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, Alex Conner, Georgia Nabors, and David Wessel.
Using firm-level location and employment data, Viral V. Archarya of NYU, Abhishek Bhardwaj of Tulane, and Tuomas Tomunen of Boston College find that following a heat shock—defined by substantial heat-related losses to property, crops, or people—businesses with multiple locations reduce employment at heat-affected establishments and increase employment at sites in unaffected counties. Firms with high profitability, low leverage, and a large number of climate-focused investors undergo larger workforce redistribution. These reallocations are likely intended to mitigate heat-related declines in the productivity of their workers. Firms with only one location downsize in response to heat shocks. The authors conclude that firm mitigation efforts limit the overall employment effects of climate shocks but reorganize economic activity across counties.
François de Soyres, Dylan Moore, and Julio Ortiz of the Federal Reserve Board find that the excess savings built up during the pandemic are nearly exhausted in the United States. But excess savings levels have plateaued at a high level in France, Germany, Japan, and Spain. The authors demonstrate that excess savings are highly sensitive to the definition of the trend savings rate, which makes the path of excess savings ambiguous in Australia, Canada, Italy, and the United Kingdom. Excess savings are higher in countries that provided more fiscal support during the pandemic. Without fiscal support, they find, the pandemic would have resulted in a moderate increase in excess savings, consistent with the idea that lockdowns constrained spending.
Commercial real estate (CRE) loans account for about a quarter of total bank assets in the United States. Using data on over 35,000 currently held commercial mortgage-backed securities, Erica Xuawei Jiang of the University of Southern California and co-authors find that current market conditions put many smaller regional banks at risk of solvency runs. CRE values declined following the increase in hybrid work during the pandemic and the subsequent increase in interest rates. Currently, 44% of office loans and 14% of all commercial real estate loans have outstanding loan balances higher than the value of the mortgaged properties. The authors find that, at different levels of potential CRE loan defaults, anywhere from a few dozen to a few hundred banks would enter a “negative equity” position, putting them at risk of solvency runs from uninsured depositors.
"We did not discuss rate cuts at all. No discussion, no debate on this issue. And I think everybody in the room takes the view that between hike and cut, there's a whole plateau, a whole beach of hold. It's like solid, liquid and gas: you don't go from solid to gas without going through the liquid phase. This was just not discussed," says Christine Lagarde, President of the European Central Bank.
"...[G]oing forward, we are going to continue to be data dependent. We are going to continue to determine meeting by meeting what we see on the totality of data. But obviously, given a certain resistance of domestic inflation and the risk of second-round effects that we absolutely want to avoid, we're going to be very attentive..."
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