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This edition was written by Sarah Ahmad, Chase Parry, Andrew Rosin, and Louise Sheiner.
Kristin Forbes of MIT and Jongrim Ha and M. Ayhan Kose of the World Bank find that global shocks play a much larger role in driving interest rate movements than in earlier decades. Using a model estimated for 13 advanced economies over the last 55 years, they find that the contribution of global shocks to interest rate variation increased sharply after 1999, more than doubling relative to the 1970-1998 period. The role of global shocks increased again in 2020, accounting for almost half of interest rate variation over 2020-2024—about equal to that of domestic shocks on average and exceeding that of domestic shocks in several major advanced economies. The characteristics of global shocks differ from those of domestic shocks in ways that may require different monetary policy responses: global shocks have a larger supply component, higher variance, and more persistent effects on inflation. From 1999 onward, global supply shocks account for a larger share of variation in interest rates than in inflation or output. In contrast, domestic supply shocks explain more variation in inflation and output than in interest rates. This divergence suggests that central banks respond more strongly to global supply shocks and are less willing to “look through” their inflationary effects than those of comparable domestic supply shocks.
Immigration to the U.S. increases the supply of healthcare providers and improves the health outcomes of older Americans, David C. Grabowski of Harvard, Brian E. McGarry of the University of Rochester, and Jonathan Gruber of MIT find. After controlling for the possibility that immigrants settle in areas with strong economic growth or high healthcare demand, the authors find that admitting 1,000 additional immigrants to the U.S. leads to 142 additional foreign-born healthcare workers, 17.3 fewer older adults using a nursing home, and 9.8 fewer deaths among individuals over age 65. The authors find no evidence that immigrants displace domestic healthcare workers, nor do they identify an effect of immigration on hospitalization rates, home health care use, or Medicare spending. They speculate that higher-quality long-term care—either through increased access to in-home support or through improved staffing ratios and care quality within nursing homes—could explain the beneficial effect of immigration on mortality rates. To address the shortage of healthcare workers and the growing demands of an aging U.S. population, the authors raise the possibility of “targeted immigration reform policies that tie immigration approvals to agreements to work as a care provider.”
The U.S. H-1B program admits up to 85,000 high-skilled immigrants each year on temporary visas lasting up to six years. Applications far exceed the annual cap, and visas are allocated through a lottery. The program has been shown to increase innovation and reduce firm separation rates. George J. Borjas of Harvard University finds that the average H-1B visa holder earns 16% less than a comparable U.S.-born worker in a similar job in the same locality. He argues that charging a “fee” for each H-1B visa issued would raise significant government revenue while maintaining firms’ economic incentives to sponsor H-1B visas. In particular, he calculates that firms would be willing to pay between $118,000 and $264,000 per visa without demand falling below the annual cap, generating up to $22.4 billion in annual revenue for the government.
“The big risks are well-known: nonbank financial institutions are growing at double the pace of the banking sector, offering many of the same services without the same regulatory oversight. These services include private credit, whose speed, flexibility, limited disclosure, and customization often make it an appealing alternative to traditional bank loans. In light of this growth, it’s worth considering whether overly stringent rules in the wake of the Global Financial Crisis moved too much financial activity out of the banking sector. As I noted earlier, it’s important to balance the benefits from safety and soundness with overall economic growth," says Beth Hammack, President of the Federal Reserve Bank of Cleveland.
"Stablecoins are another relatively new development. There are interesting cross-border applications for this new technology, though their use-case as a domestic payments instrument is unproven. And the potential competition that stablecoins may eventually pose to bank deposits bears watching.
"Operational risks are always top of mind, increasingly in the form of fraud. And not just because of the ever-evolving cyber-threat landscape. Practically every conversation I have with a community banker these days features an anecdote about the rise in old-school fraud. You see this in crimes like check washing, with paper checks being stolen from mailboxes and then altered. Social engineering scams that rob customers of their savings have also escalated, and banks are often caught in the middle. This adds another costly layer to banks’ risk-management activities.
"A less well-known but no less serious challenge to the banking sector is the lack of new traditional bank entrants. Before the GFC, new commercial banks opened at an average pace of more than 100 per year. But since then, de novo entry has collapsed to roughly seven new banks per year. While there are multiple factors behind this decline, a significant one is the increase in fixed compliance costs.”
Call for papers
We are seeking proposals for papers on the municipal bond market and state and local fiscal policy to be considered for the Municipal Finance Conference to be held in-person Tuesday, July 21, 2026 and Wednesday, July 22, 2026 in Washington, D.C.
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