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Report
Have US Households Depleted All the Excess Savings They Accumulated during the Pandemic?
During the COVID-19 pandemic, US households accumulated a historically high volume of personal savings. As the crisis waned, personal savings started to decline. Economists disagree on whether households have drained their excess savings, and they disagree on which income group is more likely to have done so. The lack of consensus stems from different assumptions about today’s long-term saving rate, which is used as a benchmark to define excess savings. If households need to set aside a higher share of their income now relative to before the pandemic, then pandemic-era excess savings have ...
Report
Manufacturing Gains from Green Energy and Semiconductor Spending since the CHIPS and Inflation Reduction Acts
Real investment—spending (net of inflation) on nonresidential construction, manufacturing equipment, and intellectual property products (IPP)—in the United States has grown substantially over the last few years despite the high-interest-rate environment that emerged in 2022 and is only now beginning to subside. The current strength of investment is important to policymakers because its sensitivity to interest rates makes it a key channel through which monetary policy is transmitted into the economy and because real private domestic investment constitutes 15 percent of US real GDP.
Working Paper
The Valuation Effects of Trade
This paper estimates the cash flow and real effects of currency mismatches generated by foreign-priced operations of French manufacturers. The value of transactions invoiced in foreign currencies is twice as sensitive to exchange rates as the value of transactions invoiced in the domestic currency. I aggregate foreign-priced operations to the firm level to build a shift-share measure of invoice currency mismatch. This measure outperforms any trade-weighted effective exchange rate index in explaining cash flows of trading firms. Large firms absorb valuation shocks in their balance sheet, and ...
Working Paper
The Channels of International Comovement
How does exposure to international markets affect returns and cash flow comovements? Foreign bond owners, lenders, affiliates, investors, customers, and suppliers all transmit country shocks to companies. Most multinationals have many of these exposures simultaneously within the same foreign market. Returns and cash flows of two companies comove when exposed to the same country through the same channel. Within-country exposure through different channels is generally associated with lower comovement, in line with an operational hedging strategy. This evidence can help reconcile how, on ...
Working Paper
Dealer Risk Limits and Currency Returns
We leverage supervisory microdata to uncover the role of global banks' risk limits in driving exchange rate dynamics. Consistent with a model of currency intermediation under risk constraints, shocks to dealers’ risk limits lead to price and quantity adjustments in the foreign exchange market. We show that dealers adjust their net position and increase the bid–ask spread in response to granularly identified limit shocks, leading to lower turnover and an adjustment in currency returns. These shocks exacerbate the effects of net currency demand on exchange rate movements, as predicted by ...