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Hutchins Roundup: Public libraries, stock market jumps, and more

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Studies in this week’s Hutchins Roundup find investing in public libraries improves student test scorespolicy news causes a larger share of upward stock market moves than downward, and more.   

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Investments in public libraries boost library usage and student test scores 

There are over 15,000 library branches in the United States and they collectively spend $12 billion per year. Gregory Gilpin of Montana State University, Ezra Karger of the Federal Reserve Bank of Chicago, and Peter Nencka of Miami University find that capital investments in libraries of at least $100 per person served cause visits to surge by 21%. This increase in usage persists for at least 10 years. Local library investments of $1,000 or more per student translate to a 0.02 standard deviation improvement in student performance on standardized reading tests in the community’s schools. Increased investment in local libraries has no impact on local house prices, the authors find, suggesting that the value taxpayers place on libraries just offsets the taxes required to cover them.    

Stock market jumps caused by policy changes are more frequently positive than negative  

In an analysis of over 6,200 next-day newspaper accounts of big daily moves in stock prices—between 2% to 4depending on the market—in 16 national stock markets, Scott R. Baker of Northwestern University and co-authors find that monetary and fiscal policy news causes a larger share of upward jumps in the stock market than downward. In the United States, for example, policy news has triggered 43% of big upward daily moves since 1980, but only 20% of big declines. The share of positive jumps associated with policy news is higher following a period of falling stock prices, largely because expansionary economic policy tends to follow bad economic news. Furthermore, moves caused by monetary policy changes tend to be followed by much lower market volatility than jumps due to other reasons. Generally, the authors find that markets are much less volatile following jumps whose causes are well-understood—and note that understanding of the reasons for market moves has increased over time, thanks to increasing corporate transparency, better data, falling communication costs and the professionalization of news reporting. Finally, the authors find that 32% of jumps in non-U.S. markets are attributable to U.S.-related developments, a share far higher than that of Europe or China—although moves related to Chinese developments have become more frequent in recent years. 

Retraining programs are not tailored to the needs of older workers 

Using data from Statistics Canada’s Workplace and Employee Survey, Tony Fang of the Memorial University of Newfoundland, Morley Gunderson of the Centre for Industrial Relations and Human Resources, and Byron Lee of the China Europe International Business School find that workers under age of 50 are 9.3 percentage points more likely to receive workplace training than workers above 50, with the exception of computer software and health and safety training. About half of that gap can be explained by older workers having less remaining time in the workforce to benefit from new skills, the authors say, and by their higher costs of training (due to higher forgone wages, increasing difficulty absorbing new material, and age discrimination); the other half reflects characteristics of older workers’ job positions that make training less necessary. Notably, the survey revealed that many older workers refused training because they felt the courses were not “suitable” for them. The authors suggest that trainings for older workers that are better tailored to their needs—with self-paced instruction, hands-on exercises, and minimal reading, for example—would encourage more older workers to undertake trainings.  

Bank for International Settlements posts a database of central banks’ COVID-19 policy responses 

To enable international comparison of monetary policy responses to COVID-19, Carlos Cantú of the Bank for International Settlements and co-authors have compiled a database of 39 central banks’ policies since the start of the pandemic. 

Chart of the week: Strained IRS resources have led to falling audit rates over past decade 

Line graph of annual audit rates since 2010, for all individuals and for returns over $1 million.

Chart source: The Wall Street Journal

Quote of the week: 

“Over the longer-term, a key determinant of lasting price pressures is inflation expectations. When businesses, for example, expect long-run prices to stay around the Federal Reserve’s 2% inflation target, they may be less likely to adjust prices and wages due to the types of temporary factors discussed earlier. If, however, inflationary expectations become untethered from that target, prices may rise in a more lasting manner. This sort of inflationary, or overheating, spiral might then lead the central bank to raise interest rates quickly which then significantly slows the economy and increases unemployment,” say Jared Bernstein and Ernie Tedeschi of the White House Council of Economic Advisors.  

It is equally important to recognize that economic heat does not necessarily equate with overheating. We expect that moving from a shutdown economy to a post-pandemic economy—with demand fueled by pent-up savings, relief funds, and low interest rates—will generate not just somewhat faster actual inflation but higher inflationary expectations too. An increase in inflation expectations from an abnormally low level is a welcome development.  But inflation expectations must be carefully monitored to distinguish between the hotter but sustainable scenario versus true overheating.” 

Sophia Campbell

Research Assistant - Hutchins Center on Fiscal and Monetary Policy

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