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This edition was written by Sarah Ahmad, Tristan Loa, Jack Spira, and Louise Sheiner.
Analyzing payroll data that match employee addresses with employer worksites, Mert Akan of Stanford and co-authors find that the average distance between a worker's home and workplace almost doubled between 2019 and 2023, from 15 to 26 miles. Distance increased most for high earners and workers in their 30s and 40s and for industries such as information and professional/business services. Among workers who relocated but remained with the same employer, most moved to states with lower tax rates and areas with lower housing costs. The authors estimate that the relocation of workers with annual earnings of $250,000 or more (who account for roughly 40% of all labor income in the U.S.) led to a $25 billion decline in aggregate state income tax revenue in 2023. Finally, employers were more likely to hire and fire more distant employees, suggesting that they treat distant applicants and employees as a more flexible labor pool.
Bronson Argyle of Brigham Young University and co-authors analyze 30 million U.S. bankruptcy cases from 1990 to 2022 to examine racial disparities in consumer bankruptcy outcomes. Minority filers are unconditionally 12.7 and 2.3 percentage points more likely to have their bankruptcy cases dismissed without debt relief in Chapter 13 cases (which allow a debtor to repay debts over time) and Chapter 7 cases (in which a debtor's assets are liquidated to pay debts), respectively. When minority filers are randomly assigned to white trustees in Chapter 13 cases, their likelihood of dismissal without relief increases by 2.3 percentage points, with Black and Hispanic filers experiencing the largest effects, while no such effect was found in Chapter 7 cases. This suggests that the greater discretion afforded to trustees in Chapter 13 compared to Chapter 7 may allow bias to influence case outcomes.
The conventional view is that monetary policy should “look through” a price increase caused by tariffs because it represents a one-time price level adjustment rather than ongoing inflation. Javier Bianchi of the Federal Reserve Bank of Minneapolis and Louphou Coulibaly of the University of Wisconsin-Madison argue instead that the optimal response to tariffs is expansionary monetary policy, with inflation rising beyond the direct effects of tariffs. Because households and firms don’t take account the tariff revenue generated, they say, tariffs raise the private cost of imported goods above the social cost, leading to lower than optimal consumption of imported goods. Expansionary monetary policy can close the gap because the resulting gains in aggregate income boost demand for imports. The authors also argue – contra conventional wisdom – that even permanent tariffs can lead to an increase in the trade surplus, because the higher short-run level of employment as a result of the expansionary monetary policy leads households to accumulate foreign assets.
"While the role of the Central Banks in managing risks posed by climate change to the financial system is increasingly being recognized, their role in facilitating the financing of green and sustainable transition has been a matter of debate and has varying dimensions to it. Central Banks in Advanced Economies have traditionally followed an asset neutral approach. Central Banks in Emerging Markets and Developing Economies (EMDEs), on the other hand, have adopted directed lending policies to channelize credit to certain sectors of their economies given their individual country circumstances and developmental objectives. In the Indian context, as you are all aware, the priority sector lending guidelines facilitate credit to be channeled to specific sectors including renewable energy," says Sanjay Malhotra, Governor of the Reserve Bank of India.
"On the prudential aspect, there are several channels through which climate change risks impact the financial system. All the major types of financial risks - be it credit, market, or operational risk - are influenced by climate change. These risks include losses from credit portfolio due to extreme climate events or natural disasters (physical risks) and loss in value of collaterals due to stranded assets (transition risks); losses from investments; and operational losses. Although climate change impacts almost all economic sectors, the extent and nature of these risks vary by sector, industry, geography, and institution. The mitigation of climate change risks, therefore, rests – firstly, on realistic and comprehensive assessment of the frequency and severity of climate risks and secondly, estimating their financial impact, which is no easy task.
As a Central Bank, the Reserve Bank is mindful of its role in addressing and mitigating risks to the financial system from climate change. In this context, our endeavor has been to play the role of a facilitator – including supporting capacity building and fostering a conducive regulatory framework for promoting green and sustainable finance. One important aspect of green financing/lending for sustainable finance is the higher credit risk due to borrowers' use of new and emerging green technologies, which have relatively limited track record in terms of reliability, efficiency, and effectiveness."
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