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This edition was written by Sarah Ahmad, Tristan Loa, Georgia Nabors, and Louise Sheiner.
Fertility fell globally in the 20th century, but the timing of the decline varied significantly across countries. One group – Denmark, France, Germany, Sweden, the U.K., and the U.S. – maintained fertility rates close to two from 1970 to 2010. Another group – Greece, Italy, Japan, Korea, Portugal, and Spain – had high fertility rates until around 1980, followed by sharp declines to exceptionally low levels. Claudia Goldin of Harvard attributes the fertility differences across countries to differences in the speed of economic growth. The first group experienced steady, continuous growth after 1950, while the second experienced stagnant or declining growth until the 1980s, followed by a period of rapid expansion. Goldin argues that the abrupt and rapid economic change caused “gendered” and “generational” conflicts: women were quickly drawn to the workforce while men, more tied to traditional values, were unwilling to allocate more time to household duties. As a consequence, women reduced their desired number of children, driving the sharp fertility decline in the second group of countries.
Between 1929 and 1936, the Great Depression sparked a widespread currency war with over 70 nations devaluing their currencies relative to the gold standard. Examining bilateral trade data during that period, Kris James Mitchener of Santa Clara University and Kirsten Wandschneider of the University of Vienna estimate that bilateral trade declined by at least 18% when at least one country in a trade pair devalued. For larger devaluations or trade relationships involving major trading partners, trade declined by as much as 45%. The authors conclude that the currency war “destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs.”
Morris Davis of Rutgers, Andra Ghent of the University of Utah, and Jesse Gregory of the University of Wisconsin, Madison, find that increased work-from-home (WFH) productivity from technological improvements increases welfare for remote workers and reduces it for those in non-telecommutable occupations. The key driver is the assumption of an inelastic supply of housing: higher productivity boosts income and housing demand among WFH workers, raising housing costs for everyone. While WFH workers experience a welfare gain of up to 21% of their consumption, those who cannot telecommute face a welfare loss equivalent to 1%-9% of their consumption due to reduced access to affordable housing. Younger workers in non-telecommutable jobs, who face greater future rent costs, bear the largest losses. In contrast, when housing supply is elastic, all workers benefit from WFH productivity gains.
“Looking further forward, geopolitical conflict could boost prices, as it has at times in recent years. In addition, tariff proposals raise the possibility that a new source of upward pressure on inflation could emerge in the coming year. Projections of the economic impact of these possible policy changes vary widely. If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy. Of course, we need to see what policies are enacted before we can seriously consider their effects,” says Christopher J. Waller, member of the Federal Reserve Board of Governors.
“So what is my view? If the outlook evolves as I have described here, I will support continuing to cut our policy rate in 2025. The pace of those cuts will depend on how much progress we make on inflation, while keeping the labor market from weakening. Based on the most recent Summary of Economic Projections, the median of policymakers' expected appropriate policy rate this year implies two 25 basis point cuts. But the range of views is quite large, from no cuts to as many as five cuts for different FOMC participants. As always, the extent of further easing will depend on what the data tell us about progress toward 2% inflation, but my bottom-line message is that I believe more cuts will be appropriate.”
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