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2020 Economic Commentaries

  • Lessons on the Economics of Pandemics from Recent Research

    Sewon Hur Michael Jenuwine


    The spread of the COVID-19 pandemic has resulted in a dual public health and economic crisis. Many economic studies in the past few months have explored the relationship between the spread of disease and economic activity, the role for government intervention in the crisis, and the effectiveness of testing and containment policies. This Commentary summarizes the methods and findings of a number of these studies. The economic research conducted to date shows that adequate testing and selective containment measures can be effective in fighting the COVID-19 pandemic, and in the absence of adequate testing capabilities, optimal interventions involve social distancing and other lockdown measures. Read More

  • The Labor-Market Skills of Foreign-born Workers in the United States, 2007–2017

    Rubén Hernández-Murillo


    Various measures of the labor-market skills of foreign-born workers have improved during the past decade. The largest gains are concentrated among immigrants from Mexico, who traditionally have shown the lowest skill levels among foreign-born workers. The data suggest that the apparent increase in skills is the result of a shift in the distribution of immigrants coming to the United States, with increased immigration of workers from Asia and a precipitous decline in immigration of workers from Mexico. Read More

  • The Unemployment Cost of COVID-19: How High and How Long?

    Ayşegül Şahin Murat Tasci Jin Yan


    We use flows into and out of unemployment to estimate the unemployment rate over the next year. This approach produces less stark projections for the unemployment rate over the course of the next year than some of the more alarming projections that have been reported. Using our approach and assuming that the severest social-distancing measures will be lifted in June, we estimate that the unemployment rate will peak in May at about 16 percent but gradually decline thereafter and end the year at 7.5 percent. Read More

  • Consumers and COVID-19: A Real-Time Survey

    Edward S. Knotek II Raphael Schoenle Alexander Dietrich Keith Kuester Gernot Müller Kristian Ove R. Myrseth Michael Weber


    We summarize the results from an ongoing survey that asks consumers questions related to the recent coronavirus outbreak, including their expectations for how the economy is likely to be affected by the outbreak and how their own behavior has changed in response to it. The survey began in early March, providing a window into how consumers’ responses have evolved in real time since the early days of the acknowledged spread of COVID-19 in the United States. In updating and charting the survey’s findings on the Cleveland Fed’s website going forward, we seek to inform policymakers and researchers about consumers’ beliefs during a time of high uncertainty and unprecedented policy responses. Read More

  • Credit Market Frictions, Business Cycles, and Monetary Policy: The Research Contributions of Charles Carlstrom and Timothy Fuerst

    Todd E. Clark Matthius Paustian Eric Sims


    Charles Carlstrom and Timothy Fuerst were prolific and prominent research economists who, until their untimely deaths a few years ago, were long-associated with the Federal Reserve Bank of Cleveland. Their myriad contributions include the incorporation of financial market imperfections into macroeconomic models and the study of optimal monetary policy. We provide an overview of their work and summarize a few key themes from a research conference held in their honor. Read More

  • The CPI–PCEPI Inflation Differential: Causes and Prospects

    Wesley Janson Randal J. Verbrugge Carola Conces Binder


    The Federal Open Market Committee’s inflation target is stated in terms of the personal consumption expenditures price index (PCEPI). The PCEPI, like the consumer price index (CPI), measures inflation in the expenditures of households, but these indexes differ in purpose, scope, and construction. Notably, since the CPI is used as the reference rate for numerous financial contracts, one can derive implied longer-run CPI inflation forecasts from financial contracts. Such forecasts are widely reported. But if policymakers are to use these forecasts to guide their pursuit of the inflation target, they need to translate these CPI inflation forecasts into corresponding implied PCEPI forecasts. Since 1978, CPI inflation has averaged 0.3 percentage points above PCEPI inflation, but this differential has varied significantly over time. In this Commentary, we explain why, investigate a key historical episode, and provide an updated estimate of the likely differential going forward. Read More

  • A Brief History of Bank Capital Requirements in the United States

    Joseph G. Haubrich


    Modern capital requirements can appear to be overly complex, but they reflect centuries of practical experience, compromises between different regulators, and legal and financial systems that developed over time. This Commentary provides a historical perspective on current discussions of capital requirements by looking at how the understanding of bank capital and the regulations regarding its use have changed over time. Read More

  • Do Affirmative Action Bans Cause Students to Move Across State Lines to Attend College?

    Peter L. Hinrichs


    This Economic Commentary studies whether statewide bans on affirmative action in admission to public universities cause students to move to a new state to attend college. Regression results using data from the decennial census and the American Community Survey provide little evidence that affirmative action bans result in migration across state lines to attend college. In addition to being of direct interest, these results provide a check on earlier research that treats different states roughly as separate higher education markets. Read More

  • Is the Middle Class Worse Off Than It Used to Be?

    Emily Dohrman Bruce Fallick


    We analyze how median real incomes in the United States have changed since 1980 under a definition of the middle class that adjusts for changes in demographics. We find that failing to adjust for demographic shifts in the population relating to age, race, and education can indicate a more positive outlook than is truly the case. We also find that the real median incomes of today’s middle class are somewhat higher than they used to be, particularly for households headed by two adults. We find, as in prior research, that prices for housing, healthcare, and education have risen more than middle-class incomes, while prices for transportation, food, and recreation have risen less than middle-class incomes. Read More

  • Revisiting Wage Growth after the Recession

    Roberto Pinheiro Meifeng Yang


    In this Commentary, we show that realized wage growth since 2015 has mostly been at a rate that would be expected given observed rates of inflation and labor productivity growth. Moreover, labor productivity growth has been in line with its potential over the same period. This picture of the post-recession recovery of wages is very different from the one we observed in an earlier analysis, when all we had were data up through the end of 2015. The reasons underlying the difference are large revisions in labor productivity data and upticks in the inflation rate and labor productivity growth since our last report. Read More

  • A Forecasting Assessment of Market-Based PCE Inflation

    Mark Bognanni


    This article explores the potential for market-based inflation measures to improve inflation forecasting. To do so, I compare the pseudo-real time forecasting performance of a suite of models for forecasting total or “headline” PCE inflation over the short and medium run. In the forecasting exercise, a simple model using only market-based core PCE inflation showed the best forecasting performance at all horizons. Read More