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, Sam Boocker, Georgia Nabors, and Louise Sheiner.
Impact investors strive to generate both financial returns and positive social outcomes. Using novel data on a wide range of impact funds, Shawn Cole of Harvard and co-authors find that impact investors are more likely to provide financing to firms in disadvantaged regions and emerging industries than traditional investors. However, over 60% of deals involving an impact investor also include a traditional investor, suggesting that these ventures would have received financing even without impact investors. The authors estimate that only 12% of impact investors fund ventures that would not have attracted traditional investment. Further, impact investors have limited influence over the portfolios of traditional investors and companies receiving funds from impact investors see large declines in employee satisfaction. They find limited evidence that impact investors produce social outcomes that would not have been generated by traditional investors.
About a quarter of American adults participate in some form of gig work, such as babysitting or driving Uber. Using data from the Boston Federal Reserve’s Survey of Informal Work Participation, Anat Bracha of Hebrew University and Mary Burke of the Boston Fed find that official estimates often miss informal workers for two reasons. First, many respondents without formal employment report gig work as a hobby despite earning income and are frequently “misclassified” as either retired or disabled. Second, many people who are formally employed receive only a small portion of their total income from gig work, and thus don’t report it because they view their main source of income as their work. The authors suggest that fully accounting for gig work in the U.S. could increase the employment-to-population ratio by as much as 5 percentage points under generous estimates and add 1.3% to total hours worked, the equivalent of 1.1 million full-time workers.
Mortgage rates affect economic activity through several channels, including cash-out refinancing (when borrowers refinance, increase their loan, and get cash). Using data on credit scores and mortgage servicing records from the Equifax CRISM dataset around the surge in long-term yields in 2013 known as the Taper Tantrum, Elliot Anenberg and co-authors at the Federal Reserve Board document that homeowners are less likely to cash-out refinance when mortgage rates increase. Homeowners who don’t cash-out refinance tend to borrow more from alternatives, such as credit cards, personal loans, and home-equity loans. The authors argue that this debt substitution substantially weakens the cash-out refinance channel of monetary policy.
"[R]emember, we are trying to slow down demand. We are trying to slow down the economy. That’s going to have an effect on delinquencies. It’s going to have an effect on earnings calls. These are things we need to get the economy to slow down, and also get inflation down. So, what we don’t want is it to go so bad that, you know, the economy goes tanking into a recession, but these are all signs of showing we’re getting the moderation in demand that we want to help us get the economy back on stable footing in terms of inflation, without tossing us into a recession," said Christopher Waller, Member of the Federal Reserve Board of Governors.
"…I was stunned by this third-quarter number [GDP growth rate]. I think everybody was. It was like, where is this coming from? We were at 2%, 2%, 2%, 2%, 2%, and then almost 5%. But now, what I said is all the forecasts I’m seeing, all the preliminary data that’s coming in, it’s going to be probably 1% to 2% the fourth quarter, depending on which one you’re looking at. So that clearly is a moderation…So, something happened in the third quarter, I don’t know . . . lots of Taylor Swift concerts? I don’t know what it was, but something blew up the third quarter, and it’s not likely to continue going forward. So that’s why I’m less concerned. Once I saw the last couple of weeks of data, I felt more confident that this seemed to be a one-off."
Note: After Waller spoke, the third-quarter GDP growth rate was revised up from 4.9% to 5.2%.
