Parental pay gap, euro zone crisis, etc.

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Why do fathers earn about twice what mothers earn? Using data on a cohort of men and women born between 1957 and 1964, Claudia Goldin of Harvard, Sari Pekkala Kerr of Wellesley, and Claudia Olivetti of Dartmouth find that the reason for the wage disparity between mothers and fathers changes with age. New mothers earn significantly less than childless women, which largely explains the parental wage gap when the parents are young. However, this “maternity penalty” decreases over time as mothers re-enter the labor market and catch up with other women. New fathers, on the other hand, earn significantly more than childless men, and this wage increase increases over time, especially for college-educated men in time-intensive jobs. As parents age, the “paternity bonus” therefore represents an increasing share of the parental wage gap. The results suggest that parenthood exacerbates the existing wage gap between American men and women, permanently increasing fathers’ earnings, while simultaneously reducing mothers’ earnings through their early 50s.

Despite a formal ‘no bailout’ clause, there have been large transfers of net present value from the European Union to struggling member countries during the eurozone crisis, according to Pierre-Olivier Gourinchas of the UC Berkeley, Phillipe Martin of Sciences Po and Todd Messer of the Federal Reserve Board. The net present value of transfers as a percentage of 2010 output to troubled euro area countries ranged from 0.5% (Ireland) to 43% (Greece). Meanwhile, troubled non-euro countries received no significant transfers. Using a simple monetary union model, the authors show that creditor countries are strongly encouraged to bail out debtor countries after a crisis to prevent threats to the integrity of the union. In terms of future actions, countries in good health face a trade-off between leaving the door open to future bailouts, which could discourage fiscal discipline, and not committing to any bailouts, which would increase the costs of borrowing of the weakest countries and the risks of insolvency. The authors find support for policies that “lead the way” and only improve market discipline gradually.

Stephanie Schmitt-Grohé and Martín Uribe of Columbia University examine how changes in the natural rate of interest (the permanent component of the real short-term interest rate) affect trend economic output. Using US macroeconomic data over the period 1900-2021, the authors estimate that shocks that lower the natural rate of interest by 1 percentage point reduce the trend in output by 8 percentage points and inflation by 0.25 percentage points, respectively. Much of the negative impact of the interest rate shock on output and inflation occurs within the year, they find. Furthermore, the contractionary effect of the natural interest rate shock on trend output persists even when nominal interest rates are far from the lower bound of zero, calling into question the theory that the economy must be constrained by the lower bound of zero for lower natural interest rates to depress the economy. activity. The empirical results “call for a more general theory of the trend effects of natural rate shocks,” the authors conclude.

Line chart of CPI core goods and services from 2010 to present

Note: Core excludes food and energy prices
Graphic courtesy of Jason Furman

“[L]let’s not forget that back when there was this fiscal relief during the pandemic, there was also monetary policy relief. And those were necessary things to get us through the pandemic. That’s why it was such a big part of the story, will be the judge, if it was too much or too little… When I look to the future, there’s so much going on in the economy right now , both nationally and globally. And we are struggling with high inflation. But the Fed is committed to bringing that down,” says Mary Daly, president of the San Francisco Fed.

“I don’t see inflation as entrenched in the economy, the kind of thing we fear we can’t fix easily. What I see is that supply and demand are just out of balance. According to my own staff’s estimates, about 50% of the excess inflation we see is demand-side. The other 50% to be provided. The Fed is really well positioned to drive down demand, and we are already seeing the cooling forming in the housing market and investment. So I see signs that the economy is cooling down. It will just take some time for the interest rate adjustments we have made to materialize. And we are far from done. This is the promise made to the American people.

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