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Briefing
Economic Effects Everywhere All at Once
The recent tariffs have brought global trade linkages to the forefront of academic and policy discussions. The global swings in the stock market and sentiment measures have emphasized how U.S. economic policy and conditions have important implications internationally.This global interconnectedness has been present for decades and spurred much academic research even prior to recent developments. Indeed, output and inflation have moved in parallel across countries for many years now. While economists continue to analyze and quantify the sources of this comovement, cross-country linkages are ...
Briefing
What Drives Business Cycles?
There is no clear pattern as to whether inflation tends to rise or fall during recessions.The apparent lack of correlation masks the fact that inflation has in fact risen and fallen with GDP over individual business cycles.The inconsistent historical patterns wash out on average but suggest policymakers should use data to discern the underlying drivers of any specific business cycle.
Briefing
Are We There Yet? The Road Back to 2 Percent Inflation
Trend inflation has remained between 2.5 percent and 3.0 percent since the third quarter of 2023.Housing and food are key sectors for this trend.While services inflation has steadily fallen from its peak, goods inflation has risen since the latter half of 2024.
Briefing
COVID-19 over Time and across States: Predictions from a Statistical Model
We discuss a statistical time series model to capture and forecast the dynamics of COVID-19 in the fifty U.S. states and Washington, D.C. We design the model to replicate the typical pattern of infections during a pandemic. We rely on Bayesian methods, which provide a straightforward way to quantify the uncertainty surrounding our estimates and forecasts. In this brief, we focus on North Carolina and Washington, D.C., since they have experienced different trajectories of COVID-19 and may have different implications for the efficacy of our approach.
Briefing
Macroeconomic Effects of Household Pessimism and Optimism
Survey data on households' expectations about macroeconomic outcomes reveal systematic differences from statistical (or rational) forecasts. We construct an empirical measure of these differences, which we refer to as "belief wedges." Across economic variables, such as inflation and unemployment, these belief wedges are significant and move in parallel with the business cycle. We present a theory of time-varying belief wedges that accounts for these empirical facts. Our theory provides a formal interpretation of these wedges as pessimism and optimism. Embedding the theory into a quantitative ...
Briefing
How Does Trade Impact the Way GDP Growth and Inflation Comove Across Countries?
Seemingly small international trade linkages can lead to substantial spillovers across countries, going a long way in explaining the well-documented global comovement in GDP growth and inflation across countries. The spillovers come largely from indirect effects, with shocks in a foreign country not only propagating to the domestic economy directly but also cumulating through the trade network via other foreign countries. We develop and estimate a model incorporating these network effects, and we find that inflationary shocks in Europe have substantial effects on U.S. inflation and that U.S. ...
Briefing
Why Are Economists Still Uncertain About the Effects of Monetary Policy?
Despite decades of research, there remains substantial uncertainty about the quantitative effects of monetary policy. Different models produce conflicting predictions, and these predictions lack precision. This article discusses some reasons for these issues. In addition to the relative lack of data, the structure of the economy has continued to evolve, posing challenges for empirical macroeconomic analysis more generally. Economists have been confronting these challenges by developing tools to jointly consider a range of models and continuing to seek new sources of data.
Briefing
What Does Sectoral Inflation Tell Us About the Aggregate Trend in Inflation?
To know the appropriate stance of monetary policy, policymakers need to determine the overall trend in inflation. This is challenging in the face of varied and evolving patterns in inflation across sectors. We describe a multisector statistical model that provides a systematic approach to appropriately weight incoming inflation data from each sector. By flexibly applying time-varying weights to different sectors, this model adjusts to changing patterns in these sectors over time — including during the pandemic — and suggests that trend inflation is lower than might be suggested by the ...
Briefing
How Do Demographics Influence r*?
Demographic trends are evolving in the U.S. as well as globally, potentially affecting the behavior of interest rates. This includes the natural rate of interest, denoted r*. Through the lens of a simple model, we describe supply and demand channels through which these demographic trends may affect r* and show a range of estimates for the potential quantitative impact.