Hutchins Center on Fiscal & Monetary Policy at Brookings

February 22, 2024

The Hutchins Roundup brings the latest thinking in fiscal and monetary policy to your inbox. Have something you'd like us to include in the next Roundup? Email us and we'll take a look.

This edition was written by Elijah Asdourian, Sam Boocker, Alex Conner, and Louise Sheiner.

Central bank digital currencies unlikely to reduce the global role of US dollar

The Federal Reserve is currently exploring the possibility of creating a Central Bank Digital Currency (CBDC), a digital dollar-denominated currency issued directly to individuals and firms. Jean Flemming and Ruth Judson of the Federal Reserve Board argue that a CBDC could help reduce the cost of cross-border payments and marginally enhance the dollar’s appeal as a store of value. However, many of the potential benefits of a CBDC could be achieved through innovations in the global non-CBDC payment system. The authors argue that foreign CBDC issuance would be unlikely to affect the global role of the dollar as a unit of account or a store of value, as "the issuance of a CBDC would not directly affect either the ample supply and liquid market for U.S. Treasuries and other debt or the long-standing stability of the U.S. economy and political system."

ChatGPT can predict corporate investment decisions

Using the transcripts of companies’ conference calls from 2006 to 2020, Manish Jha of Georgia State and co-authors find that ChatGPT can predict companies’ future levels of investment. The authors showed ChatGPT paragraphs of companies’ earnings calls and prompted it to predict whether it expected the company to increase or decrease capital spending in the next year. They find a strong correlation between ChatGPT Investment Scores—the average prediction from every earnings call—and companies’ actual capital spending, even after controlling for other determinants of investment, “implying the investment score provides incremental information about firms' future investment opportunities.” Using a similar methodology, the authors find that ChatGPT can predict companies’ plans for dividend payments and hiring in the next year.

Wealth tax doesn’t induce much migration

Katrine Jakobsen of the University of Copenhagen and co-authors examine how the ultra-wealthy respond to wealth taxes using as natural experiments the 2007 repeal of Sweden’s wealth tax and the 1988 reform and 1996 repeal of Denmark’s wealth tax. They find that a 1 percentage point increase in the wealth tax rate increases the net out-migration rate of the wealthiest 2% of the population by 0.22 percentage point. These effects of migration are small enough that increases to wealth tax rates raise total revenues. Increases in the wealth tax lead to slightly lower aggregate employment and value-added, the result of some firms changing ownership and restructuring when wealthy owners migrate. The authors conclude that, “our data allow us to show that the overall migration flows at the top of the wealth distribution are remarkably small, and this is what mostly determines the small magnitude of the aggregate effects from tax-induced migration.”

Food spending as share of disposable income reaches three-decade high

Line graph of food spending, as share of disposable income in the United States, according to the USDA, from 1990 to the present. Levels today of near 11.3% exceed food spending in the previous 3 decades.

Chart courtesy of The Wall Street Journal

Quote of the week

"[I]f we are entering an era of greater geopolitical rivalry and more transactional international economic relations, business models based on large trade surpluses may no longer be politically sustainable. Countries that want to keep exporting goods may have to be more willing to import other goods, or services, to earn that right – or they will face increasing retaliatory measures," says Mario Draghi, former Prime Minister of Italy and former President of the European Central Bank.

"This change in international relations will affect the global supply of savings, which will either have to be reallocated towards domestic investment or reduced by a fall in GDP. In both scenarios, the downward pressure on global real rates that has marked much of the era of globalization should be reversed."