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This edition was written by Sarah Ahmad, Tristan Loa, Jack Spira, and Louise Sheiner.
Gorkem Bostanci of the University of British Columbia, Omer Koru of Penn State, and Sergio Villalvazo of the Federal Reserve find evidence that higher-than-expected inflation increases the rate of job-to-job transitions but also causes workers to accept smaller wage gains per transition. Using U.S. data, they estimate that a one percentage point increase in inflation relative to expectations induces a 2.9% to 4.2% increase in job transition rates. However, calibrating a job search model with data on transition rates, transition wage gains, and the labor share of output, the authors demonstrate that, following an inflation shock, lower worker selectivity (i.e. a greater willingness to accept a smaller wage gain) overpowers the effect of greater job transitions and leads to a decline in economic output. Simulating the model under recession scenarios likewise shows that inflationary recessions, despite increasing the number of job transitions, are followed by weaker and slower recoveries than deflationary ones.
While mortality rates for both Black and White Americans have decreased in recent decades, large racial disparities persist. Robert Kaestner of the University of Chicago, Cuiping Schiman of Georgia Southern University, and Anuj Gangopadhyaya of Loyola University Chicago find that among individuals aged 55 to 75, the racial mortality differences are mainly due to healthcare amenable causes—such as cardiovascular disease, stroke, diabetes, and kidney disease. In contrast, racial disparities in cancer and other causes of death are relatively small, even though those causes account for over half of all deaths. The absolute racial gap in healthcare amenable mortality widens with age, while the relative (percentage) difference, though still positive, declines. Even though medical treatment has become more widespread for both Blacks and Whites, the authors’ findings suggest that Blacks receive less effective or insufficient medical treatment than Whites.
Using court records from Purdue Pharma litigation, Carolina Arteaga of the University of Toronto and Victoria Barone of Notre Dame trace how Purdue’s marketing of OxyContin—initially aimed at cancer patients—quickly expanded to noncancer patients in the same geographic areas served by the same physicians. Using 1996 cancer mortality rates as a measure of initial opioid exposure, they find that areas with one standard deviation higher cancer mortality rates in 1996 experienced 65% more opioid prescriptions by 2012 and 46% higher drug mortality by 2017. The authors argue that, amid resulting rising social and economic hardship, affected communities became more receptive to Republican messaging around “America left behind,” ultimately generating a 4.5 percentage point increase in Republican vote share in 2022 for each standard deviation increase in initial exposure. These political shifts emerged gradually over multiple election cycles, with Republican gains becoming evident in House races as early as 2012.
“The Federal Reserve has long acknowledged that leverage ratios are intended to act as a "backstop" to risk-based capital requirements. When leverage ratios become the binding capital constraint at an excessive level, they can create market distortions. This is especially true in the case of the enhanced supplementary leverage ratio (eSLR) which is applicable to the largest banks," says Michelle Bowman, Vice Chair for Supervision of the Federal Reserve Board.
"As a result of this leverage requirement, banks are less inclined to engage in low-risk activities like Treasury market intermediation and revise their business activities in a way that is neither justified nor responsive to their customer needs. These distortions can also create broader financial system impacts like increased stress on Treasury market functioning. To be clear, the increasing bindingness of the eSLR on the largest firms did not result from careful policy debate and discussion. Instead, it is an unintended consequence of market and other bank regulatory requirements implemented after it was originally put in place.”
“The Board has already proposed a significant change to reduce the volatility in capital requirements resulting from our current stress testing process. The proposal includes providing a longer implementation timeline to phase in the annual stress capital buffer requirement. And later this year, the Board will consider more extensive changes aimed at promoting transparency, fairness, and predictability in the stress testing program.
While stress testing is an important supervisory tool, its implementation, outcomes, and processes have raised significant questions and concerns about its effectiveness in identifying systemic weakness. The lack of transparency around the models used in stress testing prevents meaningful discussions about how the stress tests can be improved.”
