Chicago Fed Letter
To answer the question in the title: Thus far, not dramatically so. In this Chicago Fed Letter, I document three facts supporting this conclusion. First, although the Covid period has seen multiple months with high rates of worker movement (reallocation) across industry sectors (relative to previous recessions), net cumulative reallocation from the onset of the pandemic through December 2020 is only the third highest among post-1945 recessions over the same horizon (and is only modestly outside the confidence bound for the average across those recessions). Thus, much of the reallocation during Covid seems to have been a reversion toward the pre-crisis allocation following the highly dispersed initial impact of the virus.
As the U.S. economy remains weakened by the Covid-19 pandemic, concern persists for the health and resilience of the municipal bond market. Municipal bonds (muni bonds) are debt securities issued by state and local governments to raise money and are generally considered to be safe investments. However, the recent slowdown in economic activity due to Covid-19 created significant stress on state and local government budgets, leading to a heightened risk for municipal bond downgrades and possibly even defaults. In this Chicago Fed Letter, we examine to what extent property and casualty (P&C) and life insurance companies, which are among the largest direct institutional investors in the municipal bond market, are vulnerable to a significant downturn in the muni bond market.
School and day care center restrictions during the Covid-19 pandemic have presented enormous challenges to parents trying to juggle work with child-care responsibilities. Still, empirical evidence on the impact of pandemic-related child-care constraints on the labor market outcomes of working parents is somewhat mixed. Some studies suggest the pandemic had no additional impact on the labor supply of parents, while other studies show not only that it did but that the negative impact was disproportionately borne by working mothers.
We estimate a simple model in which variations in Illinois daily municipal bond yields are explained by high-frequency indicators summarizing economic and public health conditions in Illinois, as well as key changes in the Federal Reserve’s Municipal Liquidity Facility (or MLF). We find that the MLF appears to have reduced Illinois muni yields by more than 200 basis points.
While there is growing recognition that climate change poses a new risk for the economy, more research is needed to understand how climate change risk affects global financial markets. We establish a new framework for this research by merging the climate change risk categories of physical risk, transition risk, and liability risk with the risk categories commonly assessed in the financial markets: market risk, credit risk, liquidity risk, and operational risk. We then factor in market structure and market regulation as we seek to assess the overall impact of these variables on systemic risk. Our framework shows that climate change affects each of the risk-management categories commonly assessed in the financial markets as well as the ways that they interact to generate broader systemic risk.
In this article, we examine the recovery from the recession that began with the onset of the Covid-19 pandemic in the U.S. To do so, we present and discuss for the first time the results from a mixed-frequency Bayesian vector autoregressive model called ALEX. This model uses 107 monthly and quarterly indicators of economic activity to forecast the near-term path of U.S. real gross domestic product (GDP).