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This edition was written by Sarah Ahmad, Georgia Nabors, Jack Spira, and David Wessel.
Olivier Coibion of the University of Texas, Austin, and Yuriy Gorodnichenko of the University of California, Berkeley, argue that prior to and during the pandemic, the inflation expectations of households and firms were unanchored, and as inflation rose, households paid more attention to prices. During the pandemic period, households were generally more uncertain about future inflation and often attributed it to supply-side sources. To an unusual degree, inflation expectations reflected the partisan affiliation of respondents. Transmission of inflation expectations to wage expectations was notably limited, suggesting limited expectations-driven wage-price spiraling during the pandemic inflation surge. The authors argue that the recent rise and fall in inflation can be explained in large part by changing inflation expectations and supply shocks rather than fiscal or monetary policy interventions. They conclude that monetary policymakers should adopt a communication strategy that keeps households attentive to inflation, both when it is low and stable and when it is high, to prevent perceptions of volatility that lead to unanchored expectations.
What prevents some Americans from opening bank accounts, and how many actually want them? Using survey data from the Federal Deposit Insurance Corp., Elena Falcettoni of the Federal Reserve Board and Vegard Mokleiv Nygaard of RAND Corporation refine the commonly used definition of "unbanked" by distinguishing between those who want bank accounts but don’t have them and those who don’t want accounts. The authors estimate that in 2021 about 1.3% of eligible Americans didn't have bank accounts but wanted to whereas 3.2% didn’t want accounts. Both sets of respondents cited minimum balance requirements as the largest impediment to opening an account. Lack of trust in banks was a close second reason for those who didn't want bank accounts, while problems with identification, credit, and banking history were more consequential to those who did. These microdata have important implications for financial inclusion policies, since new financial products aimed at reducing barriers to entry may not succeed with the population for whom trust is a greater underlying concern.
Nano Barahona of the University of California, Berkeley, Cauê Dobbin of Georgetown, and Sebastián Otero of Columbia study a 2015 reform in Brazil’s federal student loan program that reduced the number of new loans by more than 70%. In general, loans raise students’ ability to pay, putting upward pressure on tuition, but the response depends on whom the loans target. Need-based loans bring more low-income students who are more price-sensitive into the market, making colleges cautious about raising tuition. Merit-based loans go to higher-income students who are less price sensitive, allowing colleges to raise tuition more freely. When Brazil tightened eligibility for student loans, tuition rose where aid had gone to lower-income students because they lost students who had been holding price increases down. In colleges where aid had gone to higher-income students, tuition fell. Their model shows that merit-based loans increase tuition by 3% compared to a no-loan scenario while needs-based targeting raises tuition by only 0.4%. Need-based loans also significantly expand access, increasing enrollment by 31.1% compared to just 2.9% under merit-based programs.
“When doubts emerge about the stability of the legal and institutional framework, the impact on currency use is undeniable. These doubts have materialized in the form of highly unusual cross-asset correlations since 2 April this year, with the US dollar and US Treasuries experiencing sell-offs even as equities fell. The same doubts are also cited by investors who are turning to gold: two-fifths say they are doing so as a hedge against rising geopolitical risk," says Christine Lagarde, President of the European Central Bank.
"...The conclusion for Europe is clear: if we truly want to see the global status of the euro grow, we must first reform our domestic economy. That means moving forwards with the priorities identified in recent reports: completing the Single Market, enabling start-ups, reducing regulation and building the savings and investment union. And it means avoiding a piecemeal approach, where we make progress where it is easy and dither where it is hard, else we will never kick-start the positive cycle.
Moreover, in this new geopolitical landscape, the case for acting in a European way has never been stronger. Each individual country of course needs to make sure that its national policies support growth. But we also need to be mindful of self-defeating fragmentation. For example, we all agree that Europe needs to build up its strategic industries to avoid excessive dependencies – as Mario Draghi and Enrico Letta emphasized in their recent reports. But we will not succeed if we have 27 different policies for these industries.”
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