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Brookings Papers on Economy Activity
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Love economics? Here’s 3 hot-off-the-press findings on big banks, low oil prices, and more

This week Brookings will host dozens of top economists for its biannual Brookings Papers on Economic Activity conference, or as the econ crowd calls it: BPEA.

Here’s how it works: Twice a year, in the Spring and Fall, economists convene in Washington to discuss five or six new papers submitted to the BPEA journal. The conversation is off-the-record (technically under Chatham House Rules) to ensure openness and freedom of discussion. After being subjected to intense scrutiny from participating academics at the BPEA conference, the final papers are published in the journal a few months later.

In recent years, BPEA has published groundbreaking economics research on everything from the U.S. student loan “crisis” to the much-discussed productivity slowdown to an in-depth profile of the long-term unemployed after the Great Recession.

So what are we discussing at BPEA this time around? Here are the hot-off-the-press papers up for review at this week’s conference, which will later be published in the Fall 2016 edition of the BPEA journal:

1. Post-crisis, the financial system doesn’t appear any safer

Former Treasury Secretary Larry Summers and Harvard PhD candidate Natasha Sarin looked at extensive data on the largest financial institutions in the U.S. (Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, and Wells Fargo) and others around the world, as well as mid-size U.S. banks. They find that even though the financial system is better capitalized and more heavily regulated post-financial crisis, large banks’ market volatility looks as high as before the Great Recession.

No matter how you look at it, the markets don't think the banks are any safer

Another paper by former Minneapolis Fed President Narayana Kocherlakota also looks at the aftermath of the financial crisis, finding that that the Fed’s reliance on monetary policy rules slowed the economy’s post-crisis recovery, and that enshrining the Taylor Rule into law, which Congress is considering, would hinder the Fed’s ability to respond to future crises. Read the paper by Kocherlakota here.

2. Lower oil prices haven’t stimulated the economy as much as expected

While many expected the recent drop in global oil prices to give the U.S. economy a boost, that hasn’t been the case according to research from Christiane Baumeister of Notre Dame and Lutz Kilian of the University of Michigan. Cheaper gasoline has resulted in higher consumer spending, but that stimulus to the economy was offset by a dramatic drop in oil-sector investment. Therefore, the net stimulus for the U.S. economy was effectively zero.

Because the U. S. only imports about half the crude it uses, the investment response of U.S. oil producers to unexpectedly low oil prices had an important impact on the economy overall.

Overall stimulus from lower oil prices has been near zero

3. Global food market shocks have much bigger impact on the U.S. economy than previously thought

In fact, the impact of rising food prices on the U.S. economy is twice the impact of a similar rise in crude oil prices. In their BPEA paper, Jasmiene De Winne and Gert Peersman, both of Ghent University, find that unanticipated declines in global food production increase not only food prices, but also core inflation and even energy prices. The ultimate effect is a persistent decline in real GDP that can extend for up to two years.

Over the past 50 years, a supply-driven rise in real food commodity prices by 5 percent leads to a 0.5 percent rise in consumer prices, and lowers GDP growth by 0.8 percent in the following year. The output effects are comparable to the consequences of a 10 percent oil price increase.

Rising food prices have a greater impact on the US economy than rising oil prices

There’s still more to read, including a paper on how, by removing financial constraints over local governments in its implementation, China’s ¥4 trillion stimulus resulted in a permanent decline in aggregate productivity and GDP growth.

If you want to learn more about new research in the Fall edition of BPEA, you can find all five new papers here or search through 45 years of past papers here. Happy reading!

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