Economic Letter
Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.
-
The Economics of Climate Change: A First Fed Conference
Galina B. Hale, Òscar Jordà, and Glenn D. Rudebusch
To better understand the implications of climate change for the financial sector and the broader economy, the Federal Reserve Bank of San Francisco recently hosted a conference on the economics of climate change to gather and debate the latest analyses from universities and policy institutions, nationally and abroad. It was the first Fed-sponsored conference devoted to investigating the economic and financial consequences and risks arising from climate change and potential policy responses.
-
Involuntary Part-Time Work a Decade after the Recession
Marianna Kudlyak
Involuntary part-time employment reached unusually high levels during the last recession and declined only slowly afterward. The speed of the decline was limited because of a combination of two factors: the number of people working part-time due to slack business conditions was declining, and the number of those who could find only part-time work continued to increase until 2013. Involuntary part-time employment recently returned to its pre-recession level but remains slightly elevated relative to historically low unemployment, likely due to structural factors.
-
Riders on the Storm
Òscar Jordà and Alan M. Taylor
A country’s interest rate often reflects more than just the policy stance of its central bank. Movements in the global neutral rate of interest and the domestic neutral rate also play a significant role. Estimates from international models for Japan, Germany, the United Kingdom, and the United States show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demographics, and other factors outside of its control.
-
Is Rising Concentration Hampering Productivity Growth?
Peter J. Klenow, Huiyu Li, and Theodore Naff
U.S. productivity is growing slower than in the past. Meanwhile, sales have become increasingly concentrated in the largest businesses. Analysis suggests that IT innovation may have facilitated the rise in concentration by reducing the cost for large firms to enter new markets. This contributed to booming productivity growth from 1995 to 2005. Though large firms are more profitable, their expansion may have increased competition and reduced profit margins within markets. Lower profit margins in a given market could have deterred innovation, eventually lowering growth.
-
Yield Curve Responses to Introducing Negative Policy Rates
Jens H.E. Christensen
Given the low level of interest rates in many developed economies, negative interest rates could become an important policy tool for fighting future economic downturns. Because of this, it’s important to carefully examine evidence from economies whose central banks have already deployed such policies. Analyzing financial market reactions to the introduction of negative interest rates shows that the entire yield curve for government bonds in those economies tends to shift lower. This suggests that negative rates may be an effective monetary policy tool to help ease financial conditions.
-
How Severe Is China’s Slowdown? Evidence from China CAT
John Fernald, Neil Gerstein, and Mark Spiegel
China’s official GDP shows that its pace of economic growth has slowed gradually since 2010 but remains remarkably high, around 6%. A new index, the China Cyclical Activity Tracker, or China CAT, provides an alternative way to measure fluctuations in Chinese economic activity using a weighted average of several non-GDP indicators. The index suggests that economic activity has slowed noticeably since 2017 to a pace slightly below trend. GDP growth statistics appear excessively smooth over recent years, but, as of mid-2019, are in line with the China CAT.
-
Are Workers Losing to Robots?
Sylvain Leduc and Zheng Liu
The portion of national income that goes to workers, known as the labor share, has fallen substantially over the past 20 years. Even with strong employment growth in recent years, the labor share has remained at historically low levels. Automation has been an important driving factor. While it has increased labor productivity, the threat of automation has also weakened workers’ bargaining power in wage negotiations and led to stagnant wage growth. Analysis suggests that automation contributed substantially to the decline in the labor share.
-
Zero Lower Bound Risk according to Option Prices
Michael D. Bauer and Thomas M. Mertens
Interest rate derivatives—financial investments whose value depends on interest rates—provide useful information about the risk of short-term rates falling again to the zero lower bound. According to new market-based estimates, the probability of a return to the lower bound by the end of 2021 is about 24%. This is roughly in line with other survey-based and model-based estimates of zero lower bound risk. In recent months, the market-based measure of lower bound risk has increased markedly.
-
A New Balancing Act: Monetary Policy Tradeoffs in a Changing World
Mary C. Daly
A new and less familiar economic environment has emerged in the United States and other countries. Our collective futures now include slower potential growth, lower long-term interest rates, and persistently weak inflation. This new landscape demands we think differently about how to balance and achieve price stability and full employment objectives. The following is adapted from a speech by the president and CEO of the Federal Reserve Bank of San Francisco to the conference “Inflation Targeting—Prospects and Challenges” in Wellington, New Zealand, on August 29.
-
Negative Interest Rates and Inflation Expectations in Japan
Jens H.E. Christensen and Mark M. Spiegel
After Japan introduced a negative policy interest rate in 2016, market expectations for inflation over the medium term fell immediately. This can be seen by assessing how prices for Japanese bonds with embedded deflation protection responded to the policy announcement. The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels. Japan’s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound.