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Bank:Federal Reserve Bank of Chicago  Series:Chicago Fed Letter 

Newsletter
Has Covid-19 been a “reallocation recession”?

To answer the question in the title: Thus far, not dramatically so. In this Chicago Fed Letter, I document three facts supporting this conclusion. First, although the Covid period has seen multiple months with high rates of worker movement (reallocation) across industry sectors (relative to previous recessions), net cumulative reallocation from the onset of the pandemic through December 2020 is only the third highest among post-1945 recessions over the same horizon (and is only modestly outside the confidence bound for the average across those recessions). Thus, much of the reallocation ...
Chicago Fed Letter , Issue 452 , Pages 8

Newsletter
How vulnerable are insurance companies to a downturn in the municipal bond market?

As the U.S. economy remains weakened by the Covid-19 pandemic, concern persists for the health and resilience of the municipal bond market. Municipal bonds (muni bonds) are debt securities issued by state and local governments to raise money and are generally considered to be safe investments. However, the recent slowdown in economic activity due to Covid-19 created significant stress on state and local government budgets, leading to a heightened risk for municipal bond downgrades and possibly even defaults. In this Chicago Fed Letter, we examine to what extent property and casualty (P&C) and ...
Chicago Fed Letter , Issue 451 , Pages 7

Newsletter
Did Covid-19 disproportionately affect mothers’ labor market activity?

School and day care center restrictions during the Covid-19 pandemic have presented enormous challenges to parents trying to juggle work with child-care responsibilities. Still, empirical evidence on the impact of pandemic-related child-care constraints on the labor market outcomes of working parents is somewhat mixed. Some studies suggest the pandemic had no additional impact on the labor supply of parents, while other studies show not only that it did but that the negative impact was disproportionately borne by working mothers.
Chicago Fed Letter , Issue 450 , Pages 5

Newsletter
The impact of the pandemic and the Fed’s muni program on Illinois muni yields

We estimate a simple model in which variations in Illinois daily municipal bond yields are explained by high-frequency indicators summarizing economic and public health conditions in Illinois, as well as key changes in the Federal Reserve’s Municipal Liquidity Facility (or MLF). We find that the MLF appears to have reduced Illinois muni yields by more than 200 basis points.
Chicago Fed Letter , Issue 449 , Pages 7

Newsletter
A new framework for assessing climate change risk in financial markets

While there is growing recognition that climate change poses a new risk for the economy, more research is needed to understand how climate change risk affects global financial markets. We establish a new framework for this research by merging the climate change risk categories of physical risk, transition risk, and liability risk with the risk categories commonly assessed in the financial markets: market risk, credit risk, liquidity risk, and operational risk. We then factor in market structure and market regulation as we seek to assess the overall impact of these variables on systemic risk. ...
Chicago Fed Letter , Issue 448 , Pages 8

Newsletter
The dynamic relationship between global debt and output

Given the ramifications of indebtedness for global growth, researchers and policymakers are keenly interested in the mechanisms underlying the linkages between debt and economic output. In our research, summarized in this article, we find that a debt shock adversely affects future economic output, and the impact is most pronounced in developing countries and in countries with a fixed exchange rate regime. This information and related results from the study are useful for policymakers considering appropriate levels of debt as well as an exchange rate regime that is most conducive to economic ...
Chicago Fed Letter , Issue 457 , Pages 5

Newsletter
The increasing importance of services expenditures and the dampening effect on global trade

Globalization, particularly through international trade in goods, has helped to foster the creation of tremendous amounts of wealth and prosperity across much of the globe while lifting sizable portions of the world’s population out of poverty. In particular, the latter half of the twentieth century delivered unprecedented rates of increased economic integration among many countries. Access to global markets supported the industrialization of emerging economies and opened up new markets for firms in wealthier countries. As a result of the expansion of international trade and competition, ...
Chicago Fed Letter , Issue 456 , Pages 6

Newsletter
Labor reallocation during the Covid-19 pandemic

The Covid-19 pandemic and associated recession have had dramatically different effects across industries, with some, including large parts of the leisure and hospitality sector, truly devastated and others, like much of the manufacturing sector, able to recover quite quickly. This has led some analysts to describe the pandemic as a reallocation shock, requiring substantial movement of labor across industries. Such a process likely requires substantial time, during which the natural rate of unemployment may be elevated. In this Chicago Fed Letter, we consider two questions: First, has the need ...
Chicago Fed Letter , Issue 455 , Pages 7

Newsletter
Credit card delinquency and Covid-19: Neighborhood trends in the Seventh District

The Covid-19 pandemic has resulted in great economic and financial disruption. To better understand how financial hardships have varied across communities, we investigate credit card delinquencies across the states of the Federal Reserve’s Seventh District: Illinois, Indiana, Iowa, Michigan, and Wisconsin. While we find a slight increase of less than 1 percentage point in delinquency rates across the District overall following the onset of the pandemic, we find more pronounced increases of about 2 percentage points in low- and moderate-income (LMI) neighborhoods and about 3 percentage ...
Chicago Fed Letter , Issue 454 , Pages 7

Newsletter
Some inflation scenarios for the American Rescue Plan Act of 2021

The American Rescue Plan Act (ARP) signed into law on March 11, 2021, authorized approximately $1.9 trillion in federal government spending. ARP is widely expected to boost economic growth over the next two to three years—and significantly so early on. The upswing in growth is likely to increase resource pressures and therefore consumer price inflation as well. The potential for this channel to raise inflation substantially has attracted the attention of economic commentators, including Olivier Blanchard and Lawrence Summers. But the magnitudes and persistence of the possible increases in ...
Chicago Fed Letter , Issue 453 , Pages 8

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