Jacek Rothert, Ryan Brady, Michael Insler, 22 September 2020

While individual states in the US decide their own lockdown policies, they are not able to restrict travel across their borders. A lax policy in some states can thus exacerbate the outbreak in other states. Drawing on recent research and county- and state-level US data, this column examines just how big the problem is. It finds that epidemiological spillovers across the US states are substantial and lax policies in the most lenient states translate into millions of additional infections in other parts of the country in the long run.

Brian Nolan, Juan C. Palomino, Philippe Van Kerm, Salvatore Morelli, 19 September 2020

Whether and how much intergenerational transfers contribute to wealth inequality is still subject to debate. This column analyses household survey data on inheritance and gifts inter vivos in France, Germany, Great Britain, Ireland, Italy, Spain, and the US to relate current household wealth levels and inequality to the receipt of intergenerational wealth transfers. In these countries, large transfers increase overall wealth inequality. Strengthening taxation capacity and instating lifetime capital acquisitions tax for gifts and inheritances may help counter the dis-equalising effect of intergenerational transfers.

Marco Del Negro, Michele Lenza, Giorgio Primiceri, Andrea Tambalotti, 18 September 2020

The analysis of inflation dynamics and their possible changes over time is a key input in the design of monetary policy, particularly in the context of the strategy reviews recently undertaken by the Federal Reserve and currently under way at the ECB and other central banks. This column studies the causes of the stability of US inflation over the business cycle since the 1990s. It concludes that the stability is mainly due to a reduced sensitivity of firms’ pricing decisions to their cost pressures. Ignoring this observation could impair the ability of monetary policy to steer inflation toward its objective.

Benny Kleinman, Ernest Liu, Stephen Redding, 17 September 2020

The increasingly prominent role of China in the world economy has led to widespread discussions concerning the balance of power, trade relations, and economic development. This column presents a new ‘friends and enemies’ model which is used to show that significant growth and welfare effects have stemmed from China’s shifting role, and that changes in trading clusters have varied across different sectors. The findings also suggest that as countries become less economically friendly in terms of the welfare effects of their productivity growth, they also become less politically friendly in terms of foreign policy. 

David Argente, Chang-Tai Hsieh, Munseob Lee, 13 September 2020

Cross-country price indexes are an essential tool for comparing living standards in different countries. But those indexes are constructed from data that does not always account for heterogeneity in shopping behaviour, the uneven quality of products, and variety availability. This column compares barcode-level data on prices and quantities for consumer packaged goods in the US and Mexico, and finds that Mexican real consumption relative to the US is larger than previously estimated. It highlights the importance of addressing sampling, quality, and variety biases in international price comparisons.

Itamar Drechsler, Alexi Savov, Philipp Schnabl, 11 September 2020

In a recent speech in Jackson Hole, Fed Chair Jay Powell laid out the Fed’s new monetary policy framework.  Under this framework, the Fed will allow inflation to run above its 2% target in order to boost employment following a downturn.  The new framework marks a departure from the perceived wisdom of the 1970s’ Great Inflation.  Under this perceived wisdom, the Fed must respond aggressively to rising inflation or risk losing its credibility and letting inflation spiral out of control.  New research on the Great Inflation challenges this perceived wisdom and offers a new explanation for what really drives inflation.  Instead of Fed credibility, this explanation puts the financial system and how it transmits monetary policy front and centre.  In doing so, it reconciles the 1970s with the current environment and provides a foundation for understanding why the Fed’s new framework is unlikely to trigger runaway inflation.

João Guerreiro, Sérgio Rebelo, Pedro Teles, 09 September 2020

Immigration policy has become a hot-button issue in both Europe and the US, with questions concerning optimal policy as well as the welfare state dominating discussions. This column revisits the idea of the immigration surplus, exploring a number of possible scenarios in terms of how policymakers should address the challenge. Correctly configuring fiscal policy so as to capture the benefits of both high- and low-skill immigrant (and native) workers is at the heart of optimal policy design and may help to address the swelling anti-immigrant sentiment that continues to exist in many countries today. 

Nicholas W. Papageorge, Matthew Zahn, Michèle Belot, Eline van den Broek-Altenburg, Syngjoo Choi, Julian C. Jamison, Egon Tripodi, 05 September 2020

Individual behaviours affect the spread of infectious disease. This column examines factors that predict individual behaviour during the COVID-19 pandemic in the US using novel survey data. People with lower income and less flexible work arrangements are less likely to engage in behaviours that limit the spread of disease. The burden of measures to stem the pandemic is unevenly distributed across socio-demographic groups in ways that affect behaviour and potentially the spread of illness. Policies that assume otherwise are unlikely to be effective or sustainable.

Gregor Boehl, Gavin Goy, Felix Strobel, 30 August 2020

Despite their pivotal role, the macroeconomic effects of large-scale asset purchases, known as quantitative easing, remain open to debate. This column provides insights from a structural investigation of the macroeconomic effects of the Federal Reserve’s quantitative easing programme during the global financial crisis. In line with the general consensus, the results suggest that asset purchases substantially eased borrowing conditions and facilitated new investment. The rise in investment led to an increase in the productive capacity which, in turn, lowered firms’ marginal cost. These supply-side effects dominated demand-side effects in determining the response of inflation, leading to a mild disinflationary effect.

Volker Nocke, Michael D. Whinston, 26 August 2020

Concentration measures such as the post-merger Herfindahl-Hirschman index as well as the merger-induced change in the index are usually key determinants in the review of horizontal mergers by competition agencies and courts. This column studies whether the magnitude of the efficiencies required for a merger not to hurt consumers may be related to the change and the level of the Herfindahl-Hirschman index. On the basis of theoretical analysis substantiated by empirical evidence, it finds that while the critical level of efficiencies depends on the change in the index, it is independent of level of the index. Hence current guidelines should be changed so as to emphasise the change more and the level less.

Robert McCauley, 26 August 2020

On 23 March 2020, the Federal Reserve announced that it would buy investment grade corporate bonds, and on 9 April set the amount at up to $250 billion and extended the purchase to junk bonds. This column shows that these interventions succeeded in stabilising credit markets: prices lifted and dealing spreads narrowed. However, emergency lending powers provide an inadequate basis for Federal Reserve operations in corporate bonds. In light of these findings, congressional authority to buy and to sell corporate bonds alongside US Treasuries would help to align Federal Reserve operations with what has become a capital-market centred financial system

Peter Klenow, Huiyu Li, 18 August 2020

There is much concern that the Covid-19 crisis may be particularly tough for relatively young firms to survive. Given that much innovation is attributed to young firms, this could then harm overall productivity. This column uses the dynamics of various firms’ market shares in order to infer their growth contributions. Compared to studies focusing on patents and R&D spending, the authors find a much bigger role for new and young firms in terms of accounting for productivity growth. Protecting young firms is therefore essential to mitigating the productivity damage of Covid-19.

Teresa Fort, Justin Pierce, Peter Schott, 18 August 2020

Although it is well documented that US manufacturing employment has been falling since 1979, the causes of this trend are still unclear. This column argues that examining how and where the decline in US manufacturing employment occurs provides important insights in this regard. Using US Census Bureau’s Longitudinal Business Database, it highlights three important trends post 1979 which suggest substantial increases in labour productivity, and an evolution of US manufacturing in line with US comparative advantage. 

Michael Gapen, Jonathan Millar, Blerina Uruçi, Pooja Sriram, 14 August 2020

As the COVID-19 pandemic continues, US policymakers must consider containment measures while weighing adverse health outcomes against forgone economic activity. This column uses panel data to evaluate alternative strategies to keep COVID-19 in check. Viable options to keep new case counts on a downward trajectory without economically costly shutdowns include more testing (at least 1.8 million per day for the US, used in isolation) and either mask requirements or indoor-dining restrictions. The US is nowhere near the point where herd immunity alone can control infections.

John McLaren, 11 August 2020

In the US, COVID-19 tends to magnify inequalities by disproportionately hitting minorities, particularly African Americans, who suffer from higher COVID-19 mortality rates. Higher rates of infection appear to be the cause rather than factors related to treatment. Using an indirect approach, this column uses census data to identify the socioeconomic factors that cause different racial groups to be differentially exposed to the virus. Very strong racial disparities in COVID-19 mortality rates are seen for African-American and First Nations populations. Occupation, income, poverty rates, or access to healthcare insurance appears to matter little. Pre-COVID-19 use of public transport, however, may be a significant factor.

Caitlin Brown, Martin Ravallion, 10 August 2020

Income is linked to COVID-19 risk factors: poorer people are less likely to be able to socially distance or telework. However, higher-income areas tend to have more in-person interactions. This column disentangles the socioeconomic influences on COVID-19 behaviour and outcomes across the 3,000 counties of the US. Counties with higher overall income inequality tend to have higher infection rates. A higher population share of Black Americans and Hispanics is associated with higher infection rates. These effects do not fade over time from the first infection.

Akos Horvath, Benjamin Kay, Carlo Wix, 08 August 2020

The COVID-19 pandemic and the ensuing public health interventions have disrupted economic activity in the US. This column examines the impact of the COVID-19 shock on the use and availability of consumer credit through March 2020. In counties affected by the pandemic, creditworthy borrowers reduced their credit use, but riskier borrowers increased their outstanding credit card balances. While both pandemic severity and non-pharmaceutical interventions negatively affected credit use, the pandemic itself was the main driver. Banks reduced the credit limits and increased the APR spreads of newly issued cards to riskier borrowers, consistent with a flight-to-safety response.

Joshua P. Meltzer, 05 August 2020

The Court of Justice of the European Union recently delivered its verdict in the Schrems II case, ruling that the EU-US Privacy Shield is invalid. This column addresses the implications for adequacy and standard contractual clauses as well as the broader issue of how to balance national security and privacy goals. It concludes with observations about the potential impact of the decisions for the US and beyond and suggests some ways forward.   

Graziella Bertocchi, Arcangelo Dimico, 29 July 2020

COVID-19 pandemic is having a disproportionate impact on African Americans, who are dying at a rate two to three times higher than their population share. This column uses a detailed individual-level dataset from Cook County, Illinois, to explore the relationship between COVID-19 mortality and race. Not only are Black Americans disproportionally affected by COVID-19, but they also started to succumb to it earlier than other groups. Such asymmetric effects can be traced back to racial segregation introduced by discriminatory lending practices in the 1930s.

Robert Feenstra, Chang Hong, 25 July 2020

In December 2019, the US and China reached a Phase One agreement, which mandates China to purchase additional imports from the US worth $200 billion in 2020 and 2021. This column shows that the most efficient way for China to increase imports from the US is to mimic the effects of an import subsidy. For agricultural products, this subsidy would need to be as high as 42% for 2020 and 59% for 2021 in order to meet the target. Such subsidies would divert agricultural imports away from other countries, especially decreasing Chinas imports from Australia and Canada.

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