Monetary policy affects financial markets and the broader economy in part by changing the risk appetite of investors. This article provides new evidence for this so-called risk-taking channel of monetary policy by revisiting and extending event-study analysis of Federal Open Market Committee announcements. We document significant effects of unexpected monetary policy changes on risk indicators drawn from equity, fixed-income, credit, and foreign exchange markets. We develop a new index of risk appetite based on the common component of these indicators. Surprise monetary easing leads to strong and persistent increases in our index, and vice versa for tightening surprises, consistent with the view that monetary policy affects asset prices in large part through its effects on risk appetite. We discuss the implications of the risk-taking channel for monetary policy transmission, optimal monetary policy, and financial stability.
{"title":"Risk Appetite and the Risk-Taking Channel of Monetary Policy","authors":"M. Bauer, B. Bernanke, Eric Milstein","doi":"10.1257/jep.37.1.77","DOIUrl":"https://doi.org/10.1257/jep.37.1.77","url":null,"abstract":"Monetary policy affects financial markets and the broader economy in part by changing the risk appetite of investors. This article provides new evidence for this so-called risk-taking channel of monetary policy by revisiting and extending event-study analysis of Federal Open Market Committee announcements. We document significant effects of unexpected monetary policy changes on risk indicators drawn from equity, fixed-income, credit, and foreign exchange markets. We develop a new index of risk appetite based on the common component of these indicators. Surprise monetary easing leads to strong and persistent increases in our index, and vice versa for tightening surprises, consistent with the view that monetary policy affects asset prices in large part through its effects on risk appetite. We discuss the implications of the risk-taking channel for monetary policy transmission, optimal monetary policy, and financial stability.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":" ","pages":""},"PeriodicalIF":8.4,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47762320","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We ask three questions about the connection between monetary policy and inequality. First, does monetary policy affect inequality? While different households respond to changes in monetary policy for different reasons, we argue that the overall consumption effects are relatively evenly distributed across households. Second, does household heterogeneity change our understanding of monetary policy transmission? A more careful account of microeconomic consumption behavior materially alters our understanding of transmission channels, but has rather limited effect on our general view of the aggregate effects of monetary policy. Third, does inequality affect the optimal conduct of monetary policy? Since monetary policy is a rather blunt distributional tool, we argue that even a central bank with an explicit distributional mandate would not deviate much from conventional policy prescriptions.
{"title":"Monetary Policy and Inequality","authors":"A. McKay, Christian K. Wolf","doi":"10.1257/jep.37.1.121","DOIUrl":"https://doi.org/10.1257/jep.37.1.121","url":null,"abstract":"We ask three questions about the connection between monetary policy and inequality. First, does monetary policy affect inequality? While different households respond to changes in monetary policy for different reasons, we argue that the overall consumption effects are relatively evenly distributed across households. Second, does household heterogeneity change our understanding of monetary policy transmission? A more careful account of microeconomic consumption behavior materially alters our understanding of transmission channels, but has rather limited effect on our general view of the aggregate effects of monetary policy. Third, does inequality affect the optimal conduct of monetary policy? Since monetary policy is a rather blunt distributional tool, we argue that even a central bank with an explicit distributional mandate would not deviate much from conventional policy prescriptions.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":" ","pages":""},"PeriodicalIF":8.4,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47644434","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Marco Cipriani, Linda S. Goldberg, Gabriele La Spada
Financial sanctions, alongside economic sanctions, are components of the toolkit used by governments as part of international diplomacy. The use of sanctions, especially financial, has increased over the last 70 years. Financial sanctions have been particularly important whenever the goals of the sanctioning countries were related to democracy and human rights. Financial sanctions restrict entities—countries, businesses, or even individuals—from purchasing or selling financial assets, or from accessing custodial or other financial services. They can be imposed on a sanctioned entity’s ability to access the infrastructures that are in place to execute international payments, irrespective of whether such payments underpin financial or real activity. This article explains how financial sanctions can be designed to limit access to the international payment system and, in particular, the SWIFT network, and provides some recent examples.
{"title":"Financial Sanctions, SWIFT, and the Architecture of the International Payment System","authors":"Marco Cipriani, Linda S. Goldberg, Gabriele La Spada","doi":"10.1257/jep.37.1.31","DOIUrl":"https://doi.org/10.1257/jep.37.1.31","url":null,"abstract":"Financial sanctions, alongside economic sanctions, are components of the toolkit used by governments as part of international diplomacy. The use of sanctions, especially financial, has increased over the last 70 years. Financial sanctions have been particularly important whenever the goals of the sanctioning countries were related to democracy and human rights. Financial sanctions restrict entities—countries, businesses, or even individuals—from purchasing or selling financial assets, or from accessing custodial or other financial services. They can be imposed on a sanctioned entity’s ability to access the infrastructures that are in place to execute international payments, irrespective of whether such payments underpin financial or real activity. This article explains how financial sanctions can be designed to limit access to the international payment system and, in particular, the SWIFT network, and provides some recent examples.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135962939","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Recommendations for Further Reading","authors":"Timothy Taylor","doi":"10.1257/jep.37.1.241","DOIUrl":"https://doi.org/10.1257/jep.37.1.241","url":null,"abstract":"","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136178350","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jose I. Fernandez, Mónica García-Pérez, S. Orozco-Aleman
In 2019, Hispanics in the US had a life expectancy advantage of 3.0 years and 7.1 years over non-Hispanic Whites and non-Hispanic Blacks, respectively, despite having real-household income values 26 percentage points lower than Non-Hispanic White households. Hispanics appear to have equal or even better health outcomes relative to non-Hispanic Whites across various health measures. This is known as the Hispanic health paradox. This paper underscores the importance of disaggregating Hispanics by ancestry and age profile when discussing the paradox across key health outcomes. It also provides an overview of the leading explanations, such as the salmon bias and the healthy immigrant effect. Further, it highlights the role of healthcare access and usage in this discussion. Ignoring these sources of bias have important consequences for how morbidity and mortality among Hispanics are measured within widely used national datasets.
{"title":"Unraveling the Hispanic Health Paradox","authors":"Jose I. Fernandez, Mónica García-Pérez, S. Orozco-Aleman","doi":"10.1257/jep.37.1.145","DOIUrl":"https://doi.org/10.1257/jep.37.1.145","url":null,"abstract":"In 2019, Hispanics in the US had a life expectancy advantage of 3.0 years and 7.1 years over non-Hispanic Whites and non-Hispanic Blacks, respectively, despite having real-household income values 26 percentage points lower than Non-Hispanic White households. Hispanics appear to have equal or even better health outcomes relative to non-Hispanic Whites across various health measures. This is known as the Hispanic health paradox. This paper underscores the importance of disaggregating Hispanics by ancestry and age profile when discussing the paradox across key health outcomes. It also provides an overview of the leading explanations, such as the salmon bias and the healthy immigrant effect. Further, it highlights the role of healthcare access and usage in this discussion. Ignoring these sources of bias have important consequences for how morbidity and mortality among Hispanics are measured within widely used national datasets.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":" ","pages":""},"PeriodicalIF":8.4,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45691201","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent research has found that monetary policy works in part by influencing the risk premiums on both traded financial-market securities and intermediated loans. Research has also shown that when risk premiums are compressed, there is an increased likelihood of a reversal that damages the credit-supply mechanism and the real economy. Together these effects create an intertemporal tradeoff for monetary policy, as stimulating the economy today can sow the seeds of a future downturn that might be difficult to offset. We draw out some implications of this tradeoff for the conduct of monetary policy.
{"title":"Monetary Policy When the Central Bank Shapes Financial-Market Sentiment","authors":"Anil K Kashyap, Jeremy C. Stein","doi":"10.1257/jep.37.1.53","DOIUrl":"https://doi.org/10.1257/jep.37.1.53","url":null,"abstract":"Recent research has found that monetary policy works in part by influencing the risk premiums on both traded financial-market securities and intermediated loans. Research has also shown that when risk premiums are compressed, there is an increased likelihood of a reversal that damages the credit-supply mechanism and the real economy. Together these effects create an intertemporal tradeoff for monetary policy, as stimulating the economy today can sow the seeds of a future downturn that might be difficult to offset. We draw out some implications of this tradeoff for the conduct of monetary policy.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135450084","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The share of US residents who were born in Latin America and the Caribbean plateaued recently, after a half century of rapid growth. Our review of the evidence on the US immigration wave from the region suggests that it bears many similarities to the major immigration waves of the nineteenth and early twentieth centuries, that the demographic and economic forces behind Latin American migrant inflows appear to have weakened across most sending countries, and that a continued slowdown of immigration from Latin America post-pandemic has the potential to disrupt labor-intensive sectors in many US regional labor markets.
{"title":"US Immigration from Latin America in Historical Perspective","authors":"Gordon Hanson, Pia Orrenius, Madeline Zavodny","doi":"10.1257/jep.37.1.199","DOIUrl":"https://doi.org/10.1257/jep.37.1.199","url":null,"abstract":"The share of US residents who were born in Latin America and the Caribbean plateaued recently, after a half century of rapid growth. Our review of the evidence on the US immigration wave from the region suggests that it bears many similarities to the major immigration waves of the nineteenth and early twentieth centuries, that the demographic and economic forces behind Latin American migrant inflows appear to have weakened across most sending countries, and that a continued slowdown of immigration from Latin America post-pandemic has the potential to disrupt labor-intensive sectors in many US regional labor markets.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136178646","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The 2022 John Bates Clark Medal of the American Economic Association was awarded to Oleg Itskhoki, Professor of Economics at the University of California, Los Angeles for his path breaking contributions in international economics. This article summarizes Oleg Itskhoki’s work and places it in the context of the broader literature and emphasizes how it has shed new light on a number of long-standing puzzles regarding the behavior of exchange rates and international relative prices more generally and their connection to macroeconomic fluctuations and government’s choices of monetary and fiscal policies.
{"title":"Oleg Itskhoki: 2022 John Bates Clark Medalist","authors":"A. Atkeson, G. Gopinath","doi":"10.1257/jep.37.1.223","DOIUrl":"https://doi.org/10.1257/jep.37.1.223","url":null,"abstract":"The 2022 John Bates Clark Medal of the American Economic Association was awarded to Oleg Itskhoki, Professor of Economics at the University of California, Los Angeles for his path breaking contributions in international economics. This article summarizes Oleg Itskhoki’s work and places it in the context of the broader literature and emphasizes how it has shed new light on a number of long-standing puzzles regarding the behavior of exchange rates and international relative prices more generally and their connection to macroeconomic fluctuations and government’s choices of monetary and fiscal policies.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":" ","pages":""},"PeriodicalIF":8.4,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47407793","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Francisca M. Antman, Brian Duncan, Stephen J. Trejo
This article reviews evidence on the labor market performance of Hispanics in the United States, with a particular focus on the US-born segment of this population. After discussing critical issues that arise in the US data sources commonly used to study Hispanics, we document how Hispanics currently compare with other Americans in terms of education, earnings, and labor supply, and then we discuss long-term trends in these outcomes. Relative to non-Hispanic Whites, US-born Hispanics from most national origin groups possess sizeable deficits in earnings, which in large part reflect corresponding educational deficits. Over time, rates of high school completion by US-born Hispanics have almost converged to those of non-Hispanic Whites, but the large Hispanic deficits in college completion have instead widened. Finally, from the perspective of immigrant generations, Hispanics experience substantial improvements in education and earnings between first-generation immigrants and the second-generation consisting of the US-born children of immigrants. Continued progress beyond the second generation is obscured by measurement issues arising from high rates of Hispanic intermarriage and the fact that later-generation descendants of Hispanic immigrants often do not self-identify as Hispanic when they come from families with mixed ethnic origins.
{"title":"Hispanic Americans in the Labor Market: Patterns over Time and across Generations","authors":"Francisca M. Antman, Brian Duncan, Stephen J. Trejo","doi":"10.1257/jep.37.1.169","DOIUrl":"https://doi.org/10.1257/jep.37.1.169","url":null,"abstract":"This article reviews evidence on the labor market performance of Hispanics in the United States, with a particular focus on the US-born segment of this population. After discussing critical issues that arise in the US data sources commonly used to study Hispanics, we document how Hispanics currently compare with other Americans in terms of education, earnings, and labor supply, and then we discuss long-term trends in these outcomes. Relative to non-Hispanic Whites, US-born Hispanics from most national origin groups possess sizeable deficits in earnings, which in large part reflect corresponding educational deficits. Over time, rates of high school completion by US-born Hispanics have almost converged to those of non-Hispanic Whites, but the large Hispanic deficits in college completion have instead widened. Finally, from the perspective of immigrant generations, Hispanics experience substantial improvements in education and earnings between first-generation immigrants and the second-generation consisting of the US-born children of immigrants. Continued progress beyond the second generation is obscured by measurement issues arising from high rates of Hispanic intermarriage and the fact that later-generation descendants of Hispanic immigrants often do not self-identify as Hispanic when they come from families with mixed ethnic origins.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135962938","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Forecasting inflation accurately is critical for making many policy decisions. A key modeling choice that economists and policymakers face when forecasting inflation is whether to forecast aggregate inflation directly or its individual components first and then aggregate the results. Another important modeling decision is whether or not to group certain components (for instance, core and noncore components1) and then model them separately. In this article, we present a new disaggregated approach to forecasting inflation. Our focus is on inflation as measured by the Personal Consumption Expenditures (PCE) Price Index from the U.S. Bureau of Economic Analysis (BEA). We developed this new approach primarily because of the widespread heterogeneity evident in the dynamics of inflation both across its components and over time. In what follows, we begin by documenting this heterogeneity in PCE inflation. We then discuss the BEA data we used in our research and explain our method for microforecasting inflation in the PCE components—which we subsequently aggregate to derive a total PCE inflation forecast. Finally, we compare the forecasting accuracy of our novel approach and other methods, including those that forecast aggregate inflation directly. We find that over our sample period and other subperiods, the forecasts produced by our method are more accurate than those produced by the alternative approaches considered here.
{"title":"Microforecasting inflation","authors":"R. Giacomini, Yaakov Levin","doi":"10.21033/ep-2023-3","DOIUrl":"https://doi.org/10.21033/ep-2023-3","url":null,"abstract":"Forecasting inflation accurately is critical for making many policy decisions. A key modeling choice that economists and policymakers face when forecasting inflation is whether to forecast aggregate inflation directly or its individual components first and then aggregate the results. Another important modeling decision is whether or not to group certain components (for instance, core and noncore components1) and then model them separately. In this article, we present a new disaggregated approach to forecasting inflation. Our focus is on inflation as measured by the Personal Consumption Expenditures (PCE) Price Index from the U.S. Bureau of Economic Analysis (BEA). We developed this new approach primarily because of the widespread heterogeneity evident in the dynamics of inflation both across its components and over time. In what follows, we begin by documenting this heterogeneity in PCE inflation. We then discuss the BEA data we used in our research and explain our method for microforecasting inflation in the PCE components—which we subsequently aggregate to derive a total PCE inflation forecast. Finally, we compare the forecasting accuracy of our novel approach and other methods, including those that forecast aggregate inflation directly. We find that over our sample period and other subperiods, the forecasts produced by our method are more accurate than those produced by the alternative approaches considered here.","PeriodicalId":15611,"journal":{"name":"Journal of Economic Perspectives","volume":"22 1","pages":""},"PeriodicalIF":8.4,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87192159","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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