ECONOMY
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Wage Insurance: A Potential Policy for Displaced Workers
Ben Hyman, Brian Kovak, and Adam Leive Despite the existing safety net, worker displacement continues to have severe consequences that motivate the consideration of new social insurance programs. Wage insurance is a novel policy that temporarily provides additional income to workers who lose their job and become re-employed at a lower wage. In this post, we draw on evidence from…
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What Was Up with Grocery Prices?
Thomas Klitgaard The consumer price index for groceries has risen more than the overall price index since the start of the pandemic, with a particularly large jump in 2022. In looking for explanations, a starting place is the behavior of raw commodity prices, which surged from early 2021 to mid-2022. In addition, wages for low-paid grocery workers have gone up…
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The Mysterious Slowdown in U.S. Manufacturing Productivity
Danial Lashkari and Jeremy Pearce Throughout the twentieth century, steady technological and organizational innovations, along with the accumulation of productive capital, increased labor productivity at a steady rate of around 2 percent per year. However, the past two decades have witnessed a slowdown in labor productivity, measured as value added per hour worked. This slowdown has been particularly stark in the…
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Nonbanks Are Growing but Their Growth Is Heavily Supported by Banks
Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman Traditional approaches to financial sector regulation view banks and nonbank financial institutions (NBFIs) as substitutes, one inside and the other outside the perimeter of prudential regulation, with the growth of one implying the shrinking of the other. In this post, we argue instead that banks and NBFIs are better described as intimately…
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On the Distributional Effects of Inflation and Inflation Stabilization
Marco Del Negro, Keshav Dogra, Pranay Gundam, Donggyu Lee, and Brian Pacula This post and the next discuss the distributional effects of inflation and inflation stabilization through the lenses of a theoretical model—a Heterogeneous Agent New Keynesian (HANK) model. This model combines the features of New Keynesian models that have been the workhorse for monetary policy analysis since the work…
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On the Distributional Consequences of Responding Aggressively to Inflation
Marco Del Negro, Keshav Dogra, Pranay Gundam, Donggyu Lee, and Brian Pacula This post discusses the distributional consequences of an aggressive policy response to inflation using a Heterogeneous Agent New Keynesian (HANK) model. We find that, when facing demand shocks, stabilizing inflation and real activity go hand in hand, with very large benefits for households at the bottom of the…
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Exploring the TIPS-Treasury Valuation Puzzle
Guillaume Roussellet Since the late 1990s, the U.S. Treasury has issued debt in two main forms: nominal bonds, which provide fixed-cash scheduled payments, and Treasury Inflation Protected Securities—or TIPS—which provide the holder with inflation-protected payments that rise with U.S. inflation. At the heart of their relative valuation lie market participants’ expectations of future inflation, an object of interest for academics,…
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Racial and Ethnic Inequalities in Household Wealth Persist
Rajashri Chakrabarti, Natalia Emanuel, and Ben Lahey Disparities in wealth are pronounced across racial and ethnic groups in the United States. As part of an ongoing series on inequality and equitable growth, we have been documenting the evolution of these gaps between Black, Hispanic, and white households, in this case from the first quarter of 2019 to the fourth quarter…
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Deciphering the Disinflation Process – Liberty Street Economics
Sebastian Heise and Ayşegül Şahin U.S. inflation surged in the early post-COVID period, driven by several economic shocks such as supply chain disruptions and labor supply constraints. Following its peak at 6.6 percent in September 2022, core consumer price index (CPI) inflation has come down rapidly over the last two years, falling to 3.6 percent recently. What explains the rapid…
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The Growing Risk of Spillovers and Spillbacks in the Bank-NBFI Nexus
Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman Nonbank financial institutions (NBFIs) are growing, but banks support that growth via funding and liquidity insurance. The transformation of activities and risks from banks to a bank-NBFI nexus may have benefits in normal states of the world, as it may result in overall growth in (especially, credit) markets and widen access to…
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