WEBVTT - What Really Happens at a Fed Research Conference 0:00:02.720 --> 0:00:11.960 Bloomberg Audio Studios, podcasts, radio news. 0:00:12.800 --> 0:00:15.320 Okay, so thank you all. 0:00:16.880 --> 0:00:21.240 The next paper is going presented by Omar barbierro Us 0:00:21.239 --> 0:00:25.240 Firm's Exposure to import tariffs a comparison of the eighteen 0:00:25.320 --> 0:00:26.800 and twenty twenty five episodes. 0:00:26.880 --> 0:00:30.000 Can I ask a personal question when you present a 0:00:30.040 --> 0:00:33.800 paper like this at a research conference like this Boston 0:00:33.840 --> 0:00:37.680 fed one, So you get nervous, and then I guess 0:00:37.760 --> 0:00:41.560 adjacent to that, like what's the best outcome for you 0:00:41.800 --> 0:00:43.760 when you present the paper? And what's the sort of 0:00:43.880 --> 0:00:48.680 nightmare scenario would it be someone like finding some fundamental 0:00:48.840 --> 0:00:51.280 error in the methodology and like standing up in the 0:00:51.320 --> 0:00:54.400 middle of the conference and being like, there's a serious 0:00:54.440 --> 0:00:55.080 problem here. 0:00:55.360 --> 0:01:00.960 Yeah, I mean many many nightmare scenarios king randomly and 0:01:01.000 --> 0:01:02.480 then we went okay. 0:01:03.800 --> 0:01:04.160 All right. 0:01:04.240 --> 0:01:08.960 I would say the worst thing that can happen is 0:01:09.040 --> 0:01:14.360 that you just say something wrong that sounds dishonest, almost 0:01:14.440 --> 0:01:17.400 like you're trying to hide something like there's clearly a 0:01:17.480 --> 0:01:20.680 data flaw, and then you don't highlight it, or you 0:01:20.720 --> 0:01:23.920 don't you say in public, no, no, no, this is 0:01:23.959 --> 0:01:26.280 not a problem, and everybody knows no, no, no, it's it's 0:01:26.319 --> 0:01:30.800 a problem that's I think the profession is built on trust, 0:01:31.400 --> 0:01:34.520 and if you if you lose that trust, it's it's. 0:01:34.480 --> 0:01:35.120 It's quite bad. 0:01:35.480 --> 0:01:39.319 That's Omar Barbiero, a senior economist at the Federal Reserve 0:01:39.360 --> 0:01:42.400 Bank of Boston. He's getting ready to stand up in 0:01:42.400 --> 0:01:46.399 front of a room full of other economists, journalist, academics, 0:01:46.680 --> 0:01:50.480 and his employer and present a research paper tracking the 0:01:50.560 --> 0:01:53.520 exposure of US businesses to import tariffs. 0:01:54.040 --> 0:01:59.880 This is a paper written jointly with Slavic, Hillary and Alvaro, 0:02:00.120 --> 0:02:03.360 where there happened to be in the room our excellent 0:02:03.400 --> 0:02:06.920 research assistance Sophie and Lydia also who helped us with 0:02:07.600 --> 0:02:11.359 this paper. We're ready for the conference is still quite 0:02:11.400 --> 0:02:18.040 preliminary and therefore will really value your comments on this. 0:02:18.320 --> 0:02:21.960 How many individual pieces of data would you say were 0:02:22.080 --> 0:02:24.360 involved in this particular study. 0:02:24.200 --> 0:02:28.640 Okay, product code, they were around four hundred thousand, I 0:02:28.680 --> 0:02:32.800 would say, and then you have to multiply that by 0:02:33.040 --> 0:02:35.720 many different countries, and so you have to keep track 0:02:35.800 --> 0:02:37.720 of that metrix. 0:02:38.160 --> 0:02:41.720 The supply chain that I said was also quite fun 0:02:41.880 --> 0:02:45.040 because it's kind of a network of companies and it 0:02:45.120 --> 0:02:48.160 gets big, very very fast, and you have to track 0:02:48.200 --> 0:02:50.560 it over time. I have to say, I mean we 0:02:50.639 --> 0:02:54.880 have excellent I mean I have excellent call thors, we 0:02:54.919 --> 0:02:55.480 have accidents. 0:02:55.520 --> 0:02:56.040 It's a system. 0:02:56.080 --> 0:02:59.880 We have excellent you know, computing power, Thank god that 0:03:00.320 --> 0:03:06.040 can help us with that. And I don't know millions, 0:03:06.280 --> 0:03:10.120 I ah, yes, millions. 0:03:10.200 --> 0:03:10.399 Yeah. 0:03:17.520 --> 0:03:20.800 We are at the Boston SAIDs annual Flagship Research Conference. 0:03:21.040 --> 0:03:22.800 The sixty nine year of the event, and the theme 0:03:22.840 --> 0:03:25.639 for twenty twenty five is quote the US economy and 0:03:25.680 --> 0:03:29.359 a changing global landscape, so focusing on how things like tariffs, 0:03:29.440 --> 0:03:34.880 geopolitical tensions, industrial policy, AI, et cetera are reshaping US growth, inflation, 0:03:35.000 --> 0:03:36.680 and the overall financial system. 0:03:36.880 --> 0:03:40.520 Clearly, that is a very rich vein to mind for research, 0:03:40.720 --> 0:03:45.160 and the format is a classic central bank research conference. 0:03:45.480 --> 0:03:48.640 Economists and other researchers are invited to write a paper 0:03:48.640 --> 0:03:52.240 for the event, they're assigned an official discustant, and then 0:03:52.520 --> 0:03:55.480 they publicly present to a room full of their peers 0:03:55.800 --> 0:03:58.760 while the audience gets a chance to ask questions or 0:03:59.320 --> 0:04:00.720 sometimes critique. 0:04:00.840 --> 0:04:03.760 Yeah, you say it's a classic central bank research conference, 0:04:03.800 --> 0:04:07.360 but we've never actually been to one. I don't think right, 0:04:07.400 --> 0:04:08.960 it felt like a totally new environment. 0:04:09.320 --> 0:04:12.080 Yeah, it's true. We have gone to Jackson Hole for 0:04:12.120 --> 0:04:15.080 the past few years, which is probably the most famous 0:04:15.200 --> 0:04:18.599 FED research conference. But it's famous because the FED chair 0:04:19.000 --> 0:04:21.479 usually makes a speech and that gets all the attention. 0:04:21.880 --> 0:04:25.000 We've never actually been in the room at Jackson Hole 0:04:25.080 --> 0:04:28.880 where they discuss the research papers being presented, because the 0:04:28.920 --> 0:04:32.560 FED only allows a certain number of journalists into the room. 0:04:32.880 --> 0:04:35.640 The room, the room, the room. Also, I think it's 0:04:35.720 --> 0:04:38.240 unfair Kansas City FED gets to hold their conference in 0:04:38.279 --> 0:04:39.720 the most beautiful place on. 0:04:39.760 --> 0:04:42.159 Earth instead of Kansas it's in the middle of August. 0:04:42.279 --> 0:04:44.800 And then the Boston FED. I mean it's their choice, 0:04:44.839 --> 0:04:48.000 but the Boston FED has theirs in Boston, which is lovely. 0:04:48.200 --> 0:04:51.080 We both had a great time, but November. 0:04:50.560 --> 0:04:53.920 It was very cold. Well, the upshot is that this 0:04:54.040 --> 0:04:58.880 time we were actually in the proverbial room, so for 0:04:58.960 --> 0:05:01.520 the first time we got to really experience and learn 0:05:01.720 --> 0:05:04.680 what an economic research conference actually is. 0:05:05.200 --> 0:05:07.640 Yeah, this is actually very key because if you sort 0:05:07.640 --> 0:05:10.400 of like wonder so okay, Jerome Poulos says something about, 0:05:10.440 --> 0:05:14.640 you know, the expected relationship between tariffs and inflationary but 0:05:14.760 --> 0:05:17.920 where did these ideas come from? Where do these assertions, 0:05:18.240 --> 0:05:21.320 predictions and so forth? It comes from academic research. It 0:05:21.320 --> 0:05:24.960 comes from the research backing that up. These conferences are 0:05:24.960 --> 0:05:27.640 where the macro ideas sort of actually collide with a 0:05:27.760 --> 0:05:28.480 real world data. 0:05:28.600 --> 0:05:31.240 Yeah, another way of thinking about it. It is where 0:05:31.400 --> 0:05:35.920 the first serious drafts of tomorrow's policy debates are aired. 0:05:36.400 --> 0:05:38.960 And we're going to give you a front row seat 0:05:39.200 --> 0:05:43.279 to experience what those initial drafts and debates are actually like. 0:05:43.560 --> 0:05:48.000 Welcome to the Boston FED sixty ninth Annual Flagship Economic Conference. 0:05:58.480 --> 0:06:01.560 The research at the regional bank, at the board or 0:06:01.640 --> 0:06:05.200 at the BIS. You do policy by policy, we mean, 0:06:05.240 --> 0:06:08.080 you know, you advise your principles. In our case that 0:06:08.200 --> 0:06:12.400 Susan Collins the Presidency of the Boston Fed. Preparations for 0:06:12.480 --> 0:06:16.080 the FMC meeting or public engagements. 0:06:15.600 --> 0:06:18.919 That is Egon sa Kreichek. He's director of the Research 0:06:18.960 --> 0:06:21.640 Department at the Boston Fed, and he's the one who 0:06:21.680 --> 0:06:23.400 actually puts this event. 0:06:23.120 --> 0:06:25.240 Together and is Omar's boss. 0:06:25.320 --> 0:06:28.120 Yeah, and he's an Omer's boss, right. He also gets 0:06:28.160 --> 0:06:30.640 to choose the broad theme of the conference. 0:06:31.040 --> 0:06:38.640 We've lived in a particular global order, rules based international system, globalizations, 0:06:39.040 --> 0:06:43.480 trade integrations. We just took those things for granted for decades, 0:06:43.960 --> 0:06:49.240 and we're now grappling with monumental change, and we lack models, 0:06:49.720 --> 0:06:54.240 we lack theoretical frameworks to understand these changes. You've heard 0:06:54.640 --> 0:06:57.520 many debates about this data is no good, this is 0:06:57.560 --> 0:07:00.360 the sausage, don't need it right? And how as one 0:07:00.400 --> 0:07:02.919 go about it? So I think it's just it's just really, 0:07:03.320 --> 0:07:05.800 I mean, it's an exciting time for researchers because we 0:07:05.880 --> 0:07:10.280 have great questions, but I think it also underscores of 0:07:10.400 --> 0:07:13.320 just how little we really know and and how challenging 0:07:13.360 --> 0:07:17.360 it is then to make policy recommendations in this in 0:07:17.400 --> 0:07:20.280 the period of such change. You know, the way the conference, 0:07:20.400 --> 0:07:23.280 a conference like that comes together is, you know, we 0:07:23.320 --> 0:07:27.680 sit together, my team of researchers. We we try to 0:07:27.680 --> 0:07:31.000 pick a topic that would obviously be timely relevant to 0:07:31.080 --> 0:07:35.600 policy makers. We confer with Susan and so forth, We 0:07:35.600 --> 0:07:38.320 look you know, and so forth. So once we once 0:07:38.360 --> 0:07:41.400 we kind of zero in on what the topic is, 0:07:41.440 --> 0:07:44.560 we then have to identify the contributors to this. We 0:07:44.640 --> 0:07:49.240 have a certain idea of what we want different sessions 0:07:49.320 --> 0:07:52.960 to be. Then we get either academics or you know, 0:07:53.040 --> 0:07:57.160 contributors to write papers for this. But you know, academics, 0:07:57.320 --> 0:07:59.880 researchers write what they want to write so sometimes there's 0:07:59.880 --> 0:08:01.800 a bit of a you know, so we're saying, you know, 0:08:02.080 --> 0:08:05.880 gentlemanlike distance between the blurb and the ultimate paper that 0:08:05.920 --> 0:08:09.080 gets written. But that's all right. We've always seen this. 0:08:09.080 --> 0:08:12.000 This is very very standard, and you know, the idea 0:08:12.120 --> 0:08:15.280 is that needs to the discussing the role of a 0:08:15.360 --> 0:08:18.480 discuss and they needs to kind of bring that paper 0:08:18.520 --> 0:08:21.520 and provide some context and you know, try to try 0:08:21.560 --> 0:08:23.680 to fit it into the general theme. 0:08:23.960 --> 0:08:26.760 So this particular conference, the theme has changed, right. And 0:08:26.800 --> 0:08:28.520 one of the things we keep saying, but I think 0:08:28.520 --> 0:08:31.920 it's true, is we're living through capital age history here. 0:08:31.960 --> 0:08:35.360 We have the tariffs from the Trump administration, reversal, globalization, 0:08:35.559 --> 0:08:37.800 new geopolitical risks, AI all of. 0:08:37.760 --> 0:08:40.240 It right, And we're also still trying to figure out 0:08:40.320 --> 0:08:43.960 stuff like what happened in relatively recent years, why did 0:08:43.960 --> 0:08:47.719 inflation actually spike during the pandemic. We're also in this 0:08:47.760 --> 0:08:50.640 new era of industrial policy and we're trying to figure 0:08:50.640 --> 0:08:53.679 out what that means for the economy. If we actually 0:08:53.720 --> 0:08:57.600 want to do the stuff like make semiconductors or build 0:08:57.679 --> 0:09:01.200 small modular nuclear reactors, we have to have some idea 0:09:01.280 --> 0:09:02.160 of where we're going. 0:09:02.240 --> 0:09:04.920 And we try to really keep it. You know, I 0:09:04.920 --> 0:09:11.400 would say somewhat more accessible. I would say a bit interdisciplinary. 0:09:11.480 --> 0:09:14.760 We try to reach a bit broader audience. Is somewhat 0:09:14.800 --> 0:09:18.120 a typical conference, you know, your typical economic research conference 0:09:18.120 --> 0:09:21.640 would feature slide after slide of equations graphs. 0:09:21.920 --> 0:09:25.360 I'm laughing slightly because I saw some equations this morning 0:09:25.480 --> 0:09:27.760 and the speaker is like, oh, well, as you can 0:09:27.800 --> 0:09:31.400 see from the slide, and I'm thinking I cannot see no. 0:09:31.640 --> 0:09:34.040 Right right, So you know, so this is I would say, 0:09:34.040 --> 0:09:37.560 this is very light on this. If you're you know, 0:09:37.960 --> 0:09:41.960 this is super light on this. And so forth, we 0:09:42.280 --> 0:09:45.400 urge authors to try to write something that's more I 0:09:45.400 --> 0:09:49.440 would say policy relevant. That the touches that can be 0:09:49.480 --> 0:09:53.559 communicated and stuff that rather than very very technical pieces. 0:09:53.880 --> 0:09:57.199 You know, that is what the academic journalistand to specialize that. 0:09:57.520 --> 0:10:01.040 Hopefully it sparks. It sparks the idea, It sparks a 0:10:01.080 --> 0:10:03.280 new paper. You know, it says, ah, you know what, 0:10:03.760 --> 0:10:06.480 this is an interesting result, but I have maybe better 0:10:06.559 --> 0:10:09.520 data to do that, so let me actually or there 0:10:09.559 --> 0:10:13.560 was a there was a testable implication that somebody you 0:10:13.600 --> 0:10:15.560 know brought up. Let me see if I can fledge 0:10:15.559 --> 0:10:17.520 that out because I think I can provide sences. That's 0:10:17.520 --> 0:10:21.240 how knowledge and conferences, you know, advances. It's a very 0:10:21.440 --> 0:10:24.280 organic bit of a messy type of affair, and that 0:10:24.400 --> 0:10:26.839 you know, to be honest, many times don't things don't 0:10:27.320 --> 0:10:30.400 they don't pan out. You know, I have files and 0:10:31.000 --> 0:10:34.840 folders full of research ideas that you know never went anywhere. 0:10:34.880 --> 0:10:37.320 But do you try and if you want to get 0:10:37.400 --> 0:10:40.920 a sense of that process and the policy implications of 0:10:40.960 --> 0:10:43.800 some of this research. Take a listen to the first 0:10:43.920 --> 0:10:48.079 paper presented at the conference. It's by Shepnham Klumley Auskin. 0:10:48.240 --> 0:10:52.600 She's the Shreiber Family Professor of Economics over at Brown University. 0:10:52.920 --> 0:10:56.360 I love economists and their their long title. The John 0:10:56.400 --> 0:10:59.720 Maynard Knees Chair of the Ludwig viin me seasoned dud 0:10:59.720 --> 0:11:02.560 See at the University of you know whatever. 0:11:02.960 --> 0:11:07.400 Cane's chatt the Missus School would be an interesting mix. Anyway, 0:11:07.559 --> 0:11:11.600 here's Shepnam presenting her paper. It is called Global Networks, 0:11:11.800 --> 0:11:13.360 Risks and the US Economy. 0:11:13.520 --> 0:11:17.199 You know, paper after paper, we realize the issue with 0:11:17.320 --> 0:11:19.199 the conventional macro open economy view. 0:11:19.960 --> 0:11:20.720 What is this view? 0:11:20.920 --> 0:11:24.400 This view takes US as a relatively closed economy because 0:11:24.440 --> 0:11:27.680 of the law, trade shares exports ten percent of GDP, 0:11:27.880 --> 0:11:32.480 imports fourteen percent of GDP, and that, of course combines 0:11:32.520 --> 0:11:36.680 with the fact that the US is governing the world 0:11:36.760 --> 0:11:41.439 in terms of dollar dominance and the financial markets. And 0:11:41.559 --> 0:11:44.520 on top of that, US has an amazing central bank. 0:11:45.160 --> 0:11:48.000 As we are all here right now, you know that 0:11:48.120 --> 0:11:51.440 Federal Reserve acts as a global lender of last resort 0:11:52.280 --> 0:11:56.480 when things goes soup. The benchmark implication of this view 0:11:56.800 --> 0:12:00.520 is that US has limited exposure to glow all risks. 0:12:01.600 --> 0:12:05.839 It would like to revisit the issue in terms of 0:12:05.960 --> 0:12:09.000 asking directly have sensitive the US economy to global risks 0:12:09.120 --> 0:12:13.200 once we account for full global trade, production and finance 0:12:13.280 --> 0:12:19.439 networks and really think about trades off and counterfactuals, and 0:12:19.640 --> 0:12:23.360 basically revisit this issue that the fact that maybe your 0:12:23.480 --> 0:12:24.360 trade shares are long. 0:12:24.400 --> 0:12:27.160 We caught up with Chevnham after her presentation to better 0:12:27.320 --> 0:12:29.440 understand exactly what she's trying to do here. 0:12:29.840 --> 0:12:34.120 All right, So, yes, we found something different because we 0:12:34.360 --> 0:12:35.280 work with networks. 0:12:35.360 --> 0:12:37.280 And let me explain what that is. 0:12:37.360 --> 0:12:41.400 When you say networks again, the traditional we're first going 0:12:41.440 --> 0:12:43.720 to think about, of course, the trade networks. Why because 0:12:43.760 --> 0:12:47.120 the trade networks directly linked to supply chains, right, and 0:12:47.320 --> 0:12:52.520 we already realized you know it is that those are vulnerable. 0:12:52.559 --> 0:12:55.080 I mean, you know, shock after shock, starting with the pandemic, 0:12:56.520 --> 0:12:59.520 you know told us that, yes, maybe kind of our 0:13:00.240 --> 0:13:03.600 final goods trade or just if I focus on manufacturing, 0:13:03.679 --> 0:13:05.880 not that big, but if I look at the supply chains, 0:13:06.000 --> 0:13:10.160 value chains, then US is integrated to that, and then 0:13:10.440 --> 0:13:14.079 that changes the thanks because that means even in the 0:13:14.240 --> 0:13:16.520 added number you might not see that big. 0:13:16.360 --> 0:13:19.120 Of exports and imports, there might be indirect exporture through 0:13:19.160 --> 0:13:21.839 all those things. Because when you think a network, you 0:13:21.920 --> 0:13:25.160 know you are linked through trade. This is now where 0:13:25.200 --> 0:13:26.839 were also add a traditional view. 0:13:27.280 --> 0:13:29.360 But you also have to think about the financing, right, 0:13:29.440 --> 0:13:32.600 I mean, so the networks to us is trade networks, yes, 0:13:32.760 --> 0:13:35.640 you know countries buying and selling, sectors buying and selling, 0:13:35.720 --> 0:13:39.000 firms buying and selling from each other, but also financial networks. 0:13:39.040 --> 0:13:42.040 I mean you know, investors investing in companies in other countries. 0:13:42.360 --> 0:13:45.559 You know, these supply chains finance by different investors in 0:13:45.640 --> 0:13:47.679 other countries. And on top of that, of course the 0:13:47.760 --> 0:13:51.360 production right. I mean you know, so a product right 0:13:51.440 --> 0:13:54.559 now is assembled in one country, designed in another country, 0:13:54.640 --> 0:13:58.200 manufacturing in another country, with parts coming from many many countries, 0:13:58.280 --> 0:14:01.080 and skills and knowledge also coming from inny many countries. 0:14:01.120 --> 0:14:03.960 So when you have this start of the comprehensive view 0:14:04.040 --> 0:14:08.679 of the network global network as trade, production, and finance, 0:14:09.200 --> 0:14:13.839 then I think US becomes very vulnerable to global shocks 0:14:13.880 --> 0:14:14.520 and global risks. 0:14:14.760 --> 0:14:16.560 So you can see why there should be an important 0:14:16.600 --> 0:14:18.760 area of research for the FED, right, Right. 0:14:18.960 --> 0:14:21.640 And the conventional thinking has always been that the US 0:14:21.760 --> 0:14:25.000 is kind of insulated from global shocks because it's so big, 0:14:25.200 --> 0:14:29.240 because the dollar is so dominant. External factors it's thought, 0:14:29.520 --> 0:14:31.880 don't really affect the US economy. 0:14:31.600 --> 0:14:33.760 So much, right, And also we don't actually export that 0:14:33.920 --> 0:14:35.480 much relative right speaking. 0:14:35.320 --> 0:14:38.720 Right, we import. So that's the conventional view. But if 0:14:38.920 --> 0:14:42.200 per Shebnam's research, the US is in fact more exposed 0:14:42.200 --> 0:14:45.840 to global shocks than previously thought, if it's more intertwined 0:14:45.920 --> 0:14:49.360 with the network of the global economy through second order effects, 0:14:49.760 --> 0:14:51.520 then policy makers should be aware of that. 0:14:51.680 --> 0:14:55.640 Right, It wasn't clear. This is an enormous body of work, 0:14:55.680 --> 0:15:01.480 expanding several papers, hundreds of pages, all with many applications 0:15:01.960 --> 0:15:02.440 and scenario. 0:15:02.520 --> 0:15:04.800 That is Aaron Flahn, he's a principal economist at the 0:15:04.840 --> 0:15:07.760 Boston FED and he's also the discussion for this particular paper. 0:15:08.160 --> 0:15:10.280 The discustant role is really interesting. 0:15:10.560 --> 0:15:13.040 Yeah, this was probably one of the most fascinating sort 0:15:13.080 --> 0:15:16.600 of dynamics I knew existed but didn't quite appreciate how 0:15:16.640 --> 0:15:19.440 it works. So basically, every presenter gets paired with an 0:15:19.440 --> 0:15:23.400 official discussion whose job is just to interpret and critique, frankly, 0:15:23.520 --> 0:15:24.760 the paper for a wider audience. 0:15:25.160 --> 0:15:28.040 So those are my main comments. I do just want 0:15:28.080 --> 0:15:31.600 to emphasize that what sometimes doing here is policy relevant 0:15:31.680 --> 0:15:34.880 research at its finance. It's our profession working at its 0:15:34.920 --> 0:15:38.800 finess fly answering these very timely questions in ways. 0:15:38.560 --> 0:15:41.840 That authors are very close to the paper. You wrote 0:15:41.880 --> 0:15:44.840 these details, and you can see in the presentations, right, 0:15:44.960 --> 0:15:48.040 they know insight out and stuff that, so they provide 0:15:48.040 --> 0:15:51.600 a position. The Really what a discussing does is sort 0:15:51.640 --> 0:15:55.360 of essentially, let me translate what the author does for 0:15:55.480 --> 0:15:59.440 the broader audience. Right, A good discussing role is really 0:16:00.160 --> 0:16:05.120 to sort of reframe the paper, pull out key takeaways, 0:16:05.360 --> 0:16:07.880 and then provide some constructive comments. 0:16:08.080 --> 0:16:11.440 But sometimes things get a little awkward. 0:16:11.280 --> 0:16:14.600 Definitely awkward, but you know, everyone's still very polite, still. 0:16:14.520 --> 0:16:18.680 Very polite, Yes, but more on that after this break. 0:16:34.680 --> 0:16:38.240 Let's go to another paper. This one is by Tamaso Monicelli. 0:16:38.400 --> 0:16:42.360 He's a professor of economics at Universita Butchoni, and his 0:16:42.480 --> 0:16:47.160 paper is called Supply chain Uncertainty, Energy Prices and Inflation, 0:16:47.680 --> 0:16:50.320 and it is actually about one of our favorite topics, Joe, 0:16:50.520 --> 0:16:51.280 supply chains. 0:16:51.560 --> 0:16:55.480 Now that's right, because that's exactly right. So supply chain 0:16:55.520 --> 0:17:01.120 disruptions can sort of change state of the economy, so 0:17:01.560 --> 0:17:07.080 the environment, that's our idea where farms make production and 0:17:07.240 --> 0:17:08.640 pricing decisions, right. 0:17:08.600 --> 0:17:10.679 And so the key idea is that. 0:17:12.480 --> 0:17:16.760 The state of the world in which farms operate right 0:17:17.280 --> 0:17:22.639 can can change underlying So as economists we say that 0:17:22.800 --> 0:17:29.040 the state of the economy changes even starting from potentially 0:17:29.200 --> 0:17:34.399 minor events along the supply chain. So we make the 0:17:34.480 --> 0:17:40.040 example of this apparently small episode like in the Sewez 0:17:40.080 --> 0:17:45.920 Canal two years ago, sort of ship container shipping oil 0:17:46.040 --> 0:17:48.159 and other inputs got stuck for. 0:17:48.240 --> 0:17:48.800 A few days. 0:17:48.920 --> 0:17:52.359 We remember, well literally right, but that was the. 0:17:52.560 --> 0:17:55.760 Episode sort of got resolved in a few days, but 0:17:56.280 --> 0:17:57.920 I didn't have the time to show the data. But 0:17:58.040 --> 0:18:04.760 then this the effect on transportation disruptions. Okay, along supply 0:18:04.920 --> 0:18:09.000 chains lasted four months. Okay. So the analogy here is 0:18:09.440 --> 0:18:12.560 think of an airport, okay, like a hub. Okay, what 0:18:12.680 --> 0:18:17.879 a lot of flights? So how many airports function as hubs? Okay, 0:18:18.200 --> 0:18:21.919 many flights coming from different directions, and right, you can 0:18:22.000 --> 0:18:25.080 have a disruption like a single delay on a single 0:18:25.160 --> 0:18:27.800 flight in the in the in the hub. But then 0:18:27.840 --> 0:18:32.240 the propagates, you know, along the day and then across 0:18:32.359 --> 0:18:37.760 many different flights and amplifying the delay downstream. 0:18:37.320 --> 0:18:38.560 A cascade effect. 0:18:38.840 --> 0:18:39.040 Yees. 0:18:39.119 --> 0:18:41.840 So at the heart of Tomas's research is the sort 0:18:41.880 --> 0:18:45.719 of very important question are supply chain disruptions real? Are 0:18:45.760 --> 0:18:48.880 they real thing? Or are they simply manifestations or symptoms 0:18:49.119 --> 0:18:52.120 of access demand may be caused by too much physcal stimulus. 0:18:52.480 --> 0:18:55.280 Yeah, so after the pandemic, a lot of people criticize 0:18:55.280 --> 0:18:58.080 the government for handing out checks to people and businesses, 0:18:58.359 --> 0:19:03.480 helping supposedly to fan inflation. But actually, if small supply 0:19:03.640 --> 0:19:07.880 chain disruptions can reverberate for longer than previously thought through 0:19:08.040 --> 0:19:12.399 energy prices or whatever, then per Tomasa's research, they can 0:19:12.480 --> 0:19:16.520 be a pretty important source of inflation. And the important 0:19:16.560 --> 0:19:19.520 thing is that it's not the size of the supply 0:19:19.640 --> 0:19:23.639 chain shock that matters. It's the actual volatility itself, the 0:19:23.920 --> 0:19:25.840 uncertainty that matters for inflation. 0:19:26.520 --> 0:19:28.639 So again, I think, you know, you can see why 0:19:28.720 --> 0:19:32.000 this would be of interest to policymakers. Even five years 0:19:32.000 --> 0:19:34.560 after the pandemic, we're still trying to figure out exactly 0:19:34.960 --> 0:19:38.600 what happened, and we'll probably be researching that for years. 0:19:38.800 --> 0:19:39.200 Totally. 0:19:39.359 --> 0:19:42.240 Yes, so Tierra, in the in our search, we emphasize 0:19:42.240 --> 0:19:47.360 the interaction, So the complementarity between you know, shocks two, 0:19:47.560 --> 0:19:50.679 let's say the price of oil. Okay, that typically central 0:19:50.760 --> 0:19:55.000 banks look at, right, but they have a typical altitude 0:19:55.080 --> 0:19:57.880 let's say normal times. If there are all shocks, yes, 0:19:57.960 --> 0:20:02.440 we should monitor that those don't feed are not too persistent, 0:20:02.560 --> 0:20:05.280 they don't feed onto inflation expectations and so on. But 0:20:05.359 --> 0:20:10.680 their activist is typically let's look through Okay, this oil price. 0:20:11.000 --> 0:20:15.240 All prior oil prices jump around very much in the markets. 0:20:15.560 --> 0:20:21.200 But here we're saying even the same original let's say 0:20:21.440 --> 0:20:25.600 oil price shocks or energy gas price shocks, they can 0:20:25.720 --> 0:20:31.159 have a very different amplified effects on inflation, Okay, depending 0:20:31.640 --> 0:20:36.240 on whether the state of supply chain is disrupted or not. Okay, 0:20:36.359 --> 0:20:40.399 So it's really the interract so it's not really that 0:20:40.600 --> 0:20:44.800 we believe that we emphasize supply chain shocks. We say 0:20:45.800 --> 0:20:49.960 typical supply shocks, like oil shocks or gas price shocks. 0:20:50.640 --> 0:20:54.440 They can get really amplified and in a very persistent 0:20:54.560 --> 0:20:58.639 way if the underlying conditions of supply chains are disrupted, 0:20:58.960 --> 0:21:01.400 so that that state of the economy should be monitored, 0:21:01.480 --> 0:21:04.160 and in those states of the world, the central bent 0:21:04.200 --> 0:21:09.520 should be very, very reactive, way more reactive to oil 0:21:09.600 --> 0:21:14.439 shocks or energy price shocks than in periods where supply 0:21:14.560 --> 0:21:16.040 chain disruptions are minimal. 0:21:16.280 --> 0:21:18.879 So that's the basic thrust of the paper, and the 0:21:19.000 --> 0:21:21.639 data seem to bear it to Masso's thesis out, but 0:21:22.520 --> 0:21:25.200 things got a little awkward when it was time for 0:21:25.280 --> 0:21:25.880 the discussion. 0:21:26.080 --> 0:21:29.679 I'm Ludwig Straub. I'm a professor of economics at Harvard. 0:21:29.920 --> 0:21:32.800 I am a quantitative macroeconomist, so I try to build 0:21:32.920 --> 0:21:36.119 models that describe the macroeconomy and can be used for 0:21:36.320 --> 0:21:39.720 policy analysis and forecasting. I'm a discussion of a paper 0:21:39.840 --> 0:21:43.520 on supply chain uncertainty and energy shocks and how those 0:21:43.600 --> 0:21:46.440 two relate to the post COVID inflation episode. 0:21:46.640 --> 0:21:49.240 Right as Ludwig puts it, being a discussiant is a 0:21:49.280 --> 0:21:51.440 pretty big commitment, and we should just mention here that 0:21:51.600 --> 0:21:54.520 neither the researchers nor the discussiants are getting paid for 0:21:54.600 --> 0:21:57.200 their time. They're doing this for other reasons. Obviously the 0:21:57.320 --> 0:22:00.560 contribute to policy, but there's another big motivation that we'll 0:22:00.560 --> 0:22:02.479 get into in a minute. So here's Lidvig. 0:22:02.720 --> 0:22:06.200 So not everybody has time and energy to do this. 0:22:06.680 --> 0:22:09.280 In my case, I love being at the Boston FED 0:22:09.440 --> 0:22:14.080 and I'm close, so it's not a big travel to 0:22:14.160 --> 0:22:19.399 come here. And yeah, so I said yes. And you know, 0:22:19.440 --> 0:22:22.119 about a month before the conference, you typically receive the 0:22:22.200 --> 0:22:24.600 paper and then you spend a significant amount of time 0:22:25.160 --> 0:22:28.720 I'd say maybe half a week a week, you know, 0:22:29.440 --> 0:22:32.000 of your research time with the paper and trying to 0:22:32.119 --> 0:22:35.080 understand the ins and outs, trying to understand the empirics 0:22:35.280 --> 0:22:38.680 the model, and then hopefully give a balanced view of 0:22:38.800 --> 0:22:40.200 the paper during the discussion. 0:22:40.480 --> 0:22:42.959 And from what we saw at the conference, it feels 0:22:43.080 --> 0:22:47.840 like discussions can have different styles. Some basically summarize the 0:22:47.920 --> 0:22:52.399 paper and explain why it's relevant, and others others, you know, 0:22:52.560 --> 0:22:56.560 maybe pick it apart very critically. Here's Ludwig talking about 0:22:56.560 --> 0:22:57.280 the discussions. 0:22:57.480 --> 0:22:59.920 Some tend to be more like what you just mentioned 0:23:00.000 --> 0:23:02.639 and more like the latter that you know, pick up 0:23:02.680 --> 0:23:05.280 hard papers and kind of come across as a little 0:23:05.320 --> 0:23:09.640 bit destructive rather than constructive. You know, the last discussing 0:23:09.720 --> 0:23:12.800 at the conference was a lot more constructive, for example, 0:23:12.840 --> 0:23:15.880 and would be you know, building off the author's results 0:23:16.000 --> 0:23:18.480 and you know, showing them what they could do next 0:23:18.600 --> 0:23:21.520 with with the paper. Some are very very kind and 0:23:21.720 --> 0:23:26.360 just praise the results, which I tend to. I tend 0:23:26.400 --> 0:23:27.919