US Economy Research Articles

The Potential Relationship Between the Fed's Rate Cut and the Global Economy

The recent decision by the Federal Reserve Board to cut interest rates has been hotly debated due to growing uncertainty about the US economy. The article provides an in-depth analysis of the potential risks facing the US economy and discusses the need for the rate cut. Based on this, the project will delve into the combined effects of the Federal Reserve's interest rate cut on the US economy, and discuss the positive role it will play in reducing inflation. Finally, the paper also argues that the Fed's interest rate cut is likely to trigger risks in global financial markets and will slow the recovery of the world economy. Considering the limited impact of the U.S. rate cut on the Chinese economy, it is still needed to continue to pay attention to possible asset price bubbles while remaining vigilant.

Multiple Structural Breaks in Interactive Effects Panel Data Models

ABSTRACTThis paper develops new econometric methods for multiple structural break detection in panel data models with interactive fixed effects. The new methods include tests for the presence of structural breaks, estimators for the number of breaks and their location, and a method for constructing asymptotically valid break date confidence intervals. The new methodology is applied to a large panel of US banks for a period characterized by massive quantitative easing programs aimed at lessening the impact of the global financial crisis and the COVID‐19 pandemic. The question we ask is as follows: Have these programs been successful in spurring bank lending in the US economy? The short answer turns out to be: “No”.

A test of the relationship between the Pareto exponent and sample size

This paper uses un-truncated city population data from three countries—the United States, Spain and Italy—to empirically test Proposition 1 put forth by Eeckhout (2004 American Economic Review, 94: 1429–1451). Eeckhout’s hypothesis was that the estimate of the Pareto exponent in a standard Zipf regression decreases with sample size, if the underlying city size distribution is lognormal. Using rolling sample regressions, we find that this proposition is only valid once we enter the lognormal body of the distribution; for the Pareto-distributed upper-tail, the estimated exponent does not vary with sample size.

Access to affordable daycare and women's mental health in Rajasthan, India: Evidence from a cluster-randomised social intervention.

Women in India are often responsible for unpaid household work, family caregiving, and paid work, which can contribute to poorer mental health. The provision of childcare has the potential to improve women's mental health, but evidence on the effects of providing access to daycare is limited. We designed a cluster-randomised trial and used data from a sample of 2858 mothers with age-eligible children from 160 village hamlets in rural Rajasthan, India, to evaluate the impact of providing access to a community-based daycare programme on social and emotional aspects of women's mental health. We conducted a baseline survey in early 2016, randomised hamlets to intervention or control groups approximately six months later, and delivered the final post-intervention survey approximately two years thereafter. Treatment assignment increased the probability that a respondent used a daycare over the two-year follow-up by 40.9 percentage points. Providing randomised access to a daycare resulted in 0.2 (95% confidence interval (CI) = -0.1, 0.4) fewer symptoms of mental distress, representing a 9.5% decline compared to the baseline mean of 2.1 symptoms, as well as a 3.7 (95% CI = -0.8, 8.3) percentage point increase in the proportion of women who reported feeling very happy, equivalent to an 11.0% increase relative to the baseline mean of 33.6%. Among social indicators, treatment assignment was associated with a 5.6 (95% CI = -1.2, 12.4) percentage point increase in membership in an association, a relative increase of 43.4% compared to the baseline mean of 12.9%. The intervention did not have an appreciable impact on measures of life satisfaction or trust in institutions. Two-stage least squares instrumental variable analyses showed that daycare use decreased mental distress by 0.4 (95% CI = -0.1, 0.8) symptoms, increased the proportion of women who were very happy by 9.4 (95% CI = 0.0, 17.6) percentage points, and increased membership in an organisation by 15.9 (95% CI = 8.4, 23.7) percentage points. The provision of affordable, community-based daycare was associated with substantial uptake and showed potential for improving mothers' mental health in a rural context where most women were not employed in the formal labour force. ISRCTN clinical trial registry (ISRCTN45369145), registered on 16 May 2016; American Economic Association's registry for randomised controlled trials (AEARCTR-0000774), registered on 15 July 2015.

Dynamic Synthetic Controls: Accounting for Varying Speeds in Comparative Case Studies

Abstract Synthetic controls (SCs) are widely used to estimate the causal effect of a treatment. However, they do not account for the different speeds at which units respond to changes. Reactions may be inelastic or “sticky” and thus slower due to varying regulatory, institutional, or political environments. We show that these different reaction speeds can lead to biased estimates of causal effects. We therefore introduce a dynamic SC approach that accommodates varying speeds in time series, resulting in improved SC estimates. We apply our method to re-estimate the effects of terrorism on income (Abadie and Gardeazabal [2003, American Economic Review 93, 113–132]), tobacco laws on consumption (Abadie, Diamond, and Hainmueller [2010, Journal of the American Statistical Association 105, 493–505]), and German reunification on GDP (Abadie, Diamond, and Hainmueller [2015, American Journal of Political Science 59, 495–510]). We also assess the method’s performance using Monte Carlo simulations. We find that it reduces errors in the estimates of true treatment effects by up to 70% compared to traditional SCs, improving our ability to make robust inferences. An open-source R package, dsc, is made available for easy implementation.

Lognormal (re)distribution: A macrofounded theory of inequality

We study how political competition over redistribution determines income inequality under one macrofounded premise: the income distribution is approximately log-normal before and after any policy intervention. The unique equilibrium features substantial income inequality and less than maximal redistribution, even if the voters’ median income is very low. Fitting our model to the US economy, we argue that either the efficiency cost of redistribution is higher than estimates in the literature, or else US’s redistributive policies are optimal for an agent richer than the median voter.

Environmental technology to stimulate life expectancy: A deep dive into the role of PM2.5 and carbon emission

As the Latin American economies contend with improving public health while simultaneously dealing with ecological issues, understanding the determinant of life expectancy becomes imperative. This study explores the interaction among environmental technology, economic development, cleaner energy transitions, industrial growth, particulate Matter 2.5 (PM2.5), carbon emission, and their collective impact on life expectancy across Latin American nations. The research incorporates advanced econometric approaches comprising Mean Group (MG), Pooled Mean Group (PMG), and Method of Moments Quantile Regression (MMQR). The study’s outcome established that cleaner energy transitions, Gross Domestic Product (GDP), industrialization and environmental technologies significantly improve life expectancy, especially at higher quantiles. However, the outcome highlighted that PM2.5 and carbon emissions reduce life expectancy. Additionally, this study supports the unidirectional connection between environmental technology, economic development, cleaner energy transitions, industrial growth, life expectancy, and the bidirectional connection flowing from carbon emission PM2.5 to life expectancy. The study offers a roadmap for Latin America and global economies to invest in technology, cleaner power supply and industrialization to provide a route toward sustainable development and better public health that will eventually improve their citizens’ life expectancy.

The Effects of International Orientation on the Dimensions of the Environmental Performance of Agri‐Food Companies: A Chilean Perspective

ABSTRACTLike other Latin American economies, Chile has significantly increased its presence in international agriculture markets. Agricultural commodities are primarily developed within specialized exporters or multinational enterprises and exported to several different countries. In Chile, the fruit sector accounts for almost half of total exports. Internationally oriented companies explore business opportunities in foreign markets and invest adequate resources in international operations. In addition, more internationally oriented companies could be more inclined to invest in green practices due to external pressures and, consequently, achieve higher environmental performance. In this context, environmental performance is related to the extent to which available natural resources are protected during the production, delivery, and consumption of agricultural products. To the best of our knowledge, there is scattered evidence of the relationship between international orientation and the environmental performance of agri‐food companies, especially in Latin America. Grounded on the natural resources‐based view theory, this study assessed the effects of environmental collaboration on five dimensions of environmental performance (greenhouse gas emissions, energy efficiency, food loss and waste, food quality and safety, and water footprint management) in agri‐food companies with a survey with Chilean firms. Data were analyzed using the partial least square—structural equation modeling. We found that international orientation positively influences all five dimensions of environmental performance. Our study identified that the dimension most impacted by international orientation is water footprint management, and the least impacted is food quality and safety. With the aid of multi‐group analysis, we concluded that there are no significant differences in these relationships between micro/small and medium/large companies. A significant difference was observed in food loss and waste between fruit and nonfruit producers. We expect the outcomes of this study will support exporting‐related decisions and public policies in Latin America.

Did Monetary Policy Kill the Phillips Curve? Some Simple Arithmetics

Abstract An apparent disconnect has taken place between inflation and economic activity in the pre-COVID US economy, causing some to believe that the Phillips curve has flattened. We argue that this view may be premature. Using New Keynesian theory and estimated SVAR models, we decompose fluctuations in US macro data into the components driven by demand and supply disturbances, and confront the inflation disconnect with some simple arithmetics. This exercise confirms a relatively stable Phillips curve slope while the demand curve has flattened substantially. Our results are consistent with a shift towards firmer monetary policy commitment to inflation stability.

International STEM Graduate Students: A Key to Strengthening the American Economy and Building Competitiveness

The United States (US) is renowned for offering world-class education to thousands of international students seeking advanced degrees in the STEM fields. However, the US is at risk of losing a significant portion of this talent due to limited visa options. While US funds and resources are invested in training international STEM graduate students, many students are compelled to leave the US for other countries with more favorable visa policies. This potential loss of talent is particularly concerning as China is poised to overtake the US in Research and Development (R&D) investment, while countries like Canada, the United Kingdom, and Australia, along with China, are seeking to attract foreign high-skilled STEM talents with their visa programs. STEM jobs comprise 48% of the 100 fastest growing jobs in the US while STEM industries such as the semiconductor sector already struggle to meet their growing demand for high-skilled workers. These demands can be alleviated by international STEM graduate students. In order for Congress to leverage this economic opportunity before losing American-trained students to other countries, we propose the following: i) Exempt international STEM graduate students from the visa requirement of proving their intent to leave the US after graduation, ii) Increase or circumvent the annual numerical employment green card cap for international STEM graduate students, iii) Extend the unemployment grace period for H-1B and OPT visa holders to allow sufficient time to find a new job.

It takes a village: A pilot cross-randomized trial to enhance pregnancy care and support in northern Ghana.

Maternal mortality remains a challenge in Ghana, where 263 women per 100 000 live births die during pregnancy or childbirth. Barriers to reaching the recommended antenatal care (ANC) include poor access to quality health care, cultural factors, and lack of support for pregnant women. We piloted two cross-randomized interventions: durbars, or local community meetings that incorporated education about ANC and supporting pregnant women, and an enhanced ANC model that added phone calls and a home visit to standard care. The study took place in 30 villages in the Upper East Region of Ghana between August 2021 and November 2022. We tracked 277 women during pregnancy, with 120 women randomly assigned to the enhanced ANC intervention and 142 women living in villages randomized to the durbar intervention. Women who were randomized to the enhanced ANC intervention were 13.2 percentage points (pp) (95% confidence interval (CI) = 0.1, 24.3) more likely to have average or above average knowledge of pregnancy danger signs, 22.1 pp (95% CI = 9.1, 36.5) more likely to have a birth plan, 28.2 pp (95% CI = 13.0, 42.4) more likely to prepare the plan with their partners, and 16.4 pp (95% CI = 0.9, 29.3) more likely to pay for delivery with funds set aside in birth plan. They were also 35 pp (95% CI = 16.1, 48.1) more likely to make blood donor arrangements than control women who made birth plans. We found no impact of the durbar intervention on study outcomes. Evidence from this pilot suggests that interventions that increase interactions between health providers and pregnant women outside of the health facility may substantially improve women's experience during pregnancy and maternal health outcomes. Providing structured ways for men to get engaged in ANC increased their involvement. Although we found no evidence the community meetings improved study outcomes, larger studies with repeated meetings and community-wide surveys are needed to make causal conclusions. American Economic Association RCT Registry: 10360; ISCRNT: ISRCTN95961119.

A Schumpeterian exploration of Gini and top/bottom income shares

Abstract Data show that an increase in the Gini coefficient is associated with a falling bottom $p_{B}$ % income share and an increasing top $p_{T}$ % income share where, for example $p_{B}$ = 40 and $p_{T}$ = 1. This relationship, which we call the $X$ inequality relationship, is pervasive in the sense that it is observed in many countries, including the US, the UK, France and others. The purpose of this paper is (i) to construct a Schumpeterian growth model to explain the relationship, and (ii) to identify/quantify factors behind it via calibration of the US economy. Our model gives rise to a double-Pareto distribution of income as a result of entrant and incumbent innovations. Its advantage is that it allows us to develop iso-Gini loci and iso-income share schedules in a tractable way. Using a double-Pareto distribution as an approximation of an underlying income distribution, calibration analysis reveals that a declining business dynamism and fiscal policy changes in the past decades played a significant role in generating the $X$ inequality relationship in the US.

The distribution of privately held business assets in the United States

Although privately held businesses are central to the economy and society, little is known about how their assets are distributed among the population. To better understand rising and persistent wealth inequalities, this paper describes the household distribution of private business assets in the United States and examines how it has changed over time. Using data from the 1989–2019 Survey of Consumer Finances, we show that the relative number of business owners has remained stagnant at low levels and that assets in privately held firms have become increasingly concentrated. In 2019, the top 1 % of households controlled nearly 80 % of the equity in private businesses, up from about 70 % in the late 1980s. Moreover, we find that these trends appear to be quite general and do not merely reflect dynamics among elites or in specific sectors of the economy. We discuss implications for the organization of the US economy, wealth inequality, and public policy.

Taste and Habit of Food and Consumer Behavior in the USA in the Early Years of Covid-19 Pandemic

The USA, a highly advanced economy in the world, had experienced increase in household demand for specific food items (restaurant and cafeteria supply, in particular) in the early years of Cobid-19 pandemic. People of America depended largely on the tastes and habits of food items in their household consumption. Even with increasing prices the demand for restaurant foods showed increasing trends. This means that the consumption of food away from home (FAFH) increased and food at home (FAH) fell in demand in 2020 and 2021 (Covid- 19 pandemic). Fundamental law of demand in economics (Ceteris Paribus) for normal goods demand will fall if price of the same increases and vice versa. In the present study, rise in prices of normal goods (restaurant and cafeteria foods) had also shown increase in their demand. This perhaps shows paradoxical to the law of demand in economic theory.  Methodology: This is a study based on secondary sources of information including research works, official publications and those from academic institutions. Analysis of data generated and narratives have been used to find the contemporary food economy of the USA. The demand for food (both FAFH and FAH) has been given importance in the situation of food inflation in the USA in early years of Covid- 19 pandemic. Finally, the equilibrium of the household food consumption is shown geometrically (Fig-1).  Findings and Results: It is found from the study that while the price of food away from home (FAFH) was increasing, the demand for those was also increasing in 2020 and 2021 in the USA. Food being a ‘normal good’ might have shown a fall in demand when price was increasing. This is perhaps, paradoxical in view of the law of demand in economic theory.

How do sectoral elasticities affect the transmission of monetary shocks?

PurposeThe presence of heterogeneity in price stickiness has been previously shown to be the main determinant of the real effects of nominal shocks. The paper presents theoretical results that highlight the significance of labor mobility and intratemporal elasticity of substitution across sectors.Design/methodology/approachThis paper explores output dynamics in a closed economy, relying on a New Keynesian model that accounts for heterogeneity in price stickiness across sectors.FindingsThe key finding from the analytical results is that changes in labor mobility and intratemporal elasticity of substitution across sectors have an equivalent impact on sectoral output when accounting for differences in price stickiness. The model is then calibrated for the US economy using data from the manufacturing and services sectors, providing validation for the analytical results.Originality/valueConventional models often assume either immediate labor reallocation across sectors following shocks or no labor mobility at all. Additionally, these models assume either strong complementarity in consumption or some degree of substitutability. This paper demonstrates the crucial role that labor reallocation and the elasticity of substitution across goods across sectors play in generating well-known economic outcomes.

The current world economic situation and its impact on China's foreign exchange and foreign investment

In 2023, the world economy shows clear growth divergence and complex changes driven by technology. The United States economy is showing strong resilience, but its growth is still affected by inventory movements. In contrast, the economies of the euro area and Japan face serious challenges, while some emerging economies, such as India and Vietnam, show signs of a positive recovery. Meanwhile, prices in major economies generally rose, international trade improved slightly and financial markets picked up. In the coming period of time, the world economy is likely to be in the process of bottoming out and bottoming out, will continue to affect China's foreign trade and foreign investment fundamentals, China should overcome the risks and challenges, enhance confidence, increase policy support, and make every effort to create an environment conducive to the development of an export-oriented economy, and actively tap the new advantages of industrial competition, and to promote China's sustainable development of the economy.

Governance and policy implications of the Inflation Reduction Act: A European perspective

AbstractThis paper examines the US 2022 Inflation Reduction Act (IRA) alongside the EU's Net‐Zero Industry Act (NZIA) and Critical Raw Materials Act (CRMA) of 2023. We analyze their differential approaches to accelerating investment in clean technology, enhancing energy security and fortifying supply chains. Both regions share the objective of diminishing reliance on Chinese dominance in clean industries. The US seeks to stimulate private investment primarily via uncapped tax credits from 2022 to 2031, some of them subject to stringent domestic content requirements. The EU has reacted to the potential violation of World Trade Organization's rules and a possible green investment shift to the US In doing so, the EU is relying heavily on a regulatory strategy, with emphasis on the simplification of procedures. However, the EU's public funding model is vague and leaves details to the discretion of member states, risking fragmentation within the single market. Through the application of a dynamic computable general equilibrium model, we show that a 50% increase in demand for the IRA's uncapped tax credits could nearly triple US GDP outcomes by 2027. We highlight the contrast between the IRA's immediate fiscal incentives and the NZIA's regulatory approach, emphasising that the former are more attractive for firms.

Divisia monetary aggregates, monetary policy and business cycle analysis

Abstract The paper builds a parsimonious US business cycle SVARMA model, establishing identification conditions for independent monetary shocks. The SVARMA model, utilizing Divisia M3 and Divisia M4, is compared to the simple sum M2. The monetary rule with Divisia M3 yields theoretically consistent results marked by the absence of the usual price and liquidity puzzles. As the Federal Reserve (Fed) took a more hawkish approach to curb inflation, significant increases in US interest rates and declines in monetary aggregates were largely influenced by the Fed’s reaction function, which incorporates the Divisia M3 monetary rule. Findings emphasize the monetary impact on the business cycle, highlighting the significance of Divisia monetary aggregates. Historical and variance decompositions reveal diverse, dynamic effects of monetary shocks on macroeconomic variables. The SVARMA model with Divisia M3 and M4 demonstrates superior performance over simple sum M2 in capturing the time path of monetary shocks.

Modernizing Utility Collections through Customer Analytics and AI

The 2020 COVID‐19 pandemic introduced economic calamity and uncertainty in America that had not been seen since the 2007–2008 financial crisis. What began as an uncertain period for individual well‐being soon translated into broader economic issues for the American economy. Businesses facing months of lost revenue, deficits, and uncertainty began weakening financially and, as a result, were forced to reduce staff. In the years that have followed, industries which have historically been able to count on stable revenue, such as utilities, particularly suffered. Struggling households and small businesses began missing consecutive monthly payments, and customer debt climbed to unprecedented levels. As of March 2023, “one in six households across the country were behind on their electric bills.”1 Additionally, instances of non‐residential customers falling behind on their payments emerged. Historic levels of arrears continue to mount pressure on the industry, and traditional approaches to arrear collection are not working.

COVID-19 and time-frequency spillovers between oil and sectoral stocks and portfolio implications: Evidence from China and US economies

This paper examines the volatility spillovers and the time-frequency dependence between crude oil and stock sectors in the U.S. and China using both wavelet coherence and asymmetric BEKK GARCH models. This study also investigates the impact of the COVID-19 pandemic on spillover effects and portfolio management. The results reveal strong positive co-movements between WTI oil and US sector stock returns at medium and low frequencies particularly in 2020Q1. We find significant long-term co-movements between oil and Chinese sector stock returns (64–128 days). Furthermore, the findings reveal a significant and asymmetric volatility transmission between oil and sector stocks in both the US and Chinese economies. The evidence of spillovers is more pronounced during the COVID-19 period. It is recommended that equity investors should hold more stocks than oil assets to minimize risk without reducing the expected return. Finally, hedging with oil is expensive for U.S. sectors during the pandemic but inexpensive for Chinese sectors.