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 Alex Conner, Tristan Loa, Georgia Nabors, and Louise Sheiner.
Using data on temperature and GDP across multiple countries from 1960 to 2019, Ishan B. Nath of the Federal Reserve Bank of San Francisco, Valerie A. Ramey of the Hoover Institution, and Peter J. Klenow of Stanford find that temperature shocks have a lasting impact on GDP, but the direction of this effect is dependent on a country’s initial temperature. In hot countries, where the average long-run temperature is 25°C, a 1°C increase in temperature reduces GDP by roughly one percentage point in the year of the temperature shock, and GDP remains depressed 10 years after the shock. In cold countries, temperature shocks produce an enduring increase in GDP. Consistent with these results, the authors suggest that temperature shocks have an immediate impact on GDP levels and affect GDP growth in the medium run. They find that a 3.7°C increase in global temperature could reduce the level of global GDP by 7% to 12% in 2099. This projection is three to five times greater than prior estimates assuming only GDP level effects, and two to four times smaller than estimates assuming the impacts on GDP growth are permanent.
Using scanner data on prices and quantities of over 100 distinct categories of consumer products, Hendrik Döpper of the Düsseldorf Institute for Competition Economics and co-authors find that markups increased 30% between 2006 and 2019. The increase in markups reflects a combination of declining marginal costs for producers, rather than an increase in real prices, and a decrease in consumer sensitivity to price changes, which may reflect consumers’ increasing opportunity cost of time. The authors find that consumer surplus increased despite rising markups, but that increase is concentrated among higher-income consumers. If markups had remained constant at 2006 levels, consumer surplus would have been 18% higher, they find.
Jonathon Hazell of the London School of Economics and Bledi Taska of Burning Glass Technologies use online job postings in the U.S. from 2010 to 2020 to show that wages for new hires are downwardly rigid at the job level. The authors show that new-hire wages change relatively infrequently — about once every six quarters on average. When wages do change, however, they are four times more likely to rise than to fall. Consistent with downward rigidity, the authors find that a decline in the state unemployment rate corresponds with an increase in new-hire wages, while an increase in the unemployment rate has no statistically significant effect on new-hire wages. The authors emphasize the importance of analyzing new-hire wages at the job level because the job composition of new hires changes over the business cycle, hiding downward rigidity in the aggregate.
"Big picture: banks and the banking system have grown significantly in size and complexity over the past 30 years. For instance, at the OCC, the number of banks we regulate and supervise has declined significantly while their total assets have grown," says Michael J. Hsu, Acting Comptroller of the Currency.
"Large banks in particular have gotten much bigger and are much more complex. 30 years ago, there were only five U.S. banks with more than $100 billion in assets ('large banks'). Together, they had $800 billion in combined assets. Today, there are 32 large banks in the United States with aggregate assets exceeding $17 trillion... The trend is clear."
"In the meantime, the dynamic nature of interactions between banks and nonbank financial institutions and technology firms (fintechs), which compete, support, and rely on banks to varying degrees, has led to an increasingly complex nexus between banking and commerce. From the rise and fall of crypto to concerns about the growth of private credit and nonbank mortgage servicing to the recent bankruptcy of fintech middleware firm Synapse, lurking behind these developments have been proliferating questions about the roles, interdependencies, and exposure of banks to nonbanks."
The Hutchins Center on Fiscal and Monetary Policy invites you to attend The Tax Cuts and Jobs Act of 2017: Lessons learned and the debate ahead on Thursday, September 12. The event will be held both online and in person.
