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Working Paper
Capital Controls and the Global Financial Cycle
Capital flows into emerging markets are volatile and associated with risks. A common prescription is to impose counter-cyclical capital controls that tighten during economic booms to mitigate future sudden-stop dynamics, but it has been challenging to document such patterns in the data. Instead, we show that emerging markets tighten their capital controls in response to volatility in international financial markets and elevated risk aversion. We develop a model in which this behavior arises from a desire to manipulate the risk premium. When investors are more risk-averse or markets are ...
Journal Article
Capital Flows and Monetary Policy in Emerging Markets around Fed Tightening Cycles
The Federal Reserve’s interest rate hikes in 2022–23 raised concerns about spillover effects on smaller emerging market and developing economies. Historically, a higher U.S. federal funds rate has been associated with international investors withdrawing capital from emerging markets, which can lead to lower economic activity and depreciating exchange rates in these markets—and, in turn, greater financial vulnerability. To reduce capital outflows, central banks in emerging markets can tighten their own monetary policy rates to increase yields on debt securities. But raising interest ...
Journal Article
Labor Markets Are Tight, but Conditions Vary across States
A record 4.4 million employees quit their jobs in September 2021, and many businesses are struggling to fill open positions. Although at a national level the labor market appears historically tight, we show that labor market tightness differs widely across states. Most states have tighter labor markets than before the pandemic, but others have struggled to recover.
Journal Article
China's Post-COVID Recovery: Implications and Risks
China removed most of its COVID-19 restrictions in November 2022 following a year of weak growth. Despite initial uncertainty about sustained COVID-19 outbreaks, the Chinese economy has begun to rebound, driven by domestic consumption. The rebound is likely to boost global growth.
Journal Article
Labor Shortages in the Healthcare Sector Have Eased, Which May Soften Price Pressures
Following severe labor shortages during the post-pandemic recovery, employment and wage growth in the healthcare sector have returned to their pre-pandemic trends. The healthcare sector is labor intensive, and inflation in the sector has historically tracked wage growth. Thus, lower wage growth may limit price pressures in the healthcare sector.
Working Paper
Financial Constraints and Employment Dynamics following Natural Disasters
We use confidential loan-level regulatory data to show that financial constraints can weigh on credit access and employment after a natural disaster at both the local and national level. Banks cut back on lending in disaster areas, particularly to the most financially constrained firms, and these reductions in credit supply lead to larger initial declines and slower subsequent recoveries in employment. Bank profitability is a key driver of this result: Borrowers more reliant on less-profitable lenders obtain fewer loans and pay higher interest rates following disasters. These less-profitable ...
Journal Article
Financial Stress May Do Relatively Little to Reduce Inflation
Financial stress has risen in the wake of recent bank failures. At the same time, the Federal Reserve has been tightening the stance of monetary policy to reduce elevated inflation. While both banking stress and tighter monetary policy can slow economic activity, historical evidence suggests that financial stress may be less effective in reducing inflation.
Working Paper
Effective Downward Nominal Wage Rigidities
Downward nominal wage rigidity limits the downward adjustment of nominal wages, especially during recessions. Although macroeconomic models suggest that downward wage rigidity exacerbates employment losses and generates asymmetric business cycles when inflation is low, empirical evidence for this effect is scarce. This paper estimates effective downward nominal wage rigidities that account for different inflation environments across 53 countries and finds that downward wage rigidities are associated with minimum wage policies. Further, countries with higher effective downward nominal wage ...
Journal Article
Price Pressures for U.S. Exporters and a Strong Dollar Have Increased Inflation in Foreign Countries
As the higher demand for imported goods during the pandemic has moderated, U.S. export prices have become an important factor in determining inflationary pressures from the United States. As of 2022:Q2, export prices increased by 11.8 percent annualized, far exceeding the historical average of 3.75 percent. Further, 58 percent of the increase in export prices can be attributed to the recent appreciation of the U.S. dollar, while the remaining 42 percent can be attributed to price pressures for U.S. exporters.
Journal Article
Testing Hybrid Forecasts for Imports and Exports
The quality of economic forecasts tends to deteriorate during times of stress such as the COVID-19 pandemic, raising questions about how to improve forecasts during exceptional times. One method of forecasting that has received less attention is refining model-based forecasts with judgmental adjustment, or hybrid forecasting. Judgmental adjustment is the process of incorporating information from outside a model into a forecast or adjusting a forecast subjectively. Hybrid forecasts could be particularly useful during extraordinary times such as the COVID-19 pandemic, as models that do not ...