The rise of U.S. inflation in 2021 and 2022 and its partial subsiding have sparked debates about the relative role of supply and demand factors. The initial surge surprised many macroeconomists despite the unprecedented jump in money growth in 2020-21. We find that the relationship between consumption and the theoretically based Divisia M3 measure of money (velocity) can be well modeled both in the short- and long-runs. We use the estimated long-run relationship to calculate the deviation of actual velocity from its long-run equilibrium and incorporate it into a P-Star framework. Our model of velocity significantly improves the performance of the P-Star model relative to using a one-sided HP filter to calculate trend velocity as used by other researchers. We also include a global supply pressures index in the model and find that recent movements in U.S. inflation largely owed to aggregate demand driven macroeconomic factors that are tracked by Divisia money with a smaller role played by supply factors.

The rise of inflation in 2021 and 2022 surprised many macroeconomists who ignored the earlier surge in money growth because past instability in the demand for simple-sum monetary aggregates had made these aggregates unreliable indicators. We find that the demand for more theoretically-based Divisia aggregates can be modeled and that their growth rates provide useful information for future nominal GDP growth. Unlike M2 and Divisia-M2, whose velocities do not internalize shifts in liabilities across commercial and shadow banks, the velocities of broader Divisia monetary aggregates are more stable and can be reasonably empirically modeled in both the short run and the long run through the COVID-19 pandemic and to date. In the long run, these velocities depend on regulatory changes and mutual fund costs that affect the substitutability of money for other financial assets. In the short run, we control for swings in mortgage activity and use vaccination rates and an index of the stringency of government pandemic restrictions to control for the unusual effects of the pandemic. The velocity of broad Divisia money temporarily declines during crises like the Great and COVID Recessions, but later rebounds. In each recession monetary policy lowered short-term interest rates to zero and engaged in quantitative easing of about $4 trillion. Nevertheless, broad money growth was more robust in the COVID Recession, likely reflecting that the banking system was less impaired and could promote rather than hinder multiple deposit creation. Partly as a result, our framework implies that nominal GDP growth and inflationary pressures rebounded much more quickly from the COVID Recession versus the Great Recession. We consider different scenarios for future Divisia money growth and the unwinding of the pandemic that have different implications for medium-term nominal GDP growth and inflationary pressures as monetary policy tightening seeks to restore low inflation.

This study models the closely held (PE) share of U.S. nonfinancial corporate equity over time. Corporate income tax rates, the Sarbanes-Oxley Act, default risk, and the real medium-run Treasury yield significantly affect the PE share, consistent with other studies which separately analyze these factors. The PE share is negatively related to business loan delinquencies and real medium-term Treasury rates. High interest rates discourage PE funds from using leverage to finance buyouts of public companies and fund distributions of interim cash distributions that enhance the relative liquidity of the closely held firms in PE fund portfolios. Interim cash distributions by PE funds help to avoid the double-taxation of dividends, thus causing the appeal of PE to rise with corporate income tax rates, which increases the PE share. The PE share rose during the Enron scandal and after the Sarbanes-Oxley Act (SOX), which increased the costs of continuing as, or becoming, a publicly traded corporation. The PE share is well explained and tracked by key macroeconomic variables as well as tax and regulatory policies.

The 2021-2022 surge in US inflation was unanticipated by the Survey of Professional Forecasters (SPF) and other macroeconomists and institutions. This study assesses whether nascent deep learning frameworks and methods more accurately project recent core personal consumption expenditures inflation. We create a recurrent neural network (RNN) to forecast long-term inflation, and after training on 60 years of quarterly data, the model outperforms the SPF and projects a spike in inflation similar to that of recent years. We compare the model's performance with and without COVID-19-specific data and discuss some implications of our findings for economic forecasting in global crises.

In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade firms became unable to borrow from securities markets. In response, the Fed not only reopened its commercial paper funding facility but also announced it would purchase newly issued and seasoned corporate bonds rated as investment grade before the Covid pandemic. We assess the effectiveness of this program using long sample periods, spanning the Great Depression through the Great and Covid Recessions. Findings indicate that the announcement of corporate bond backstop facilities helped stop risk premia from rising further than they had by late-March 2020. In doing so, these backstop facilities limited the role of external finance premia in amplifying the macroeconomic impact of the Covid pandemic. Nevertheless, the corporate bond programs blend the roles of the Federal Reserve in conducting monetary policy via its balance sheet, acting as a lender of last resort, and pursuing credit policies.

The share of Americans having no opinion about the President's job performance has fallen since 1950, a manifestation of the political polarization that has increasingly impeded U.S. policymaking. Time series analysis attributes this to greater media fragmentation, as tracked by trends in shifts towards cable TV and computer access to media. Results suggest that political polarization will likely persist at high levels absent structural shifts.

For over two centuries, the municipal (muni) bond market has been a source of systemic risk, which returned early in the Covid-19 downturn when borrowing from securities markets became costly for many private and public entities, and some found it difficult to borrow at all. Indeed, just before the Fed announced its unprecedented intervention into the muni market, spreads of muni over Treasury yields rose in line with the unemployment rate and appeared headed to levels not seen since the Great Depression, when real municipal gross investment plunged 35 percent below 1929 levels. To prevent such a calamity, the Fed created the Municipal Liquidity Facility (MLF) to purchase newly issued, (near) investment-grade state and local government bonds at ratings-based interest rate spreads over the safe OIS benchmark yield. In general, these spreads were initially about 100 basis points above average spreads under more normal market conditions and were later lowered by 50 basis points in August 2020. Despite a modest take-up, our study documents the MLF prevented muni spreads from rising much above those margins (plus a modest 10 basis point fee) and limited the extent to which interest rate spreads could have amplified the impact of the Covid pandemic. To establish the MLF the Fed needed Treasury indemnification against default losses. There were concerns about whether the creation of the MLF could induce moral hazard among borrowers and could undermine the efficiency of the bond market if the facility had lasted too long. Partly for this reason and because the muni market had settled down by yearend 2020, the Treasury terminated the MLF at that time. Future assessments of these downside aspects will help answer the question whether the program's benefits addressed here exceeded its costs.

The U.S. stock ownership rate doubled between 1983 and 2001 but remains below predictions of some equity participation models. Consistent with calibration studies by Heaton and Lucas (2000) and Gomes and Michaelides (2005), mutual fund costs and indicators of background labor risk are significantly related to stock ownership over 1964-2019. Coefficient estimates and continuous data on driving variables can be used to create a continuous proxy for stock ownership, which could help researchers gauge the effects of shocks that are transmitted via equity participation. Typically omitted asset transfer costs can help analyze other aspects of household portfolio behavior.

The economics literature lacks articles that provide a broad roadmap—let alone a logical explanation—of the new set of Federal Reserve policy tools that were created to counter the COVID-19 recession. This study provides an overview of the motivation for these new credit-easing programs—namely to damp feedback mechanisms and channels that would otherwise amplify the downturn and impede a subsequent recovery. The study then briefly assesses the impact of the new policy tools and addresses the risks they might pose. In addition, the new credit easing tools are put into historical context through a discussion of their development as part of the Fed's evolving and expanding role in countering financial crises.

The role of real estate during the global financial and economic crisis has prompted efforts to better incorporate housing and financial channels into macro models, improve housing models, develop macroprudential tools, and reform the financial system. This article provides an overview of major, recent contributions to the literature in relation to earlier research on what drives housing prices and how they affect economic activity. Particularly emphasized are studies, both theoretical and more strongly evidence-based, that connect housing markets with credit markets, house price expectations, financial stability, and the wider economy. The literature reveals much diversity in the international and regional behavior of house prices and the need to improve data tracking key housing supply and demand influences. Also reviewed are studies examining how monetary, macroprudential, and other policies affect house prices and access to housing. This survey is designed to help readers navigate the plethora of recent studies and understand the unsettled issues and avenues for further research. The findings should be of interest to policy makers concerned with financial stability as well as those dealing with the role of housing in the wider economy (JEL E32, E44, E63, G01, G21, R31).

Purpose The study aims to analyze the effects of the Covid-19 pandemic on house prices. Design/methodology/approach The authors start by discussing the possibility that house price indexes may not fully incorporate the effects of the pandemic as of yet. Against the background of the pandemic, the authors then analyze economic and behavioral effects affecting house prices. The authors also discuss how the linkages between tourism and house prices have been affected. The authors further present evidence of an emerging shift in preferences from urban locations to more peripheral ones. Findings The authors report variance in the evolution of house prices across countries at the onset of the pandemic, with locations depending heavily on tourism showing slower price appreciation while appreciation has firmed in other places. The authors argue that the resilience of house prices is not only because of the low-interest rate environment and government efforts to support firms and households, but also behavioral factors. In some locations, the price of condominiums has declined relative to the price of detached houses. This could indicate that wealthier households are seeking more space and larger units as a result of the crisis. There is also evidence of a downward pressure on rents, leading to increased price–rent ratios in the USA. Originality/value By considering both economic and behavioral factors, this paper provides for a better understanding of the resilience and realignment of house prices at the onset of the Covid-19 pandemic.

Using FRED data, a machine-learning model outperforms the Survey of Professional Forecasters and other models since 2001 in forecasting the unemployment rate.

In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade firms became unable to borrow from securities markets. In response, the Fed not only reopened its commercial paper funding facility but also announced it would purchase newly issued and seasoned bonds of corporations rated as investment grade before the Covid pandemic at spreads roughly 1 percentage point above non-recession averages. A careful splicing of different unemployment rate series enables us to assess the effectiveness of recent Fed interventions in these long-term debt markets over long sample periods, spanning the Great Depression, Great Recession and the Covid Recession. Findings indicate that the announcement of forthcoming corporate bond backstop facilities have capped risk premia at levels 100 basis points above non-recession averages, akin to a “penalty rate” for lender of last resort interventions during financial crises. In doing so, these Fed facilities have limited the role of external finance premia in amplifying the macroeconomic impact of the Covid pandemic. Nevertheless, the corporate bond programs blend the roles of the Federal Reserve in conducting monetary policy via its balance sheet, acting as a lender of last resort, and pursuing credit policies.

The last decade's boom and bust in U.S. commercial real estate (CRE) prices was at least as large as that in the housing market and also had a large effect on bank failures.Nevertheless, the role of CRE in the Great Recession has received little attention.This study estimates cohesive models of short-run and long-run movements in capitalization rates (rent-to-price-ratio) and risk premiums across the four major types of commercial properties.Results indicate that CRE price movements were mainly driven by sharp declines in required risk premia during the boom years, followed by sharp increases during the bust phase.Using decompositions of estimated long-run equilibrium factors, our results imply that much of the decline in CRE risk premiums during the boom was associated with weaker regulatory capital requirements.The return to normal risk premia levels in 2009 and 2010 was first driven by a steep rise in general risk premia that occurred after the onset of the Great Recession and later by a tightening of effective capital requirements on commercial mortgage-backed securities (CMBS) resulting from the Dodd-Frank Act.In contrast to the mid-2000s boom, the recovery in CRE prices since 2010 has been mainly driven by declines in real Treasury yields to unusually low levels.Our findings have important implications for the channels through which macro-prudential regulation may or may not be effective in limiting unsustainable increases in asset prices.

Purpose The purpose of this paper is to provide perspective on whether and why global metro house prices have become more synchronized, and perspective on the limited implications of this for investing in international real estate. Design/methodology/approach This paper reviews main findings from the literature on house price determination, reviews the emerging literature on global synchronization, and provides graphs to illustrate main points and trends. Findings House prices have become somewhat more synchronized likely reflecting greater correlation in long-term interest rates and macroeconomic cycles related to trends in globalization and international portfolio diversification. Nevertheless, this trend has not been continuous, reflecting that house prices depend on other fundamentals, which are not uniform across areas. Theory and evidence indicate that the more common are fundamentals, the more synchronized are house price cycles and the more substitution effects may matter. Also, real estate markets that are open to immigration and foreign investment have become more sensitive to shifts in the international demand for property by migrants or investors. Research limitations/implications Changes in international house price synchronization stem from variation in two categories of key drivers of house prices. The first are traditional supply and demand fundamentals. The second include international capital flows and immigration. Both sets of factors are sensitive to the economic environment and public policy. Increased synchronization of business cycles, the Euro currency union, and more common monetary policy strategies and tactics have fostered greater correlation of real interest rates across countries, which tend to increase house price synchronization. These effects can be amplified by the tendency for property owners to use extrapolative expectations of future house prices. Practical implications Shifts in prospective returns and the synchronization of international property returns not only on arbitrage of general property price differentials but also on underlying factors driving those differentials. Investors need to be mindful of the risks that metro prices sometimes reflect bubble-builder dynamics that can give rise to over-shooting of house prices. Observing simple correlations and changes in those correlations does not do away with the need for careful analysis of property investment, and if anything, warrant analysis of both how and why one may observe changes in the extent to which international house prices is synchronized. Social implications Despite the rise of globalization and of new technologies, the author has seen substantial divergences in house prices emerge across gateway cities and metros in less vibrant areas within countries. These reflect not only the impact of stronger income and population in more tech, educated and global oriented cities but also changes in the demand for amenities toward more culturally appealing cities, often – but not exclusively in – warmer or coastal areas where the supply elasticity of housing is often limited. Further complicating investment decisions are potential shifts in housing or immigration policy that can notably affect the demand for housing. Originality/value The paper provides practical perspective on why different groups of international cities have seen their house prices become more sychronized. Nevertheless, increased synchronization has occurred within an elite set of major cities, but in an environment house prices have diverged across gateway cities and metros in less vibrant areas within countries. The paper helps investors make sense of some recent patterns and recent prospects for investing in international real estate.

This study finds that venture capital investment has been weaker and less responsive to stock prices after the Sarbanes–Oxley Act (SOX).

Credit conditions have caused real estate booms and busts, owing to an underpricing of credit risk aided by regulatory arbitrage and shadow financing. Across countries, real estate price and credit bubbles have reflected not only inelastic land supply and thin trading, but also the amplification of shocks via backward‐looking price expectations and financing based on distorted prices. Macroprudential lessons from the Great Crisis include preventing excess real estate financing and limiting the amplification and correlation of risks. Nonetheless, the costs and benefits of recent regulations require re‐evaluation amid an ongoing need to address correlated risks from shadow financing and securitization. (JEL G28, E3, R31, R33, R38)