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This edition was written by Elijah Asdourian, Alex Conner, Georgia Nabors, and Louise Sheiner.
Amy Finkelstein of MIT and co-authors find that the Great Recession was associated with a significant and persistent reduction in local mortality rates. Using data on death counts and employment, the authors find that during the 2008 economic shock, a 1 percentage point increase in an area’s local unemployment rate was accompanied by a 0.5% reduction in the local, age-adjusted mortality rate, an effect driven largely by a decline in mortality among the elderly. The reduction in mortality persisted over time, regardless of the speed of an area’s economic recovery, and was similar across racial groups and age cohorts, but was only substantial among those with a high school degree or less. The authors argue that both immediate and lagged death rate reductions can be explained by recession-related declines in air pollution. The authors show that longer lifespans lower the welfare costs of recessions, especially for those over the age of 65, who see a larger percentage increase in life expectancy and have more recession-resistant income sources in their later years.
Roberto M. Billi of the Riksbank, Anton Nakov of the ECB, and Jordi Galí of Spain’s Centre de Recerca en Economia Internacional investigate optimal monetary policy when the neutral interest rate, r*, becomes persistently negative and the policy rate is constrained by the zero lower bound (ZLB). Under these conditions, they show that there exists a policy rule for the central bank that gradually achieves a unique equilibrium with positive inflation. The policy rule continues to work even when the ZLB is binding because the central bank can influence the path of the real rate through expected inflation. The authors argue that this constitutes a form of forward guidance that enables the central bank to dampen economic fluctuations even if the policy rate is stuck at zero. In their words, “In such an environment, and despite the possible constancy of the policy rate, there is still a meaningful optimal policy problem: a fully credible central bank operating under commitment can keep influencing macro outcomes and implement the constrained-efficient allocation in the face of continuous shocks that may impinge on the economy.”
The proportion of adults who receive disability insurance (DI) in the U.S. varies greatly by geography from under 1% in some counties to over 20% in others. Using administrative data from 1996 to 2014, Amanda Michaud of the Minneapolis Federal Reserve, Timothy Moore of Purdue, and David Wiczer of the Atlanta Federal Reserve find that the place-based effects of DI are “larger than most public policy initiatives designed to support local economic activity.” DI receipt is more common in counties with residents who are less healthy and have lower average earnings; DI receipt is also higher where the cost of living is low and payments replace a higher proportion of earnings. The authors conclude that current spending is allocated inefficiently, as residents in low cost of living areas have more incentive to apply for DI, and thus get less marginal benefit from DI payments than recipients in high cost of living.
"I strongly disagree with Fitch Ratings’ decision. The change by Fitch Ratings announced today is arbitrary and based on outdated data. Fitch’s quantitative ratings model declined markedly between 2018 and 2020 – and yet Fitch is announcing its change now, despite the progress that we see in many of the indicators that Fitch relies on for its decision. Many of these measures, including those related to governance, have shown improvement over the course of this Administration, with the passage of bipartisan legislation to address the debt limit, invest in infrastructure, and make other investments in America’s competitiveness," says Janet Yellen, Secretary of the Treasury.
"Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s preeminent safe and liquid asset, and that the American economy is fundamentally strong."
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