Roundup: Wartime Inflation, COVID-19 Disparities, Blockchains and Housing

Today, we are highlighting some research recently produced by the St. Louis Fed that you may have missed. The following work was published in the Review and featured in the FRED Blog.

Review

The COVID-19 Pandemic and Inflation: Lessons from Major U.S. Wars

Inflation often surges during wars, as it did in the second year of the COVID-19 pandemic. This article examines whether the United States’ wartime experiences can provide insights about the relative scale and persistence of inflation associated with sudden, large increases in government spending, such as the fiscal response to COVID-19. The authors analyze fiscal and monetary policies during and after major U.S. wars since the Civil War and compare differences in the relationships between growth in government debt, the money stock and inflation, with differences in the prevailing monetary regime.

Demographic Disparities in COVID-19 Disruptions: What Has Shaped Them?

The COVID-19 pandemic’s impact on low- and moderate-income communities has been significant, and though the peak of distress has passed, its effects linger. This article uses data from the Federal Reserve System’s 2021 Community Impact Survey to identify COVID-19 disruptions in such communities. The author found that communities whose residents were primarily people of color were more likely than white communities to face significant disruptions and that certain challenges—such as returning to work or unequal access to government relief—helped shape demographic differences in those disruptions.

An Introduction to Zero-Knowledge Proofs in Blockchains and Economics

Zero-knowledge proofs (ZKPs) can establish a statement’s veracity without revealing any information except whether it is indeed true or not. Two benefits of ZKPs are that they can be used to protect privacy and that they can make certain digital processes considerably more efficient by reducing the cost of verifying a statement’s correctness. In this article, the authors explain what ZKPs are, examine how they work to improve privacy and efficiency, and describe their use in applications like blockchains, where privacy and efficiency still have room for improvement.

Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements

Simple arithmetic suggests that trends in U.S. government debt and deficits will eventually result in an outrageously high government debt-to-gross domestic product (GDP) ratio. But when might the U.S. hit the constraint of infeasibility and how might policy adjust? This article considers fiscal dominance—the possibility that accumulating government debt and deficits can produce inflation that “dominates” central bank intentions to keep it low—and asks two questions: Is it a serious near-term possibility? And how might banking system-related policies change were it to become a reality?

FRED Blog

How Housing Prices Have Impacted PCE Inflation

“Core” inflation measures usually strip out food and energy prices. What does inflation look like if housing is excluded as well? Online database FRED recently added two new personal consumption expenditures (PCE) price index data series: one excluding energy and housing from the all-items PCE price index and one excluding food, energy and housing. This blog post examines when, beginning in April 2020, these three measures of PCE inflation have moved broadly in sync—and when they haven’t (and why).