Hutchins Roundup: Bank runs and social media, rising wages and inflation, and more 

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday. 

Social media helps fuel bank runs   

The failure of Silicon Valley Bank (SVB) was preceded by a surge in Twitter conversations by depositors about their intentions to withdraw their deposits. J. Anthony Cookson of the University of Colorado at Boulder and co-authors argue that these tweets contributed to the SVB run. Using stock prices of banks as a proxy for the severity of bank run risk, the authors find that the intensity of Twitter conversations about a bank predicts stock market losses at the hourly frequency, though the effect only emerged after the run on SVB began. Further, they find that banks with higher levels of preexisting social media exposure saw larger stock market losses. Social media provided a platform for depositors to coordinate and to communicate the risks associated with a bank. Given the pervasive nature of communication via social media, the authors do not expect the risk social media poses to banks to go away. 

Rising wages signal rising trend inflation  

The role of wages in predicting the trend rate of inflation has re-entered public discourse as inflation and wage growth have surged since the COVID-19 pandemic. Michael Kiley of the Federal Reserve Board finds that wages have consistently informed measures of trend inflation, but the importance of wages has varied over time. In Kiley’s dynamic model, wages get between 15% and 30% of the weight in trend inflation between 1976 and 2022, with the weight on wages highest in the early 1980s and early 2020s. Kiley notes that while wages can inform estimates of trend inflation, the results are not necessarily causal. In other words, while wage increases are important signals of trend inflation, especially when inflation is high, his findings don’t imply that wage increases are driving inflation.   

AI chat assistance boosts productivity, especially among less skilled workers   

Using data from 5,000 customer service agents at a software firm, Erik Brynjolfsson of Stanford and Lindsey R. Raymond and Danielle Li of MIT Sloan School of Management find that access to artificially intelligent (AI) chat assistance increases worker productivity. Specifically, customer service agents with access to a specialized version of OpenAI’s Chat GPT assistant resolve 13.8% more cases per hour than other agents. AI chat assistance generates larger gains in productivity for workers with lower pre-AI productivity and less experience, the authors find. The authors posit that AI recommendations capture the tacit skills of high-skilled, experienced workers, allowing low-skilled workers to adopt these behaviors and improve their performance.  

Chart of the week: Gap between 3-month and 1-month Treasury yields widens as market favors shorter-term investments amid concerns about debt ceiling 

Quote of the week:  

“How much does housing matter for total employment and aggregate inflation? For employment, the answer is: not too much. Employment in construction represents just about 5% of total nonfarm payrolls, and only a fraction works with residential buildings. Lags here confound the picture quite a bit. While employment in construction is still growing slightly year over year, declining residential investment has subtracted more than 1 percentage point of GDP growth in the second half of last year. But when it comes to inflation, housing matters. Home prices and rents are also major drivers of inflation. Housing makes up about a third of the basket of goods used by the Bureau of Labor Statistics to calculate the Consumer Price Index (CPI). Yet, even as home prices have fallen, shelter inflation has steadily increased. In fact, more than 60% of the increase in the most recent core CPI can be attributed to rising shelter costs,” says Patrick Harker, President of the Philadelphia Fed. 

“Since the Great Recession, the U.S. hasn’t built enough housing to keep price growth in check. By most estimates, we are now several million homes short of where we need to be. This is a primary driver of shelter inflation, which…is one of the key reasons core inflation remains so high…Monetary policy has a role to play here in broadly fighting inflation, bringing down the costs of goods and services related to the housing channel. But to fully address the scope and scale of this problem, we also need action from federal, state, and local governments…changing zoning laws, revising tax codes, building workforce housing, and creating housing subsidies.” 

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