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This edition was written by Tristan Loa, Andrew Rosin, Jack Spira, and Louise Sheiner.
What drove up inflation in Europe during the COVID-19 pandemic? Decomposing supply and demand factors, Kristina Barauskaitė Griškevičienė and Claus Brand of the European Central Bank (ECB) and Anh Dinh Minh Nguyen of the International Monetary Fund find that no single economic phenomenon dominated; rather, several combined to bring about the eurozone inflation surge. Of the eight-percentage-point increase in headline inflation from June 2021 to October 2022, they attribute 3.2 percentage points to aggregate supply shocks, including energy supply constraints resulting from Russia's invasion of Ukraine as well as other pandemic supply chain disruptions, and 3.7 percentage points to demand shocks from expansionary monetary and fiscal policy and other factors, with the remainder unexplained. Analyzing a counterfactual scenario in which the ECB hiked rates six months earlier, the authors estimate that 2.1 percentage points of inflation would have been averted, while output in 2022 and 2023 would have shrunk by 1.6% annually instead of its realized 2% annual growth.
Using tax data from 2017 and 2015, Aidan Buehler of the University of Chicago and co-authors find that while physicians are a common high-income occupation in the United States, Canada, Sweden, and the Netherlands, physicians in the United States earn substantially more. This gap arises primarily because incomes at the top of the U.S. distribution are much higher, and only to a lesser extent because U.S. physicians are more concentrated in those top percentiles. The authors link these higher earnings to stronger labor market alternatives for U.S. physicians, greater willingness among high-income consumers to pay for care, and more extensive business opportunities in the American healthcare system. In contrast, in countries like Sweden, physicians are less likely to appear at the very top of the income distribution, reflecting institutional features—particularly the predominance of salaried employment in the public healthcare sector—that compress physician pay. Even when physicians occupy similar positions in the income distribution, however, they earn less in absolute terms in Sweden because top incomes are lower overall. The authors further show that if U.S. physicians had the same relative positions in the income distribution as Swedish physicians, average U.S. physician income would fall by about 50%, while total healthcare spending would decline by only about 3.8%, because physician income represents a relatively small share of overall healthcare spending.
Using administrative data on household transfers and automobile sales, David W. Berger of Duke and co-authors argue that COVID-era stimulus—in particular, stimulus checks and the Advanced Child Tax Credit—increased car sales by about 5.5 million between 2020 and 2022, representing a 3.2% yearly increase relative to pre-pandemic levels. Meanwhile, transfer payments account for less than 20% of the increase in automobile prices during the pandemic. The used car market, specifically, attenuated the effect of transfer payments on automobile prices: households that used stimulus checks to purchase new cars often traded in their existing vehicles, which increased the supply of used cars and reduced the upward pressure on prices. Supply constraints, monetary accommodation, and preference shifts explain a much larger portion of the increase in car prices during the pandemic, the authors conclude.
"If my successor is not confirmed by the end of my term as chair, I would serve as chair pro tem until he is confirmed. That is what the law calls for. That’s what we’ve done on several occasions, including involving me. And it’s what we’re going to do in this situation," says Jerome Powell, Chair of the Federal Reserve Board of Governors.
"And while I’m at it on the question whether I will leave while the investigation is ongoing, I have no intention of leaving the board until the investigation is well and truly over, with transparency and finality. And I would refer you to the statement that was in the Fed’s brief that you all have seen. And I won’t have anything more for you on that.
"On the question of whether I will then continue to serve as a governor after my term ends and after the investigation is over, I have not made that decision yet. And I will make that decision based on what I think is best for the institution and for the people we serve."
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