Federal Reserve Bank
of San Francisco Federal Reserve Bank
of San Francisco

Economic Letter

Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.

  • COVID-19 and CO2

    2020-18

    Galina Hale and Sylvain Leduc

    One potential side effect from the rapid decline of global economic activity since the worldwide pandemic is a reduction in carbon dioxide emissions. Historically, CO2 emissions rise and fall in tandem with economic activity in the short run. Since the industries most affected by the downturn also produce the most CO2, emissions could drop more than output this time around. However, without substantial and sustained changes in energy sources and efficiency, the concentration of CO2 in the atmosphere—the relevant factor causing climate change—will continue on its upward trajectory.

  • The Unequal Impact of COVID-19: Why Education Matters

    2020-17

    Mary C. Daly

    Since COVID-19 hit the United States, more than 20 million American workers have become unemployed and countless others have left the labor force altogether. While the labor market disruptions have affected workers in a wide set of industries and occupations, those without a college degree have experienced the most severe impact. Addressing gaps in educational attainment will be important to creating better economic resiliency for individuals against future shocks.

  • Are Banks Exposed to Interest Rate Risk?

    2020-16

    Pascal Paul and Simon W. Zhu

    While banks seem to face inherent risk from short-term interest rate changes, in practice they structure their balance sheets to avoid exposure to such risk. Nonetheless, recent research finds that banks cannot offload all of the interest rate risk they are naturally exposed to. Historically, banks’ profit margins reflect their compensation for taking on interest rate risk and their stock prices are highly sensitive to changes in interest rates. These findings can help practitioners assess banks’ risk exposures and may have implications for unconventional monetary policy.

  • We Can’t Afford Not To

    2020-15

    Mary C. Daly

    Three crises—health, economic, and social—are converging into one difficult moment in American history. Everyone has been affected, but the highest costs are falling on those least prepared to bear them. The path forward will require investments in “opportunity infrastructure” that maximize individual potential, reduce inequities, and lay the foundation for long-term economic growth. The following is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco to the National Press Club, Washington, DC, on Monday, June 15.

  • Market Assessment of COVID-19

    2020-14

    Simon H. Kwan and Thomas M. Mertens

    News about the COVID-19 public health crisis has affected asset prices to varying degrees across sectors of the U.S. economy. Stocks in the utilities, real estate, and energy sectors initially suffered the worst sector-specific shocks, while the information technology, health-care, and telecommunications sectors fared relatively better. Businesses with higher financial leverage saw larger declines in their valuations. A simultaneous repricing of credit derivatives suggests concerns about insolvency contributed to the valuation declines. Although some stocks are recovering from the initial lows, significant differences across sectors remain.

  • The COVID-19 Fiscal Multiplier: Lessons from the Great Recession

    2020-13

    Daniel J. Wilson

    The United States enacted a series of fiscal relief and stimulus bills in recent weeks, centered around the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The current fiscal response shares key similarities to the fiscal stimulus enacted during the Great Recession. Research over the past 10 years on the macroeconomic impact of that stimulus thus has important implications for the current fiscal response. The results point to a large potential impact on GDP.

  • An Unemployment Crisis after the Onset of COVID-19

    2020-12

    Nicolas Petrosky-Nadeau and Robert G. Valletta

    The COVID-19 pandemic has upended the U.S. labor market, with massive job losses and a spike in unemployment to its highest level since the Great Depression. How long unemployment will remain at crisis levels is highly uncertain and will depend on the speed and success of coronavirus containment measures. Historical patterns of monthly flows in and out of unemployment, adjusted for unique aspects of the coronavirus economy, can help in assessing potential paths of unemployment. Unless hiring rises to unprecedented levels, unemployment could remain severely elevated well into next year.

  • Coronavirus and the Risk of Deflation

    2020-11

    Jens H.E. Christensen, James M. Gamble IV, and Simon Zhu

    The pandemic caused by COVID-19 represents an unprecedented negative shock to the global economy that is likely to severely depress economic activity in the near term. Could the crisis also put substantial downward pressure on price inflation? One way to assess the potential risk to the inflation outlook is by analyzing prices of standard and inflation-indexed government bonds. The probability of declining price levels—or deflation—among four major countries within the next year indicates that the perceived risk remains muted, despite the recent economic turmoil.

  • Historical Patterns around Financial Crises

    2020-10

    Pascal Paul and Joseph H. Pedtke

    Long-run historical data for advanced economies provide evidence to help policymakers understand specific conditions that typically lead up to financial crises. Recent research finds that rapid growth in the top income share and prolonged low labor productivity growth are robust predictors of crises. Moreover, if crises are preceded by these developments, then the subsequent recoveries are slower. This recent empirical evidence suggests that financial crises are not simply random events but are typically preceded by a prolonged buildup of macrofinancial imbalances.

  • Mitigating COVID-19 Effects with Conventional Monetary Policy

    2020-09

    Vasco Cúrdia

    The Federal Reserve slashed the federal funds rate in response to the effects of the COVID-19 pandemic. The full impact of the pandemic on the economy is still uncertain and depends on many factors. Analysis suggests that allowing the federal funds rate to fall fast will help the economy cope with the aftermath of COVID-19. In particular, the limited policy space due to the effective lower bound of the federal funds rate before the pandemic reinforces rather than offsets the need for a rapid funds rate decline.