Hutchins Roundup: Stimulus checks, gender disparities, 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. 

Direct transfers to households can substitute for interest rate cuts while reducing inequality  

When the Federal Reserve wants to boost consumption, it typically lowers interest rates. Making it cheaper for households to borrow allows them to spend more in the present. In recent years, however, interest rates have fallen close to zero, leaving the Fed little room to lower them further. Christian K. Wolf of MIT argues that governments can achieve an equivalent “re-shuffling” of consumption towards the present using lump-sum transfers like stimulus checks. For example, to increase current consumption by 1%, a government could either cut interest rates by 150 basis points or increase transfers by $600 per household. Although the two policies raise overall consumption by the same amount, transfer payments reduce inequality by boosting spending more for households at the bottom of the wealth distribution, while lowering interest rates typically increases spending by wealthy households. 

New ideas from female researchers are adopted less frequently than those from males    

Using data on biomedical research articles from 1980 to 2008, Wei Cheng of East China University of Science and Technology and Bruce Weinberg of The Ohio State University find that female researchers receive less attention for their contributions than male counterparts. New ideas from female-majority research teams are 23% less likely to be adopted over a five-year window than those from male-majority teams. Much of the disparity is accounted for by the fact that women have smaller professional networks, and that other researchers (particularly men) are less likely to build on ideas from women even when they are well-connected. “With the population of scientists becoming increasingly diverse, disparities in the adoption of ideas are becoming increasingly costly for the scientific enterprise,” the authors note.  

Declines in the natural rate of interest have been driven by rising income inequality   

Saving patterns do not vary significantly across working age groups, find Atif Mian of Princeton, Ludwig Straub of Harvard, and Amir Sufi of the University of Chicago, challenging the view that higher savings from baby boomers have lowered interest rates. Using survey data on U.S. households over the 1950-2019 period, the authors show that rising income inequality can better account for increased savings and declines in the natural rate of interest (the interest rate that is consistent with full employment and stable inflation). Individuals from higher-income households tend to save at a higher rate than others in their birth cohort. As income inequality has risen since the 1980s, the top 10% of households have saved 3-3.5 percentage points more of national income than in preceding decades. The results suggest that the natural rate of interest will likely remain low in the future due to the persistence of income disparities, the authors conclude.   

Chart of the week: The US was the fastest Group 7 economy to recover from the pandemic  

Bar chart showing the cumulative GDP change 4Q 2019 to 2Q 2021 of the U.K., Italy, France, Germany, Euro area, European Union, Japan, Canada, G-7, and the U.S.

Source: Bloomberg 

Quote of the week:  

“We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance. My view is that the ‘substantial further progress’ test has been met for inflation. There has also been clear progress toward maximum employment. At the FOMC’s recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks,” says Jerome Powell, Chair of the Federal Reserve Board 

“Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions … We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2% and is on track to moderately exceed 2% for some time. We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2% inflation on a sustainable basis.” 

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