Roundup: Technology and Central Banking, Labor Fluctuations and Trade

In case you missed it, today we are highlighting some recent research published by the Federal Reserve Bank of St. Louis. The following work was published in the Review and Economic Synopses and featured in the FRED Blog.

Review

Technological Change and Central Banking

Decentralized autonomous organizations (DAO) represent a new way to manage databases. Because money and payments are all about managing databases and since banks play a central role in money and payments, DAO-based money and payments systems could be a disruptive force in the banking system, according to this article. The decentralized governance structure of DAOs renders them nearly impossible to regulate directly—a property that makes them ideal vehicles to exploit regulatory arbitrage, according to the article. The author discusses some of the monetary policy implications of DAO-based money and payment systems and highlights the prospect of a globally accessible DAO-based stablecoin that could conceivably end up financing a large fraction of global trade.

What Is the Monetary Standard? The Fed Should Tell Us

The Federal Open Market Committee (FOMC) necessarily conducts monetary policy based on assumptions about the structure of the economy. The author asserts that the Fed needs to explicitly explain the framework it assumes to then explain how its actions translate into achievement of its objectives. In the 1960s, the monetarist-Keynesian debate raised the key issues relevant to the design of the optimal monetary standard. Is inflation a monetary or a nonmonetary phenomenon? What accounts for the simultaneous occurrence of monetary instability and real instability? Does the direction of causation go from monetary to real instability or vice versa? The intent of this article is to revive the earlier debate.

Pandemic Labor Force Participation and Net Worth Fluctuations

The U.S. labor force participation rate (LFPR) experienced a record decline during the early parts of the COVID-19 pandemic. While the rate recovered to 62.2% as of December 2022, it was still 1.41 percentage points below its pre-pandemic peak. The gap is explained mostly by a permanent decline in the LFPR for workers older than age 55, the authors find that wealth effects driven by the historically high returns in assets such as stocks and housing may have influenced this trend. Combining an estimated model of wealth effects on labor supply with data on balance sheet composition, the authors show that changes in net worth caused by realized returns explain half of the drop in LFPR and over 80% of “excess retirements” during the 2020-21 period.

Where Are the Workers? From Great Resignation to Quiet Quitting

To better understand the tight post-pandemic labor market in the U.S., the authors in this article break down the decline in aggregate hours worked into extensive margin changes (fewer people working) and intensive margin changes (workers working fewer hours). Although the preexisting trend of lower labor force participation accounts for some of the decline in aggregate hours, the intensive margin accounts for more than half of the decline between 2019 and 2022, according to the article. The reduction in workers’ hours can explain why the labor market is even tighter than what would be expected at the current levels of unemployment and labor force participation.

Economic Synopses

Decoupling Where it Matters? U.S. Imports from China in Critical Sectors

Recently, several policies have been introduced to reduce U.S. trade dependence in critical goods. The concern behind these policies is that shocks can disrupt access to these critical goods, which could have devastating consequences for the U.S. economy. In this article, the authors examine whether growing concern about U.S.-China relations has begun to reshape bilateral trade flows of critical and noncritical goods, and how these flows contrast with the trend of the past three decades.

FRED Blog

How Binding Is the Federal Minimum Wage?

The federal minimum wage hasn’t changed since 2009. But in those 15 years, the real value of $7.25 per hour has changed considerably due to inflation, especially in the past few years. This FRED Blog post uses data from the Bureau of Labor Statistics to highlight the federal minimum wage adjusted for inflation using the consumer price index.