Page 17 - July-August 2018 GSE Report Flip Book

MONETARY POLICY JJUALN. U- ARUYG. 22001188
Fed nominee—Kansas regulator Michelle Bowman and Carnegie Mellon economist Marvin Goodfriend— remains uncertain, as the chamber prepares to leave Washington ahead of the midterm elections. (Wall Street Journal, Kate Davidson, 08/28/18)
A new era in monetary policy begins in 2018
At the Kansas City Fed’s Symposium in Jackson Hole, attendees discussed a conundrum of our times: How can the national economy hum along with falling unemployment without wage growth? Moreover, how can economic gains be heavily concentrated to a small group at the top? How can the Fed reverse this trend?
https://kansascityfed.org/~/media/files/publicat/sympos/2018/papersandhandouts/824180810eberl ycrouzetpaper.pdf?la=en
A white paper, Understanding Weak Capital Investment: the Role of Market Concentration and Intangibles, by economists Nicolas Crouzet and Janice Eberly argued that the main culprit is increasing corporate concentration—the limited number of companies in any one industry. In the paper’s abstract, Croutzet and Eberly wrote:
We document that the rise of factors such as software, intellectual
property, brand, and innovative business processes, collectively known as “intangible capital” can explain much of the weakness in physical capital investment since 2000. Moreover, intangibles have distinct economic features compared to physical capital. For example, they are scalable
(e.g., software) though some also have legal protections (e.g., patents or copyrights). These characteristics may have enabled the rise in industry concentration over the last two decades. Indeed, we show that the rise in intangibles is driven by industry leaders and coincides with increases in their market share and hence, rising industry concentration. Moreover, intangibles are associated with at least two drivers of rising concentration: market
power and productivity gains. Productivity gains derived from intangibles
are strongest in the Consumer sector, while market power derived from intangibles is strongest in the Healthcare sector. These shifts have important policy implications, since intangible capital is less interest-sensitive and
less collateralizable than physical capital, potentially weakening traditional transmission mechanisms. However, these shifts also create opportunities for policy innovation around new market mechanisms for intangible capital.
The authors see a link to market power, as large firms use intangibles to exclude competitors, adversely impacting the Fed’s ability to lower interest rates to boost a sagging economy to help
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