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2021 Economic Commentaries

  • 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?

    Garrett Borawski 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