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2021 Economic Commentaries

  • PPP Loans & State-level Employment Growth

    Murat Tasci Bezankeng Njinju Hana Braitsch


    In this <em>Economic Commentary</em>, we focus on the first round of Paycheck Protection Program (PPP) loans granted beginning in March 2020 until early August 2020, when turbulence in the labor market was pronounced, in order to demonstrate the PPP’s effects on local labor markets. We find that PPP loans helped mitigate the negative impact of the pandemic recession on state-level employment growth. States that received most of their funding early in the loan period had smaller employment declines than did states that received comparable funds later in the period. Read More

  • Whose Inflation Expectations Best Predict Inflation?

    Randal J. Verbrugge Saeed Zaman


    We examine the predictive relationship between various measures of inflation expectations and future inflation. We find that the expectations of professional economists and of businesses have tended to provide more accurate predictions of future inflation than the expectations of households and of financial market participants. However, the forecasts coming from a relatively simple and popular benchmark inflation forecasting model have historically been roughly as accurate as the expectations of businesses and professional economists. Read More

  • The Racial Wealth Gap and Access to Opportunity Neighborhoods

    Dionissi Aliprantis Daniel R. Carroll Eric Young


    Some Black households live in neighborhoods with lower incomes, as well as higher unemployment rates and lower educational attainment, than their own incomes might suggest, and this may impede their economic mobility. We investigate reasons for the neighborhood sorting patterns we observe and find that differences in financial factors such as income, wealth, or housing costs between Black and white households do not explain racial distributions across neighborhoods. Our findings suggest other factors are at work, including discrimination in the housing market, ongoing racial hostility, or preferences by Black households for the strength of social networks or other neighborhood amenities that some lower-socioeconomic locations provide. Read More

  • Semiconductor Shortages and Vehicle Production and Prices

    Pawel Krolikowski Kristoph Naggert


    Vehicle production has fallen since the beginning of the pandemic recession. We investigate reasons for this decline. Manufacturers in this industry cite insufficient materials, including a lack of semiconductors, as increasingly responsible. Demand seems to be less of an issue. In fact, demand has been strong, and together with accelerating prices and sharply declining inventories, it suggests an insufficient supply of new cars. Our best guess is that the materials shortages and their effects on new car prices will subside within the next six to nine months. Read More

  • Why Has Durable Goods Spending Been So Strong during the COVID-19 Pandemic?

    Kristen Tauber Willem Van Zandweghe


    Consumers increased their purchases of durable goods notably during the COVID-19 pandemic. The pandemic may have lifted the demand for durable goods directly, by shifting consumer preferences away from services toward a variety of durable goods. It may also have stimulated spending on durable goods indirectly, by prompting a strong fiscal policy response that raised disposable income. We estimate the historical relationship between durable goods spending and income and find that income gains in 2020 accounted for about half of the increase in durable goods spending, indicating that the direct and indirect effects of the pandemic on durable goods spending were about equally important. Read More

  • Why Wasn’t there a Nonbank Mortgage Servicer Liquidity Crisis?

    Lara Loewenstein


    In March 2020, in the early days of the COVID-19 pandemic, many were concerned about the liquidity of nonbank mortgage servicers. As it turned out, the vast majority of these servicers did not face a liquidity crisis. In this Commentary I detail the reasons why, including lower than expected take up rates of forbearance, the role played by mortgage origination income, and the actions taken by the government-sponsored enterprises, Ginnie Mae, and housing agencies. Read More

  • How the Pandemic Has Reshaped Economic Inclusion in the United States

    Mark E. Schweitzer Emily Dohrman


    The pandemic brought unusually large and novel changes to the US labor market. Some sectors lost half or nearly half of their employment; others moved their workforces to home settings. Some workers lost their jobs, some left their jobs temporarily, and some left the workforce altogether. These changes have affected different demographic groups differently. We investigate how the pandemic affected workers of different ages, racial or ethnic backgrounds, and gender and the degree to which these effects have persisted after a year of recovery. Read More

  • How Well Did PPP Loans Reach Low- and Moderate-Income Communities?

    Mark E. Schweitzer


    We investigate the degree to which Paycheck Protection Program (PPP) loans reached small businesses in low- and moderate-income (LMI) communities. We use PPP loan data from the Small Business Administration that we geocode and link to census tracts. We assess the program’s reach in a few ways and focus on the number of loans, rather than the amount of funds, that went to different areas in order to capture the program’s impact on businesses with fewer than 50 employees—the vast majority of small businesses. We find evidence that the program did have a broad reach within LMI communities, but that it reached higher-income communities to a greater extent and areas with Black, Hispanic, and American Indian or Alaska Native majorities to a lesser extent. Read More

  • How Sure Can We Be about a COVID-19 Test Result if the Tests Are Not Perfectly Accurate?

    Allan Dizioli Roberto Pinheiro


    In this Commentary, we show how the interpretation of test results is affected by a test’s reliability rate. Moreover, we discuss how test fallibility may affect the use of tests as a tool to curb the spread of a disease. In particular, we show how administering inexpensive and less precise tests that can be conducted multiple times may be a more efficient way of curbing the pandemic than administering expensive more precise tests once. Read More

  • Expected Post-Pandemic Consumption and Scarred Expectations from COVID-19

    Edward S. Knotek II Michael McMain Raphael Schoenle Alexander Dietrich Kristian Ove R. Myrseth Michael Weber


    The COVID-19 vaccination drive raises questions about the trajectory of the economic recovery and the pandemic’s impact on consumers’ longer-term behaviors. In this Commentary, we examine the evolution of consumers’ expectations for their post-crisis spending on services that have been dramatically curtailed by the pandemic: visiting restaurants, bars, and hotels, using public transportation, and attending crowded events. We document a U-shaped pattern of expected future use of these services, with growing pessimism in summer 2020 that had largely reversed by fall 2020—for most groups. More recently, higher-income individuals have indicated that they expect to sharply increase their use of these services compared with their pre-pandemic behaviors, but there has been a notable scarring of expectations among older Americans. Read More

  • Two Approaches to Predicting the Path of the COVID-19 Pandemic: Is One Better?

    Ben R. Craig Tom Phelan Jan-Peter Siedlarek Jared Steinberg


    We compare two types of models used to predict the spread of the coronavirus, both of which have been used by government officials and agencies. We describe the nature of the difference between the two approaches and their advantages and limitations. We compare examples of each type of model—the University of Washington IHME or “Murray” model, which follows a curve-fitting approach, and the Ohio State University model, which follows a structural approach. Read More

  • Flexible Average Inflation Targeting and Inflation Expectations: A Look at the Reaction by Professional Forecasters

    Kristoph Naggert Robert Rich Joseph Tracy


    This Commentary examines the response of longer-run inflation expectations to the FOMC’s August 2020 announced switch to a flexible average inflation-targeting (FAIT) regime. The data indicate an upward shift in the lower end (below 2 percent) of the distribution of inflation expectations and a stronger anchoring of expectations around the 2 percent inflation objective following the announcement, evidence that is consistent with intended effects of the change in the monetary policy framework. To provide context, we also include a retrospective assessment of the response of inflation expectations to the FOMC’s January 2012 announcement of an inflation objective. Lessons from the 2012 announcement suggest that conclusions about the adoption of the FAIT regime should be viewed as tentative. Consequently, we also describe indicators and features of the data to monitor developments going forward. Read More

  • Which Industries Received PPP Loans?

    Mark E. Schweitzer


    We examine the financial challenges faced by small businesses during the COVID-19 pandemic and estimate the scale of loans provided to small businesses through the Paycheck Protection Program. We find that the program reached businesses throughout the economy, and we estimate that small businesses in most industry sectors received loans equivalent to between 80 percent and 120 percent of 10 weeks of their 2017 payrolls. That said, there are important differences in the distribution of funds across sectors that suggest some businesses had problems accessing loans and that a significant number of firms with more than 500 employees likely used alternative size criteria to qualify for the program. Read More

  • Stress, Contagion, and Transmission: 2020 Financial Stability Conference

    Joseph G. Haubrich


    Once a year, financial system regulators and economists meet to present and discuss the latest research on financial stability at a conference sponsored by the Federal Reserve Bank of Cleveland and the Office of Financial Research. The major focus of discussion during the 2020 conference was the impact of the COVID-19 pandemic on the financial system. This Commentary summarizes the ideas and insights presented in the research papers and keynote speeches. Read More

  • Economic Inclusion 2000–2020: Labor Market Trends by Race in the US and States

    Kyle Fee


    This Commentary examines the extent to which disparities exist between Blacks and whites in labor market outcomes such as levels of labor force participation, unemployment rates, and earnings. To gauge whether disparities have narrowed or widened since 2000, national trends in these outcomes during the past two decades are compared to the trends in three states: Kentucky, Ohio, and Pennsylvania. Finally, to assess the current state of economic inclusion as reflected in the labor market, gaps in Black and white outcomes are compared across US states in 2020. Read More

  • Modeling Behavioral Responses to COVID-19

    Ben R. Craig Tom Phelan Jan-Peter Siedlarek Jared Steinberg


    Many models have been developed to forecast the spread of the COVID-19 virus. We present one that is enhanced to allow individuals to alter their behavior in response to the virus. We show how adding this feature to the model both changes the resulting forecast and informs our understanding of the appropriate policy response. We find that when left to their own devices, individuals do curb their social activity in the face of risk, but not as much as a government planner would. The planner fully internalizes the effect of all individuals’ actions on others in society, while individuals do not. Further, our simulations suggest that government intervention may be particularly important in the middle and later stages of a pandemic. Read More

  • COVID-19 and Education: A Survey of the Research

    Peter L. Hinrichs


    This Commentary reviews evidence on three areas of concern related to the COVID-19 pandemic and education in the United States for which research currently exists. First, the evidence suggests that the spread of the COVID-19 virus at K–12 schools has been low, although it may have spread through colleges at a higher rate. Second, while anecdotal evidence suggests that school closures have reduced labor force participation, the research evidence thus far does not find much support for this situation. Third, the limited research evidence does, however, suggest the COVID-19 pandemic is negatively affecting students’ academic performance. Read More

  • Inflation: Drivers and Dynamics 2020 Conference Summary

    Edward S. Knotek II Robert Rich Raphael Schoenle Philippe Andrade Marco Del Negro Colin Hottman Christian Höynck Matthias Meier Giovanni Ricco Elisa Rubbo Daniel Villar Michael Weber


    To provide insights into the processes that drive inflationary dynamics, the Federal Reserve Bank of Cleveland holds an annual conference on the topic of inflation: the Inflation: Drivers and Dynamics series. The 2020 installment of the conference was held on May 21-22, 2020. This Commentary summarizes the papers at the conference, which broadly fell into four categories: (1) empirical Phillips curves, (2) networks and Phillips curves, (3) expectations formation, and (4) price-setting behavior and inflation. Read More

  • Inflation: Drivers and Dynamics 2020 CEBRA Annual Meeting Session Summary

    Edward S. Knotek II Robert Rich Raphael Schoenle Michael Lamla Emanuel Moench Michael Weber


    The Cleveland Fed’s Center for Inflation Research sponsored a session on inflation dynamics at the 2020 CEBRA annual meeting. The presentations focused on inflation expectations and firms’ price-setting behavior. This Economic Commentary summarizes the papers presented during the session. Read More

  • Recessions and the Trend in the US Unemployment Rate

    Kurt G. Lunsford


    The unemployment rate in the United States falls slowly in expansions, and it may not reach its previous low point before the next recession begins. Based on this feature, I document that the frequent recessions prior to 1983 are associated with an upward trend in the unemployment rate. In contrast, the long expansions beginning in 1983 are associated with a downward trend. I then estimate a two-variable vector autoregression (VAR) that includes the unemployment rate and a recession indicator. Long-horizon forecasts from this VAR conditioned on no future recessions project that the unemployment rate will go to 3.6 percent after a long period with no recessions. Read More