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This edition was written by Sarah Ahmad, Tristan Loa, Jack Spira, and Louise Sheiner.
Accurately measuring productivity is difficult for the health care sector because both costs and benefits are hard to quantify, and it's unclear how much improved outcomes stem from medical care versus changes in overall population health. Calvin Ackley and Abe Dunn of the U.S. Bureau of Economic Analysis and John A. Romley of the University of Southern California develop a framework that includes utility-based output measures that capture the value of improvements in both longevity and quality of life, and input measures, based on underlying treatment costs rather than regulated prices used in other studies. Their estimates imply productivity gains of 7.5% per year across nine conditions from 2002-2021. These gains vary across conditions, with the largest gains for hip and knee replacements and pneumonia. These conditions account for 3.8% of overall health spending. Using these estimates to scale up to the broader sector, the authors estimate that official statistics understate aggregate health sector productivity growth by about 0.29 percentage points per year. By contrast, official measures, which do not capture the welfare gains from improvements in health outcomes, show flat or declining productivity growth.
Convenience yield is the extra premium investors place on holding safe, liquid securities beyond their explicit yield. Wenxin Du of Harvard, Ritt Keerati of the Federal Reserve Board, and Jesse Schreger of Columbia compare the convenience yield on holding the U.S. dollar versus holding U.S. Treasury securities. They find that the U.S. dollar has retained a positive convenience yield since the Global Financial Crisis (GFC)—“global specialness”, they call it—but the convenience yield on 10-year Treasuries has been persistently negative relative to foreign government bonds since 2010, and has turned negative even on short-term bills in recent years. The dollar's central role in global markets sustains steady demand for dollar funding from foreign institutions that lack direct access to U.S. money markets and must obtain dollars through foreign-exchange swaps with global banks. The Treasury convenience yield, however, has been depressed by the sharp rise in the supply of Treasuries since the GFC and by changes in financial intermediation that have made Treasuries relatively less attractive to hold. The authors also note that following Liberation Day, the decline in the Treasury convenience yield was most pronounced against low-debt countries like Australia, where safe assets are scarcer and thus become more attractive in times of stress, but was minimal against high-debt countries like Japan.
Matching immigration court data on unauthorized immigrants with Bureau of Labor Statistics data on economic outcomes at the commuter-zone and municipality levels, Daniel J. Wilson and Xiaoqing Zhou of the Federal Reserve Bank of Dallas find that the spike in unauthorized immigration to the U.S. from 2021 to 2024 increased local employment almost one-to-one but had no significant effect on local wages. Housing values and costs, on the other hand, increased. An influx of unauthorized workers equal to 1% of a locality's initial employment increased house prices by 2.2% and rents by 1.4% because demand for housing increased and supply didn’t, at least in the short term. The authors estimate that the increase in unauthorized workers explains about 30% of the increases in both employment and house prices for the average locality over the study time frame. They also uncover a strongly negative effect on government transfers, with an influx of unauthorized workers equal to 1% of local employment yielding a 4.5% decrease in government transfers and a 5% decrease in transfers per capita—perhaps, the authors note, a result of positive employment effects reducing eligibility and need.
“It is sometimes said that the Fed is ‘anti-growth’ for pursuing price stability while AI and other forces could be lifting the economy’s growth potential. I am hopeful—even optimistic—that higher productivity and potential growth lie ahead. But I believe it would be risky to ease monetary policy solely on the prospect of a future increase in productivity growth, especially with demand pressures at play and inflation running persistently above target today,” says Alberto Musalem, President of the Federal Reserve Bank of St. Louis.
“In my view, a ‘pro-growth’ monetary policy is one that maintains a credible commitment to price stability. Markets and investors demand higher interest rates to compensate for higher expected inflation and inflation risk. Price stability and anchored inflation expectations minimize those effects and provide the stable price backdrop that is a foundation for economic growth and maximum employment. In the weeks and months ahead, I will continue to refine my economic outlook and assessment of the balance of risks to seek a forward-looking path of interest rates that best positions monetary policy for achieving and maintaining maximum employment and price stability for all Americans.”
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