater Boston, we obtain causal estimates for the effects of zoning regulations on the supply of different types of housing, single-family-house prices, multifamily r...
The Role of Industrial Composition in Driving the Frequency of Price Change
06/01/2022
We analyze the impact of shifts in the industrial composition of the economy on the distribution of the frequency of price change and its consequences for the slope of the Phillips curve for the United States. By combining product-level microdata on the frequency of price change with data on industry shares from 1947 through 2019, we document that shifts in industrial composition led to a gradual reduction in the median monthly frequency of price change from 9.2 percent in 1947 to 6.9 percent in...
Credit Card Debt Puzzle: Liquid Assets to Pay Bills
06/01/2022
Using transaction data from a US consumer payments diary, we revisit the credit card debt puzzle—a scenario in which consumers revolve credit card debt while also keeping liquid assets as bank account deposits. This scenario is very common: 42 percent of consumers in our sample were borrower-savers in 2019 (those who carry $100 or more in credit card debt and $100 or more in liquid assets). We explain the puzzle by showing that consumers need their liquid assets to pay monthly bills and other ne...
The Cryptic Nature of Black Consumer Cryptocurrency Ownership
06/01/2022
Owning cryptocurrency has become especially popular among Black consumers for reasons related to historical context as well as the forward-looking views of young consumers. While cryptocurrencies have the potential to meet Black consumers’ expectations, they also pose risks to privacy and financial security....
Assessing the Case for Retail CBDCs: Central Banks’ Considerations
05/26/2022
Many central banks around the world have been researching, experimenting, or developing central bank digital currencies (CBDCs). Although central banks in several emerging markets and developing economies have implemented or plan to implement a general-purpose, or retail, CBDC to promote financial inclusion and improve their payment systems, central banks in many advanced economies have not yet found a compelling case for a retail CBDC....
Cost-Price Relationships in a Concentrated Economy
05/23/2022
The US economy is at least 50 percent more concentrated today than it was in 2005. In this paper, we estimate the effect of this increase on the pass-through of cost shocks into prices. Our estimates imply that the pass-through becomes about 25 percentage points greater when there is an increase in concentration similar to the one observed since the beginning of this century. The resulting above-trend price growth lasts for about four quarters. Our findings suggest that the increase in industry ...
A Sufficient Statistics Approach for Macro Policy Evaluation
04/27/2022
The evaluation of macroeconomic policy decisions has traditionally relied on the formulation of a specific economic model. In this work, we show that two statistics are sufficient to detect, often even correct, non-optimal policies, i.e., policies that do not minimize the loss function. The two sufficient statistics are (i) the effects of policy shocks on the policy objectives, and (ii) forecasts for the policy objectives conditional on the policy decision. Both statistics can be estimated witho...
On Wars, Sanctions and Sovereign Default
04/26/2022
This paper explores the role of restrictions on the use of international reserves as economic sanctions. We develop a simple model of the strategic game between a sanctioning (creditor) country and a sanctioned (debtor) country. We show how the sanctioning country should impose restrictions optimally, internalizing the geopolitical benefits and the financial costs of a potential default from the sanctioned country....
The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States
04/25/2022
The US net foreign asset position has deteriorated sharply since 2007 and is currently negative 65 percent of US GDP. This deterioration primarily reflects changes in the relative values of large gross international equity positions, as opposed to net new borrowing. In particular, a sharp increase in equity prices that has been US-specific has inflated the value of US foreign liabilities. We develop an international macro finance model to interpret these trends, and we argue that the rise in equ...
Did the Medicaid Expansion Crowd Out Other Payment Sources for Medications for Opioid Use Disorder? Evidence from Rhode Island
04/14/2022
Using information from the all-payer claims database for Rhode Island covering more than three-quarters of health insurance enrollees in the state from April 2011 through May 2019, this paper offers new measures of the association between the Medicaid expansion and the rate of receipt of buprenorphine and methadone for opioid use disorder (OUD). These robust measures adjust for the extent to which new Medicaid payments for these medications that started in 2014 crowded out payments from either n...
Who Benefited Most from the CARES Act Unemployment Insurance Provisions?
04/07/2022
The regular unemployment insurance (UI) program in the United States requires workers to have a minimum amount of earnings as well as a sufficient work history before unemployment. Low-wage workers are more likely to have a short work history before unemployment because they are more likely to be separated from their jobs. Pandemic Unemployment Assistance (PUA) under the CARES Act temporarily eliminated the requirements for minimum past earnings and length of employment, thus making many low-wag...
Minimum Wages, Efficiency and Welfare
04/06/2022
It has long been argued that a minimum wage could alleviate efficiency losses from monopsony power. In a general equilibrium framework that quantitatively replicates results from recent empirical studies, we find higher minimum wages can improve welfare, but most welfare gains stem from redistribution rather than efficiency. Our model features oligopsonistic labor markets with heterogeneous workers and firms and yields analytical expressions that characterize the mechanisms by which minimum wage...
Optimal Unemployment Insurance Requirements
04/01/2022
In the U.S., workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of a past minimum earnings. Using discontinuity of UI rules at state borders, we find that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. In a quantitative model, the monetary requirement induce workers to search longer because low pay...
The Impact of the Pandemic on US Businesses: New Results from the Annual Business Survey
03/22/2022
Working with Federal Reserve staff, the US Census Bureau added to the 2021 Annual Business Survey (ABS) a special module of questions focused on the pandemic and small business finances. Questions ranged from the impact of the pandemic on business sales, to government assistance requested/received, and to the financial health of the firm. In this article, we report the results of these questions—and how they differ by race and ethnicity. The survey finds that more than 60 percent of business exp...
Online Appendix for: How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism
03/17/2022
This appendix accompanies Staff Report 605: How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism....
The Global Distribution of College Graduate Quality
03/07/2022
We measure college graduate quality — the average human capital of a college’s graduates—using the average earnings of the college’s graduates adjusted to a common labor market. Our implementation uses the database of the website Glassdoor, which has the necessary information on earnings and education for non-migrants and migrants who graduate from roughly 3,300 colleges in 66 countries. Graduates of colleges in the richest countries have 50 percent more human capital than graduates of colleges ...
Appendix for: Optimal Cooperative Taxation in the Global Economy
03/07/2022
This appendix accompanies Staff Report 581: Optimal Cooperative Taxation in the Global Economy....
High-Yield Debt Covenants and Their Real Effects
03/01/2022
High-yield debt, including leveraged loans, is characterized by incurrence financial covenants, or “cov-lite” provisions. Unlike, traditional, maintenance covenants, incurrence covenants preserve equity control rights but trigger pre-specified restrictions on the borrower’s actions once the covenant threshold is crossed. We show that restricted actions impose significant constraints on investments: Similar to the effects of the shift of control rights to creditors in traditional loans, the drop ...
How Interconnected Are Cryptocurrencies and What Does This Mean for Risk Management
03/01/2022
In the past couple of years, the market for digital currencies, commonly known as cryptocurrencies because transactions are verified using cryptography, has expanded significantly in terms of transaction volumes, market capitalization, and the number of digital currencies in existence. On January 1, 2018, the market capitalizations (market caps1) of Bitcoin and Ethereum were $226 billion and $75 billion, respectively. By May 10, 2021, Bitcoin’s market cap had reached almost $1 trillion and Ether...
The Downward Spiral
02/25/2022
To analyze the opioid epidemic, we construct a model where individuals, with and without pain, choose whether to misuse opioids knowing the probabilities of addiction and dying. These odds are functions of opioid use. Markov chains are estimated from the US data for the college and non–college educated that summarize the transitions into and out of opioid addiction as well as to a deadly overdose. We construct a structural model that matches the estimated Markov chains. We also examine the epide...
Will Wage Growth Alone Get Workers Back Into the Labor Market? Not Likely.
02/24/2022
This article finds that compared to baby boomers of the same age, millennials' labor force participation decisions are only about three-quarters as responsive to wage changes, and Generation X's participation decisions are only about half as responsive. These differences are not good news for employers trying to coax workers back into the labor market during a robust pandemic recovery. Using the most recent estimates, from 2019 data, the latest 6 percent year-over-year increase in average hourly...
Does Access to Free Pre-Kindergarten Increase Maternal Labor Supply?
02/02/2022
In this paper, we evaluate the effects of free pre-kindergarten (pre-K) programs on the labor force participation (LFP) of mothers. We use variation in pre-K rules across all US states, including income eligibility requirements in some states. To estimate the causal effects of access to pre-K on labor supply, we exploit the panel aspect of the monthly Current Population Survey between 2002 and 2019. Specifically, we look at the change in labor market behavior of women when their child becomes ag...
Payments Evolution from Paper to Electronic Payments by Merchant Type
02/01/2022
The use of paper instruments—cash and checks—has been declining in the United States, and consumers have been gradually replacing paper with cards and electronic payments. Stavins (2021) examines the evolution of payments from paper to cards and electronic payments, while Shy (2020) shows the payments landscape across merchant types. This paper combines the cross-sectional analysis across merchants with the aggregate time series study to analyze the evolution of consumer payments by merchant typ...
The Effects of the “Great Resignation” on Labor Market Slack and Inflation
02/01/2022
The fraction of Americans switching their jobs has been increasing at a fast pace in the past 18 months, reaching its highest level on record. According to the U.S. Department of Labor, more than 4.5 million people voluntarily left their jobs in November 2021—the largest figure in the past two decades. This period has been dubbed the Great Resignation. At the same time, wages and salaries have accelerated considerably and by the end of 2021, inflation had hit its highest level since 1982....
Has the Willingness to Work Fallen During the Pandemic?
02/01/2022
We examine the effect of the Covid pandemic on willingness to work along both the extensive and intensive margins of labor supply. Special survey questions in the Job Search Supplement of the Survey of Consumer Expectations (SCE) allow us to elicit information about individuals’ desired work hours for the 2013-2021 period. Using these questions, along with workers’ actual labor market participation, we construct a labor market underutilization measure, the Aggregate Hours Gap (AHG), following Fa...
When Do Informational Interventions Work? Experimental Evidence from New York City High School Choice
02/01/2022
This paper reports the results of a large, school-level randomized controlled trial evaluating a set of three informational interventions for young people choosing high schools in 473 middle schools, serving over 115,000 8th graders. The interventions differed in their level of customization to the student and their mode of delivery (paper or online); all treated schools received identical materials to scaffold the decision-making process. Every intervention reduced likelihood of application to ...
Fintech Entry, Firm Financial Inclusion, and Macroeconomic Dynamics in Emerging Economies
01/31/2022
We build a model with a traditional banking system, endogenous entry of firms and fintech intermediaries, and firm heterogeneity in credit access and usage to study the credit-market, macroeconomic, and business cycle implications of the recent sizable growth in the number of fintech intermediaries in emerging economies. Our analysis delivers three findings. First, the impact of greater fintech entry on firm financial inclusion depends on whether greater entry is driven by lower entry costs for ...
The Incredible Taylor Principle
01/28/2022
This note addresses the role of the Taylor principle to solve the indeterminacy of equilibria in economies in which the monetary authority follows an interest rate rule. We first study the role of imposing two additional ad-hoc restrictions on the definition of equilibrium. Imposing the equilibrium to be locally unique never delivers a unique outcome. Imposing the equilibrium to be bounded, renders the outcome unique only if the inflation target is the Friedman rule. Second, we show that the Tay...
Changing Stability in U.S. Employment Relationships: A Tale of Two Tails
01/28/2022
We examine how the distribution of employment tenure has changed in aggregate and for various demographic groups, drawing links to trends in job stability and satisfaction. The fraction of workers with short tenure (less than a year) has been falling since at least the mid-1990s, consistent with the decline in job changing documented over this period. The decline in short-tenure was widespread across demographic groups, industry, and occupation. It appears to be associated with fewer workers cyc...
Optimal Age-Based Vaccination and Economic Mitigation Policies for the Second Phase of the Covid-19 Pandemic
01/18/2022
In this paper, we ask how to best allocate a given time-varying supply of vaccines across individuals of different ages during the second phase of the Covid-19 pandemic . Building on our previous heterogeneous household model of optimal economic mitigation and redistribution (Glover et al., 2021), we contrast the actual vaccine deployment path, which prioritized older, retired individuals, with one that first vaccinates younger workers. Vaccinating the old first saves more lives but slows the ec...
Racial Disparities in Mortgage Lending: New Evidence Based on Processing Time
01/13/2022
This paper examines racial disparities in mortgage processing time prior to the global financial crisis. We find that Black borrowers are underrepresented and experience a longer processing time than White borrowers among the mortgages securitized by government-sponsored enterprises. At the same time, Black borrowers are overrepresented and face a similar processing time among privately securitized mortgages. Additionally, Black borrowers are strongly associated with the faster segments of mortg...
A Fair Day's Pay for a Fair Day's Work: Optimal Tax Design as Redistributional Arbitrage
01/06/2022
We study optimal tax design based on the idea that policy-makers face trade-offs betweenmultiple margins of redistribution. Within a Mirrleesian economy with earnings, consumptionand retirement savings, we derive a novel formula for optimal income and savings distortionsbased on redistributional arbitrage. We establish a sufficient statistics representation of thelabor income and capital tax rates on top income earners in dynamic environments, which relieson the observed distributions of both in...
The Welfare Effects of Encouraging Rural-Urban Migration
01/04/2022
This paper studies the welfare effects of encouraging rural-urban migration in the developing world. To do so, we build and analyze a dynamic general-equilibrium model of migration that features a rich set of migration motives. We estimate the model to replicate the results of a field experiment that subsidized seasonal migration in rural Bangladesh, leading to significant increases in migration and consumption. We show that the welfare gains from migration subsidies come from providing better i...
New Evidence on Redlining by Federal Housing Programs in the 1930s
01/03/2022
We show that the Federal Housing Administration (FHA), from its inception in the 1930s, did not insure mortgages in low income urban neighborhoods where the vast majority of urban Black Americans lived. The agency evaluated neighborhoods using block-level information collected by New Deal relief programs and the Census in many cities. The FHA's exclusionary pattern predates the advent of the infamous maps later made by the Home Owners' Loan Corporation (HOLC) and shows little change after the dr...
Upfront: New from the Richmond Fed's Regional Matters Blog
01/01/2022
None...
The Profession: Economics Is a Lucrative Major
01/01/2022
The number of undergraduate economics majors has jumped during the past decade, from roughly 27,600 in 2009-2010 to about 35,000 in 2019-2020. Perhaps the economic rewards of the major are part of the reason why....
Policy Update: The Reserve Bank Presidential Search
01/01/2022
The public-private governance structure of the Fed was designed to keep it apolitical and independent, yet accountable to Congress, to ensure it could operate most effectively as the nation's central bank. For the past several decades, Congress and the Fed have instituted policies seeking to make the Fed more transparent to the public without eroding its independence....
Opinion: Following Through
01/01/2022
While 2022 isn't over yet, it seems a safe bet that inflation will be one of this year's defining stories. Inflation measures have hit levels not seen in four decades. Nostalgia for the 1980s may be riding high, as evidenced by the success of Top Gun: Maverick at the box office, but the inflation of the early part of that era is not something we are eager to reexperience....
Research Spotlight: Measuring Employers’ Market Power
01/01/2022
How competitive is the U.S. labor market? Is it highly competitive with few to no distortions, or do a few firms hold dominant market power? Answering this question quantitatively is helpful for understanding how wages are affected by labor market power, and thus for understanding how workers will be affected by labor policy choices....
At the Richmond Fed: The Non-Employment Index
01/01/2022
Something unusual happened during the economic recovery following the Great Recession. By the end of 2014, the official unemployment rate, as measured by the Bureau of Labor Statistics (BLS), had declined by more than 4 percentage points from its October 2009 recessionary peak of 10 percent. Yet the share of the working-age population that was employed had increased by far less — just under 1 percentage point....
Economic History: The Economic History of the Shopping Mall — and Its Future (Yes, It Does Have One)
01/01/2022
Most Americans probably have an impression or feeling when they think of the mall, whether they spent much time there or not. For some, that sensation may be formed by time spent slurping an Orange Julius, listening to CDs at Sam Goody, or inhaling the fragrances spilling out of Bath & Body Works. Others' impressions may have come from the ubiquity of malls in popular culture, from Joan Didion's 1975 essay "On the Mall," to movies like Mallrats or George Romero's Dawn of the Dead, to, most recen...
Interview: Stephanie Schmitt-Grohé
01/01/2022
Stephanie Schmitt-Grohé is probably one of the few top-level economics researchers without a college degree. A native of Germany, she enrolled to study economics at the University of Münster. After completing two years of her studies, she was offered a Fulbright scholarship to study in the United States. She left temporarily — or so she thought....
President's Message: A Shift in the Inflation Winds?
01/01/2022
At the Fed, a lot of work has gone into anchoring inflation expectations in recent decades. As a result, our economy has seen, from the early 1980s until last year, an era of remarkably low and stable inflation — sometimes called "the Great Moderation."...
Resolving the Gap in Teacher Supply
01/01/2022
"'Never seen it this bad': America faces catastrophic teacher shortage" read an Aug. 4 headline from the Washington Post. Teacher shortages have been a concern in recent years, as the number of people graduating with a teaching credential has not been sufficient to keep up with teaching job openings. Shortages are particularly severe in certain fields, known as "critical needs areas," which include science, math, instruction for English language learners, special education, and early childhood e...
Inflation Levels and (In)Attention
01/01/2022
Inflation expectations are key determinants of economic activity and are central to the current policy debate about whether inflation expectations will remain anchored in the face of recent pandemic-related increases in inflation. This paper explores evidence of inattention by constructing two different measures of consumers’ inattention and documents greater inattention when inflation is low. This suggests that there is indeed a risk of an acceleration in the increases in inflation expectations...
Interest Rate Surprises: A Tale of Two Shocks
01/01/2022
Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks an...
Around the Region: Office Markets Slowly Emerge from Pandemic Slump
01/01/2022
The pandemic seismically shifted work from the office to home, particularly during its initial lockdown phases. Even when these limits and capacity restrictions eased and economic activity rebounded, office space demand remained soft and vacancy rates climbed....
Spotlight: Texas Exports Reach New Record Despite Strong Dollar
01/01/2022
Texas remains the nation’s top exporter, setting records each month despite the recent appreciation of the dollar. A strong dollar can be bad for business because it makes U.S. goods more expensive overseas....
Globalization Remains a Force Despite Pandemic, Political Strains
01/01/2022
Pol Antràs is the Robert G. Ory Professor of Economics at Harvard University. He discusses international trade flows and whether evidence indicates that the world economy has entered an era of deglobalization....
Big Federal Stimulus, Home-Value Spike Won’t Ease Next Slump
01/01/2022
Historically large federal transfers coupled with rapid home-price appreciation bolstered state and local revenue in Texas, softening the economic impact of COVID-19 on vulnerable populations. Ultra-low interest rates and a historic housing boom that aided state and local government operations are fading, suggesting Texas policymakers may encounter additional difficulties during the next downturn....
Supply Chains Slowly Mend as Texas Firms View Recovery in 2023
01/01/2022
Since the COVID-19 pandemic began in early 2020, disrupted global supply chains have strained Texas businesses trying to meet strong demand. Initial supply shortages affecting primarily manufacturers and retailers intensified and broadened, impacting firms across most industries. Many Texas firms don’t expect supply-chain normalization until 2023, though the latest data suggest conditions are improving....
Maquiladoras, Mexico’s Engine of Trade, Driven to Navigate Evolving Demand
01/01/2022
Mexico’s maquiladoras, an important generator of manufacturing and employment activity along the U.S.–Mexico border, confront a changing landscape. Evolving global trade patterns, reflecting stressed supply chains and increasing electric vehicle production, will test maquiladora agility and growth prospects....
New Dallas Fed President’s Observations, Outlook
01/01/2022
As Logan assumed her new duties at the Dallas Fed, she participated in a virtual town hall, answering questions about her background and priorities for the Eleventh Federal Reserve District. This article presents excerpts from that event....
Luxuries, Necessities, and the Allocation of Time
12/28/2021
Households enjoy utility from activities that require a combination of time and goods. We classify activities into two types: luxuries and necessities. Luxuries (necessities) are activities for which time and expenditure shares rise (decline) with income. We develop and estimate a model with nonhomothetic preferences and find that time and goods are substitutable in producing activities. Activities are also substitutable among themselves. Hence, wage and price changes cause large reallocations o...
Dynamic Urn-Ball Discovery
12/20/2021
Under certain assumptions, monopolistic competition with CES preferences is efficient, as first discovered by Dixit and Stiglitz. One assumption, invariably left implicit, is that there are, at any given point in time, no bounds on the number of products that can be discovered. But square wheels do not work, and round wheels keep getting rediscovered. Giving away patents to entrepreneurs who happen to be the first to discover a product generates an inefficiently large amount of variety. The stoc...
Online Appendix for: Two Illustrations of the Quantity Theory of Money Reloaded
12/17/2021
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Two Illustrations of the Quantity Theory of Money Reloaded
12/17/2021
In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. If persistent changes in the monetary policy regime are accounted for, the behavior of these series maintains the close relationship predicted by standard quantity theory models. With an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver quite different high-frequen...
COVID-19 Vaccination and Financial Frictions
12/15/2021
We study the COVID-19 epidemic in emerging markets that face financial frictions and its mitigation through social distancing and vaccination. We find that restricted vaccine availability in emerging markets, as captured by limited quantities and high prices, renders the pandemic exceptionally costly compared to economies without financial frictions. Improved access to financial markets enables better response to the delay in vaccine supplies, as it supports more stringent social distancing meas...
Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter
12/15/2021
For whom has earnings risk changed, and why? To answer these questions, we develop a filtering method that estimates parameters of an income process and recovers persistent and temporary earnings for every individual at every point in time. Our estimation flexibly allows for first and second moments of shocks to depend upon observables as well as spells of zero earnings (i.e., unemployment) and easily integrates into theoretical models. We apply our filter to a unique linkage of 23.5m SSA-CPS re...
Constructing Pure-Exchange Economies with Many Equilibria
12/13/2021
We develop a restart algorithm based on Scarf’s (1973) algorithm for computing approximate Brouwer fixed points. We use the algorithm to compute all of the equilibria of a general equilibrium pure-exchange model with four consumers, four goods, and 15 equilibria. The mathematical result that motivates the algorithm is a fixed-point index theorem that provides a sufficient condition for uniqueness of equilibrium and a necessary condition for multiplicity of equilibria. Examining the structure of ...
Monetary/Fiscal Interactions with Forty Budget Constraints
12/02/2021
It is well known that monetary and fiscal policy are connected by a common budget constraint. In this paper, we study how this manifests itself in the context of the Eurozone, where that connection links the European Central Bank, the 19 national central banks, the Treasuries of 19 countries, and the European Union. Our goal is twofold. First, we wish to clarify how seigniorage flows from the monetary authority to the budget of each country. Second, we seek to answer the question of how the taxp...
Sovereign Risk and Financial Risk
11/24/2021
In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financ...
Sovereign Risk and Financial Risk
11/24/2021
In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financ...
Social Transfers and Spatial Distortions
11/17/2021
US social transfer programs vary substantially across states, incentivizing households to locate in states with more generous transfer programs. Further, transfer formulas often decrease in income, therefore rewarding low-income households for living in low-paying cities. We quantify these distortions by combining a spatial equilibrium model with a detailed model of transfer programs in the US. The current system leads to locational inefficiency of 4.38% of total transfer spending. A reform that...
Modeling to Inform Economy-Wide Pandemic Policy: Bringing Epidemiologists and Economists Together
11/16/2021
Facing unprecedented uncertainty and drastic trade-offs between public health and other forms of human well-being, policymakers during the Covid-19 pandemic have sought the guidance of epidemiologists and economists. Unfortunately, while both groups of scientists use many of the same basic mathematical tools, the models they develop to inform policy tend to rely on different sets of assumptions and, thus, often lead to different policy conclusions. This divergence in policy recommendations can l...
Modeling to Inform Economy-Wide Pandemic Policy: Bringing Epidemiologists and Economists Together
11/16/2021
Facing unprecedented uncertainty and drastic trade-offs between public health and other forms of human well-being, policymakers during the Covid-19 pandemic have sought the guidance of epidemiologists and economists. Unfortunately, while both groups of scientists use many of the same basic mathematical tools, the models they develop to inform policy tend to rely on different sets of assumptions and, thus, often lead to different policy conclusions. This divergence in policy recommendations can l...
Telework, Childcare, and Mothers’ Labor Supply
11/16/2021
We study the impact of increased pandemic-related childcare responsibilities on custodial mothers by telework compatibility of their job. We estimate changes in employment outcomes of these mothers in a difference-in-difference framework relative to prime-age women without children and a triple-difference framework relative to prime-age custodial fathers. Mothers' labor force participation decreased between 0.1 to 1.5 percentage points (ppts) relative to women without dependent children and 0.3 ...
Dividend Momentum and Stock Return Predictability: A Bayesian Approach
11/10/2021
A long tradition in macro finance studies the joint dynamics of aggregate stock returns and dividends using vector autoregressions (VARs), imposing the cross-equation restrictions implied by the Campbell-Shiller (CS) identity to sharpen inference. We take a Bayesian perspective and develop methods to draw from any posterior distribution of a VAR that encodes a priori skepticism about large amounts of return predictability while imposing the CS restrictions. In doing so, we show how a common empi...
Estimating Hysteresis Effects
11/09/2021
In this paper, we identify demand shocks that can have a permanent effect on output through hysteresis effects. We call these shocks permanent demand shocks. They are found to be quantitatively important in the United States, in particular when the sample includes the Great Recession. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, although output per worker is largely unaffected. We find strong evidence that hysteresis transmits through a r...
So Far, So Good: Government Insurance of Financial Sector Tail Risk
11/08/2021
The US government has intervened to provide extraordinary support 16 times from 1970 to 2020 with the goal of preventing or mitigating (or both) the cost of financial instability to the financial sector and the real economy. This article discusses the motivation for such support, reviewing the instances where support was provided, along with one case where it was expected but not provided. The article then discusses the moral hazard and fiscal risks posed by the government's insurance of the tai...
Impact of Occupational Unemployment Risk on Household Spending
11/01/2021
The life-cycle consumption and permanent income hypotheses predict that if workers face greater likelihood of unemployment in the future that lowers expected future income, they will save more today. In this paper, we test this hypothesis by looking at the expenditure response of workers to the change in unemployment risk measured at the occupational level. We find that occupational unemployment risk does not have a large impact on consumption expenditure. However, despite investigating multiple...
Corporate Finance and the Transmission of Shocks to the Real Economy
11/01/2021
Credit availability from different sources varies greatly across firms and has firm-level effects on investment decisions and aggregate effects on output. We develop a theoretical framework in which firms decide endogenously at the extensive and intensive margins of different funding sources to study the role of firm choices on the transmission of credit supply shocks to the real economy. As in the data, firms can borrow from different banks, issue bonds, or raise equity through retained earning...
Bank Exposure to Commercial Real Estate and the Covid-19 Pandemic
11/01/2021
The Covid-19 pandemic had an immediate and substantial impact on the commercial real estate (CRE) market—emptying workplaces, shopping centers, and hotels, thus affecting the cash flows of businesses occupying commercial space and in turn the ability of commercial space owners to meet their debt obligations.Delinquent CRE loans began to surface soon after the pandemic started and remain elevated in 2021. Broad loan delinquencies would represent a potential threat to bank capitalization and solve...
Heterogeneous Impacts of Sentencing Decisions
10/26/2021
We examine 70,581 felony court cases filed in Chicago, IL during the period 1990-2007. We exploit case randomization to assess the impact of judge assignment and sentencing decisions on the arrival rates of new charges. Relative to prior research, we document an important source of heterogeneity in the impact of incarceration on recidivism. Incarceration creates lasting reductions in recidivism among first offenders but not repeat offenders. We present suggestive evidence that these reductions a...
Finding Needles in Haystacks: Multiple-Imputation Record Linkage Using Machine Learning
10/01/2021
This paper considers the problem of record linkage between a household-level survey and an establishment-level frame in the absence of unique identifiers. Linkage between frames in this setting is challenging because the distribution of employment across establishments is highly skewed. To address these difficulties, this paper develops a probabilistic record linkage methodology that combines machine learning (ML) with multiple imputation (MI). This ML-MI methodology is applied to link survey re...
Optimal Allocation of Relief Funds: The Case of the Paycheck Protection Program
10/01/2021
The Paycheck Protection Program (PPP) was a large and unprecedented small-business support program that allocated $800 billion in loans and grants to small businesses following the onset of the COVID-19 crisis. This paper explores the optimal allocation of funds across firms and the distortions caused by allocating these funds through banks. We show that it can be optimal to allocate funds to the least or most affected firms depending on the underlying distribution of the shock that firms face, ...
Bank Incentives and the Effect of the Paycheck Protection Program
10/01/2021
We assess the role of banks in the Paycheck Protection Program (PPP), a large and unprecedented small-business support program instituted as a response to the COVID-19 crisis in the United States. In 2020, the PPP administered more than $525 billion in loans and grants to small businesses through the banking system. First, we provide empirical evidence of heterogeneity in the allocation of PPP loans. Firms that were larger and less affected by the COVID-19 crisis received loans earlier, even in ...
On the Origins of the Multinational Premium
10/01/2021
How do foreign direct investment (FDI) dynamics relate to the risk premium of a firm? To answer this question, we compare the stock returns of US firms with different FDI and mergers and acquisitions (M&A) exposure to study the evolution of stock returns as firms expand into foreign markets. We document three empirical regularities. First, there are cross-sectional risk premia associated with both multinational activity and mergers and acquisitions. Second, firm-level stock returns decline when ...
Job Displacement and Sectoral Mobility
10/01/2021
This paper combines two components of the US Current Population Survey to characterize the relationship between job displacement and sectoral mobility for long-tenured workers over the 1996–2019 period: (1) the cross-sectional Displaced Worker Survey and (2) the 16-month longitudinal design of the Basic Monthly Survey. While displacement negatively correlates with mobility over time, such job loss has a positive causal impact on mobility for displaced workers compared with similar non-displaced ...
Did the Affordable Care Act Affect Access to Medications for Opioid Use Disorder among the Already Insured? Evidence from the Rhode Island All-payer Claims Database
10/01/2021
Previous research suggests that state Medicaid expansions implemented under the Patient Protection and Affordable Care Act (ACA) helped large numbers of patients suffering from opioid use disorder (OUD) gain access to life-saving medications, including buprenorphine. However, Medicaid expansions could have impeded access to care among individuals already enrolled in Medicaid, as new enrollees would have placed added demands on a limited supply of buprenorphine providers. Using a panel data set o...
Opting in with the Joneses: What Affects the Timing of Municipal Adoption of a Local-option Meals Tax?
10/01/2021
States use local-option taxes to promote local revenue diversification and improve local fiscal health. However, many sub-state governments wait a long time before adopting local-option taxes or do not adopt them at all, which seems puzzling or even irrational upon first glance. This paper uses the local-option meals tax in Massachusetts as a case study to examine the factors that affect the timing of local adoptions. It finds significant positive results for adoption by neighboring municipaliti...
Perceived Competition in Agricultural Lending: Stylized Facts and an Agenda for Future Research
10/01/2021
This study examines agricultural lending by commercial banks and the competition they face from the Farm Credit System and non-traditional lenders, including merchants, dealers, and other input suppliers. We construct a measure of commercial banks’ perceived competition with FCS or non-traditional lenders using the individual responses to the Federal Reserve Bank of Chicago's Land Values and Credit Conditions Survey between 1999 and 2019. Our analysis shows that the two sources of competition ha...
Managing Climate Risk in Mortgage Markets: A Role for Derivatives
10/01/2021
The world’s communities and economies are already feeling significant effects from global warming and related climate and extreme weather events, as the latest United Nations Intergovernmental Panel on Climate Change (IPCC) world climate report published in August 2021 makes clear. In some industry sectors, such as insurance and energy, financial market tools have been developed specifically to mitigate the risk of financial loss related to climate. Such tools have yet to be developed for the U....
The Term Structure of the Excess Bond Premium: Measures and Implications
09/24/2021
In this article, we construct daily aggregate as well as short-, medium-, and long-term "excess bond premium" (EBP) measures using a widely available corporate bond database (known as "TRACE"). The novel EBP measures we construct provide an important gauge of strains in the financial sector at different horizons. We find that the short-term EBP measure increased more dramatically at the peaks of the COVID-19 pandemic and the 2007–09 global financial crisis, but the pattern was reversed around th...
Disparate Impacts of Job Loss by Parental Income and Implications for Intergenerational Mobility
09/13/2021
Does job loss cause less economic damage if your parents are higher-income, and what are the implications for intergenerational mobility? In this paper we show that following a layoff, adult children born to parents in the bottom 20% of the income distribution have almost double the unemployment compared with those born to parents in the top 20%, with 118% higher present discounted value losses in earnings. Next, we show that these disparate impacts of job loss have important implications for in...
The Phillips Curve during the Pandemic: Bringing Regional Data to Bear
09/09/2021
The Phillips curve appears to have held up well at the regional level during the COVID-19 era. Areas of the country that took relatively large hits to their unemployment rate and employment-population ratio during the pandemic have had lower inflation, on average, than areas that took relatively small hits. And, just as prior to the pandemic, the inverse relationship between inflation and unemployment continues to be statistically stronger for the prices of services than of goods. The Phillips c...
Where Are They Now? Workers with Young Children during COVID-19
09/01/2021
Employment levels for prime-age workers have been greatly reduced during the COVID-19 pandemic. The decline has fallen disproportionately on females, especially compared to past recessions, and the presence of young children is a driving factor in this differential response. This article identifies the impact of gender, young children, and the presence of a spouse on the attachment to employment for individuals who were employed immediately prior to the pandemic. Compared to the Great Recession ...
Racial Wealth Disparities: Reconsidering the Roles of Human Capital and Inheritance
09/01/2021
In this paper, we present updated measures of racial disparities in wealth using the most recent data from the Survey of Consumer Finances (SCF), augmented by household-level estimates of defined benefit (DB) pension wealth developed by Sabelhaus and Volz (2020). Including this important asset, we find that racial wealth disparities are smaller than the numbers typically discussed in other research or in the media, but the disparities remain substantial. The paper proceeds by exploring two speci...
What's the Potential Impact of Force Majeure Claims on Financial Stability
09/01/2021
This article examines the potential aggregate impact on financial stability of several bilateral force majeure claims filed at approximately the same time in one or more markets. One and a half years after the pandemic started, I take stock of the developments involving force majeure claims thus far, and conclude that the likelihood of these claims creating a systemic threat to financial stability is low....
Digital Currency, Digital Payments, and the 'Last Mile' to the Unbanked
08/02/2021
Digital forms of payment are either not accessible or highly costly for unbanked consumers. This is because these forms of payment must be "funded" by some source of money, such as cash or a bank account. That creates the "last-mile" problem for the unbanked. This article examines various solutions for the funding problem that have been proposed in the literature, by regulators, and in bills submitted to Congress....
Heat versus Light: Fact-Checking the Debate over De-Risking
07/15/2021
In this article, we examine the evidence for claims about the connection between bank derisking and anti–money laundering (AML) regulation. Specifically, we examine evidence for the claim that the cost of increased AML compliance and increasing bank fines have led to banks exiting entire sectors or geographical regions and that this de-risking is deeply damaging to economies. We draw on multiple sources of evidence, including financial flow data, discourse and social media analysis, an evidentia...
Doves for the Rich, Hawks for the Poor? Distributional Consequences of Systematic Monetary Policy
06/29/2021
We build a New Keynesian business-cycle model with rich household heterogeneity. In the model, systematic monetary stabilization policy affects the distribution of income, income risks, and the demand for funds and supply of assets: the demand, because matching frictions render idiosyncratic labor-market risk endogenous; the supply, because markups, adjustment costs, and the tax system mean that the average profitability of firms is endogenous. Disagreement about systematic monetary stabilizatio...
Should the ECB Adjust Its Strategy in the Face of a Lower r*?
04/01/2021
We address the question in this paper’s title using an estimated New Keynesian DSGE model of the euro area with trend inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r*, increases the probability of hitting the lower bound constraint, which entails significant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inflat...
Inflation: What Caused It and What to Do About It
10/20/2020
Patrick T. Harker, Philadelphia Fed president and CEO, told an audience at the Greater Vineland Chamber of Commerce that he recognizes that “this is a period of tremendous hardship for Americans, particularly those with low or moderate income” due to high inflation. Harker noted that the Federal Reserve has responded by reducing its balance sheet and raising the federal funds rate 300 basis points since the start of 2022. He also said he expects the Fed to continue to raise rates “for a while.” ...
Uniform Priors for Impulse Responses
09/09/2020
There has been a call for caution when using the conventional method for Bayesian inference in set-identified structural vector autoregressions on the grounds that the uniform prior over the set of orthogonal matrices could be nonuniform for key objects of interest. This paper challenges this call. Although the prior distributions of individual impulse responses induced by the conventional method may be nonuniform, they typically do not drive the posteriors if one does not condition on the reduc...
How Central Bank Swap Lines Affect the Leveraged Loan Market
09/01/2020
The cost of borrowing U.S. dollars through foreign exchange (FX) swap markets increased significantly at the beginning of the Covid-19 pandemic in February 2020, indicated by larger deviations from covered interest rate parity (CIP). CIP deviations narrowed again when the Federal Reserve expanded its swap lines to support U.S. dollar liquidity globally—by enhancing and extending its swap facility with foreign central banks and introducing the new temporary Foreign and International Monetary Auth...
Measuring Detroit's Economic Progress with the DEAI
03/01/2020
This article explains what the Detroit Economic Activity Index (DEAI) tells us about Detroit’s economic progress as of late 2019. Although the rate of progress had slowed some since 2016, the city continued to make headway last year in its recovery from bankruptcy....
Small-Dollar Mortgages for Single-Family Residential Properties
04/01/2018
There is a significant lack of financing available for low-cost homes, which many first-time homebuyers and low- and middle-income families rely on to move from renting to homeownership. This brief examines the availability of small-dollar mortgages (up to $70,000) for home purchases, refinances, and improvements, presenting a wealth of information on borrower and loan characteristics, production channels, and the geographic distribution of low-cost homes. We find that there is limited mortgage ...
Blockchain and Financial Market Innovation
06/01/2017
Blockchain technology is likely to be a key source of future financial market innovation. It allows the creation of immutable records of transactions accessible by all participants in a network. A blockchaindatabase is made up of a number of blocks “chained” together through a reference in each block to the previous block. Each block records one or more transactions, which are essentially changes in the listed owner of assets. New blocks are added to the existing chain through a consensus mechan...
A CCP Is a CCP Is a CCP
04/01/2017
Central counterparties (CCPs) are an important part of contemporary financial market infrastructure. The orderly risk management operations and financial resilience of CCPs and other market infrastructures are essential for financial stability.Regulators and other policymakers face a major challenge constructing appropriate regulatory frameworks for central clearing, given unique features of CCP risk profiles and, in particular, the mutualization of default losses. While CCPs may have superficia...
Non-Default Loss Allocation at CCPs
04/01/2017
In this paper, we answer three questions about the appropriate allocation of non-default losses at central counterparties (CCPs): 1) “Who should assume financial responsibility for a non-default loss?”, 2) “What portion of a non-default loss should each party pay?”, and 3) “How should CCPs and clearing members address catastrophic non-default losses?”. To answer the first question, we argue that financial responsibility should be shared among the parties whose decisions contributed to the loss. ...