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This edition was written by Sarah Ahmad, Alex Conner, Tristan Loa, and Louise Sheiner.
Denis Gorea of the Bank for International Settlements, Oleksiy Kryvtsov of the Bank of Canada, and Marianna Kudlyak of the Federal Reserve Bank of San Francisco use daily house price listing data from 2001 to 2019 to show that changes in the expected path of monetary policy quickly translate to house prices. The authors estimate that a contractionary monetary policy surprise that raises the average 30-year mortgage rate by 0.25 percentage point reduces list prices by 1%. This effect occurs within a couple weeks and persists for at least one year. The effect on sales prices is almost identical. The result is driven by surprises to the long-term path of monetary policy, like unexpected forward guidance or quantitative easing or tightening, not the policy rate itself. The authors also find some evidence that monetary expansions have larger effects than contractions, likely because of mortgage refinancing.
Some patents become influential only after a long time through “patent hunters,” firms that specialize in finding and commercializing overlooked patents. Using data on millions of patents granted by the U.S. Patent and Trademark Office from 1976 to 2020, Lauren Cohen of Harvard and co-authors find that these late-blooming patents receive more citations and are associated with more new product launches than those recognized early on. Patent hunting is a profitable activity: patent hunters experience a 6.4% increase in sales growth, a 2.2% rise in market value, and 2.2% increase in new product offerings within five years of adopting late-blooming patents. Patents targeted by hunters tend to be in less competitive technology spaces at the time of patenting and further from the original patent writers’ core areas, potentially explaining why they were initially overlooked.
Analyzing CPU utilization data from over one billion virtual machines used by nearly 100,000 firms, James M. Brand from Microsoft and co-authors find that firms at the 90th percentile of cloud computing productivity are 3.5 times more efficient than those at the 10th percentile. More productive firms are better at adjusting to demand fluctuations, pay more attention to idle resources, and employ a greater variety of specialized virtual machines. Productivity improves with experience: new cloud adopters improve their productivity by 33% in their first year and reach the productivity level of experienced firms within four years. The authors estimate that if all firms operated at the 80th percentile productivity level, total electricity use would decrease by 17% as the computational resources required to perform the same tasks would decline. They conclude that “efficiency gains from innovation can take time to propagate throughout the economy even after widespread adoption.”
"Global public debt has grown sizably over the last few years as governments tackled pandemics and energy and food insecurity. Public debt reached 93% of GDP in 2023 and is projected to approach 100% of GDP by the end of this decade. Debt in some of the largest economies like the U.S. and China is projected to grow even faster than in the pre-pandemic years. Although public debt in Europe is expected to broadly stabilize, debt remains well above pre-pandemic levels," says Gita Gopinath, First Deputy Managing Director of the International Monetary Fund.
"With monetary policy easing and unemployment at low levels in several countries, now is the time for a strategic pivot in fiscal policy. Such a pivot begins with a recognition of the true scale of fiscal risks: It is worse than you think. This calls for further recognizing that the economic consequences of high debt can no longer be dismissed in advanced economies. Borrowing costs and economic activity are increasingly impacted by loose fiscal policy. Lastly, for any fiscal strategy to succeed, economically and politically, it will need to focus on growth, guardrails, and grassroots."
"...In addition to investing in growth, it is important to have guardrails to protect against political expediencies and optimism bias."
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
