Capital Controls, Currency Wars, and International Cooperation

Bianca De Paoli and Anna Lipinska

The debate over whether there’s a case for limiting capital flows has intensified recently—both in media and academic forums. The traditional view has generally been that the voluntary exchange of funds across borders makes everyone better off: Borrowers have access to cheaper credit while lenders enjoy higher returns on their investments. But, as a recent article in The Economist highlights, this view has been revisited. In this post, we review arguments on this issue and discuss how our recent research contributes to the debate.

The Effect of Superstorm Sandy on the Macroeconomy

M. Henry Linder, Richard W. Peach, and Sarah K. Stein

Correction: This post was updated on April 25 to correct the label on the y-axis in the top panel of the "Gauging Hurricane Impact" chart. We also corrected the explanatory text in the preceding paragraph.

The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce has reported that real Gross Domestic Product (GDP) increased at a very sluggish 0.4 percent annual rate in the final quarter of 2012. A natural question to ask is to what extent, if any, did superstorm Sandy contribute to this weak performance. While not a particularly intense storm, it was the largest Atlantic storm on record with a diameter of roughly 1,100 miles. The storm severely disrupted economic activity from late October until well into November along the eastern seaboard from the Mid-Atlantic region into New England, an area that is densely populated and that represents a significant portion of total economic activity of the entire country. Nonetheless, we suggest that superstorm Sandy likely had a relatively modest impact on the fourth-quarter growth rate, and that we cannot even be certain of the sign of that impact.

Do Treasury Term Premia Rise around Monetary Tightenings?

Tobias Adrian, Richard Crump, and Emanuel Moench

Some commentators have expressed concern that Treasury yields might rise sharply once the Federal Open Market Committee (FOMC) begins to raise the federal funds rate (FFR), worrying, in particular, about a sudden increase in Treasury term premia. In this post, we analyze the dynamics of Treasury term premia over the last fifty years and discuss their evolution around recent tightening cycles, paying special attention to the 1994 episode when bond prices dropped sharply around the world. We find that term premia don’t typically rise when monetary policy tightens. We also conclude, based on the behavior of term premia and survey evidence, that the sharp rise in Treasury yields in 1994 was in large part due to an upward shift in the expected path of future short-term interest rates.

Just Released: February Report Points to Moderate Regional Economic Growth

Jason Bram and James Orr

The February Indexes of Coincident Economic Indicators (CEIs) for New York State, New York City, and New Jersey released today show activity expanding at a moderate pace across the region. Like those for January, the February CEIs incorporate the annual benchmark employment revisions for 2011 and 2012, and reveal that the economies of the region did not go off track as a result of the disruptions caused by Superstorm Sandy. (A recent blog post explores the employment effects of Sandy in the New York City metropolitan area.)

Is Job Polarization Holding Back the Labor Market?

Stefania Albanesi, Victoria Gregory, Christina Patterson, and Ayşegül Şahin

More than three years after the end of the Great Recession, the labor market still remains weak, with the unemployment rate at 7.7 percent and payroll employment 3 million less than its pre-recession level. One possibility is that this weakness is a reflection of ongoing trends in the labor market that were exacerbated during the recession. Since the 1980s, employment has become increasingly concentrated among the highest- and lowest-skilled jobs in the occupational distribution, due to the disappearance of jobs focused on routine tasks. This phenomenon is called job polarization (see Autor et al. [2003], Acemoglu and Autor [2010], Jaimovic and Siu [2011], and Abel and Deitz [2011]).

China’s Impact on U.S. Inflation

Mary Amiti and Mark Choi

U.S. import prices of consumer goods shipped from China have been moderating in recent quarters, following an upward surge of 11 percent between mid-2010 and the end of 2011. These price changes have far-reaching consequences for U.S. businesses and consumers, because China is the largest single supplier of imports to the United States, accounting for more than 20 percent of nonoil imports and more than 30 percent of consumer goods. In this post, we track U.S. import price movements in different product categories from China by constructing import price indexes that use highly disaggregated data. We also explore various underlying factors that might explain these important trends.

Making a Statement: How Did Professional Forecasters React to the August 2011 FOMC Statement?

Richard Crump, Stefano Eusepi, and Emanuel Moench

The Federal Open Market Committee (FOMC) statement released on August 9, 2011, was the first to incorporate language on “forward guidance” with an explicit date tied to the Committee’s expected path of monetary policy. In this post, we exploit the timing of surveys taken before and after this statement’s release to investigate how professional forecasters changed their expectations of growth, inflation, and monetary policy. We find that the average forecast of the federal funds rate shifts considerably and closely aligns with the new language in the statement, while the average forecasts for growth and inflation change less. While there’s near unanimity among forecasters about the future path of the federal funds rate after the August 2011 FOMC statement, forecasters maintained differing views on the growth and inflation outlooks.

Household Services Expenditures: An Update

Jonathan McCarthy

This post updates and extends my July 2011 blog piece  on household discretionary services expenditures. I examine the most recent data to see what they reveal about the depth of decline in expenditures in the last recession and the extent of the recovery, and find that the expenditures appear to be further below the peak identified earlier. I then compare the pace of recovery for discretionary and nondiscretionary services in this expansion with that of previous expansions, finding that the pace in both cases is well below that of previous cycles. In summary, household spending continues to be constrained by a combination of credit conditions and weak income expectations.

Compensation Growth and Slack in the Current Economic Environment

M. Henry Linder, Richard Peach, and Robert Rich

Following a significant slowing during the recent recession, growth in various labor compensation measures has stabilized during the past two to three years. This stabilization is puzzling because it’s widely held that a significant amount of slack remains in the economy. Accordingly, this large amount of slack should result in a further slowing in compensation (wage) growth. In this post, we show that there’s a very mild trade-off between compensation growth and resource slack, even though slack is sizable. Consequently, the observation that there’s slow but steady growth in labor compensation measures is consistent with a large amount of slack in the current economic environment.

Is U.S. Monetary Policy Seasonal?

Richard Crump and David Lucca

Many economic time series display periodic and predictable patterns within each calendar year, generally referred to as seasonal effects. For example, retail sales tend to be higher in December than in other months. These patterns are well-known to economists, who apply statistical filters to remove seasonal effects so that the resulting series are more easily comparable across months. Because policy decisions are based on seasonally adjusted series, we wouldn’t expect the decisions to exhibit any seasonal behavior. Yet, in this post we find that the Federal Reserve has been much more likely to lower interest rates in the first month of each quarter over the past twenty-five years. While some of this seasonality is a result of meeting scheduling, a large seasonal component remains unexplained.