Brookings Papers on Economic Activity最新文献

The US dollar's nominal effective exchange rate closely tracks global financial conditions, which themselves show a cyclical pattern. Over that cycle, world asset prices, leverage, and capital flows move in concert with global growth, especially influencing the fortunes of emerging markets and developing economies (EMDEs). This paper documents that dollar appreciation shocks predict economic downturns in EMDEs and highlights policies countries could implement to dampen the effects of dollar fluctuations. Dollar appreciation shocks themselves are highly correlated not just with tighter US monetary policies but also with measures of US domestic and international dollar funding stress that themselves reflect global investors' risk appetite. After the initial market panic and upward dollar spike at the start of the COVID-19 pandemic, the dollar fell as global financial conditions eased; but the higher inflation that followed has induced central banks everywhere to tighten monetary policies more recently. The dollar has strengthened considerably since mid-2021 and a contractionary phase of the global financial cycle is now underway. Owing to increases in public- and business-sector debts during the pandemic, a strong dollar, higher interest rates, and slower economic growth will be challenging for EMDEs.

This paper analyzes the dramatic rise in US inflation since 2020, which we decompose into a rise in core inflation as measured by the weighted median inflation rate and deviations of headline inflation from core. We explain the rise in core inflation with two factors: the tightening of the labor market as captured by the ratio of job vacancies to unemployment, and the pass-through into core inflation from past shocks to headline inflation. The headline shocks themselves are explained largely by increases in energy prices and by supply chain problems as captured by backlogs of orders for goods and services. Looking forward, we simulate the future path of inflation for alternative paths of the unemployment rate, focusing on the projections of Federal Reserve policymakers in which unemployment rises only modestly to 4.4 percent. We find that this unemployment path returns inflation to near the Federal Reserve's target only under optimistic assumptions about both inflation expectations and the Beveridge curve relating the unemployment and vacancy rates. Under less benign assumptions about these factors, the inflation rate remains well above target unless unemployment rises by more than the Federal Reserve projects.

• Panel on Shrinking the Federal Reserve Balance Sheet
• Arvind Krishnamurthy, Sydney C. Ludvigson, and Jonathan H. Wright

• Lessons for Policy from Research
• Arvind Krishnamurthy

I review lessons from the research on central bank actions over the last decade and draw out implications for expanding the Federal Reserve balance sheet (quantitative easing) and shrinking the balance sheet (quantitative tightening). As I outline, there is already enough evidence in the research to indicate the manner in which the Federal Reserve could update its policy normalization principles and plans.

Former Federal Reserve chairman Ben Bernanke famously quipped, in a 2014 discussion at the Brookings Institution, that "the problem with QE is that it works in practice, but it doesn't work in theory." Academic and policy research on quantitative easing (QE) has come quite far over the last decade, and we are less in the dark about the workings of QE. In this paper, I review the lessons from this research and then draw out implications for expanding the Federal Reserve balance sheet (QE) and shrinking the balance sheet (quantitative tightening, or QT).

There are three principal lessons from the research: (1) QE works differently than conventional monetary policy in that the impacts are highest in the asset market targeted. (2) QE impacts are highest during periods of financial distress, market segmentation, and illiquidity. While this statement is likely also true of conventional policy, the effects are much more dramatic with QE. (3) QE alters the quantity of central bank reserves, and the post-2008 regulatory and economic regime implies substantially higher necessary reserve balances. I review each of these points and then turn to their implications for the formulation of rules governing QE/QT. The Fed [End Page 233]

Yield Changes by Maturity from UK QE for UK Gilts and Gilt-OIS Spreads

Source: Joyce and others (2011); copyright Bank of England and the Association of the International Journal of Central Banking; adapted with permission.

currently uses QE in two ways: to provide liquidity to markets during financial illiquidity episodes ("crisis QE") and to lower financing costs for borrowers at a time when the zero lower bound binds ("easing QE"). I argue that rules for these two types of policies should differ, but that the Fed has blurred the lines between them which has led to policy errors.

I. Lessons from Research

I.A. QE Works through Narrow Channels

Joyce and others (2011) present data from an event study around two significant QE news dates in 2009 by the Bank of England. O

The pandemic triggered a large, lasting shift to work from home (WFH). To study this shift, we survey full-time workers who finished primary school in twenty-seven countries as of mid-2021 and early 2022. Our cross-country comparisons control for age, gender, education, and industry and treat the United States mean as the baseline. We find, first, that WFH averages 1.5 days per week in our sample, ranging widely across countries. Second, employers plan an average of 0.7 WFH days per week after the pandemic, but workers want 1.7 days. Third, employees value the option to WFH two to three days per week at 5 percent of pay, on average, with higher valuations for women, people with children, and those with longer commutes. Fourth, most employees were favorably surprised by their WFH productivity during the pandemic. Fifth, looking across individuals, employer plans for WFH levels after the pandemic rise strongly with WFH productivity surprises during the pandemic. Sixth, looking across countries, planned WFH levels rise with the cumulative stringency of government-mandated lockdowns during the pandemic. We draw on these results to explain the big shift to WFH and to consider some implications for workers, organization, cities, and the pace of innovation.