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2022 Economic Commentaries

  • Why Worry about Financial Exclusion?

    Paola Boel Peter Zimmerman


    Should policymakers aim to expand access to bank accounts? When financial exclusion is due to frictions that prevent banking from operating efficiently, intervention may be justified. Applying simple economic principles, we highlight possible frictions that may give rise to inefficient exclusion in the United States, and we assess their importance using insights from data and the academic and policy literature. Read More

  • Planning for Surprises, Learning from Crises: The 2021 Financial Stability Conference

    Joseph G. Haubrich


    This <em>Commentary</em> summarizes the academic papers and keynote talks delivered at the 2021 Financial Stability Conference hosted by the Office of Financial Research and the Federal Reserve Bank of Cleveland, held virtually on November 17–19, 2021. Read More

  • Unbanked in America: A Review of the Literature

    Paola Boel Peter Zimmerman


    We review the recent literature on the causes and consequences of financial exclusion—that is, the lack of bank account ownership—in the United States. We examine existing work in a range of fields, including economics, finance, public policy, and sociology. Read More

  • Understanding Which Prices Affect Inflation Expectations

    Chris Campos Michael McMain Mathieu Pedemonte


    Inflation expectations have an impact on one’s economic behavior. We show that the inflation expectations of professional forecasters and consumers are predicted by very different prices. While professional forecasters weigh prices similar to the consumer price index, consumers seem to focus on prices they see more often, such as those for food and new vehicles. These are also prices that have seen disproportionally high volatility since the onset of the pandemic. We argue that heterogeneity in the importance of component-specific inflation can have relevant economic implications and disproportionate effects on consumers’ inflation expectations that can, in turn, affect economic behavior. Read More

  • Adjusting Median and Trimmed-Mean Inflation Rates for Bias Based on Skewness

    Robert Rich Randal J. Verbrugge Saeed Zaman


    Median and trimmed-mean inflation rates tend to be useful estimates of trend inflation over long periods, but they can exhibit persistent departures from the underlying trend over shorter horizons. In this <em>Commentary</em>, we document that the extent of this bias is related to the degree of skewness in the distribution of price changes. The shift in the skewness of the cross-sectional price-change distribution during the pandemic means that median PCE and trimmed-mean PCE inflation rates have recently been understating the trend in PCE inflation by about 15 and 35 basis points, respectively. Read More

  • Access to Credit for Small and Minority-Owned Businesses

    Mark E. Schweitzer Brent Meyer


    Equal access to small-business credit is a critical underpinning to equity in economic opportunity; however, it is difficult to regularly assess the fairness of credit provision. Prior research has focused on the Federal Reserve Board’s Survey of Small Business Finance, but the most recent data from this source is from 2003. This article provides preliminary results on new credit access questions added to the Census Bureau’s 2021 Annual Business Survey. We find that minority-owned businesses generally were just as likely to apply for credit in 2020, but Black-, Asian-, and Hispanic-owned businesses were less likely than white-owned businesses to report receiving all of the credit that they sought. Also, Black-, Asian-, and Hispanic-owned businesses more frequently reported seeking credit in order to cover operating expenses rather than for financing capital expenditures or expansion. Heading into 2022, minority-owned businesses report weaker ongoing viability. Read More

  • Indirect Consumer Inflation Expectations

    Ina Hajdini Edward S. Knotek II Mathieu Pedemonte Robert Rich John Leer Raphael Schoenle


    Surveys often measure consumers’ inflation expectations by asking directly about prices in general or overall inflation, concepts that may not be well-defined for some individuals. In this <em>Commentary</em>, we propose a new, indirect way of measuring consumer inflation expectations: Given consumers’ expectations about developments in prices of goods and services during the next 12 months, we ask them how their incomes would have to change to make them equally well-off relative to their current situation such that they could buy the same amount of goods and services as they can today. Using a massive number of survey responses at a high frequency, we show that this measure of indirect consumer inflation expectations has risen sharply since early 2021. Higher inflation experiences correlate with higher indirect consumer inflation expectations across US cities and around the world. Read More

  • Average Inflation Targeting in a Low-Rate Environment

    Chengcheng Jia


    One significant change in the US economy in the last 20 years is the trend decline in real interest rates that pushes the policy rate near the effective lower bound (ELB) and puts downward pressure on inflation. This environment leaves conventional monetary policy tools less effective in accommodating adverse shocks. To better achieve the Federal Reserve’s dual mandate at the ELB, the FOMC adopted a new framework called average inflation targeting (AIT). In this <i>Commentary</i>, I demonstrate that AIT is a better policy in a low-rate environment because of its ability to anchor inflation expectations, and I present possible implications of the flexible implementation of AIT. Read More

  • Underemployment Following the Great Recession and the COVID-19 Recession

    Daniela Dean Avila Kurt G. Lunsford


    The underemployment rate, the percent of employed people who are working part-time but prefer to be working full-time, moves closely with the unemployment rate, rising during recessions and falling during expansions. Following the Great Recession, the underemployment rate had stayed persistently elevated when compared to the unemployment rate, that is, until the COVID-19 recession. Since then, it has been consistent with its pre-2008 levels. We find that changes in relative industry size account for essentially none of the underemployment rate increase after the Great Recession nor the underemployment rate decrease after the COVID-19 recession. Based on this finding, we do not expect the underemployment rate to revert to its pre-COVID-19 levels if industry composition reverts to its pre-COVID-19 structure. Read More