Borrowing costs

Business borrowing costs, COVID mortality, and more

Studies in this week Overview of the Hutchins to find corporate borrowing costs rise with the value of the dollar, Black women have died of COVID at disproportionate ratesand more.

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The ups and downs of the U.S. dollar in global markets materially influence the cost and supply of credit to U.S. businesses, according to Ralf R. Meisenzahl of the Federal Reserve Bank of Chicago and Friederike Niepmann and Tim Schmidt-Eisenlohr of the Federal Reserve Board. They find that a one standard deviation increase in the trade-weighted US dollar index increases the spread on corporate loans by 15 basis points. This relationship is supported by the link between changes in the price of the dollar and the demand for risky assets, they say. Fluctuations in the value of the dollar also affect the supply of credit available to corporations, with a rising dollar reducing the amount of loans. The authors show that variations in the dollar have an impact not only on foreign countries, but also on the national economy through the channel of business credit.

Black people were the first and hardest hit by COVID-19, dying at a rate 2.2 times higher than their share of the general population in early April 2020. This mortality gap between blacks and whites was due to black womenfind Graziella Bertocchi from the University of Modena and Reggio Emilia and Arcangelo Dimico from Queen’s University Belfast. Using detailed individual-level data from the Cook County, Illinois, medical examiner, the authors find that the overrepresentation of black women in low-paying jobs in health care, transportation and warehousing, as well as longer and more frequent journeys to work via public transport, mainly explain their vulnerability – rather than their age or their underlying health problems. By mapping the home addresses of the deceased on redlining maps from the 1930s, the authors show that the higher probability of death among black women is concentrated in the neighborhoods previously highlighted, reflecting “a lingering influence of historical racial segregation “.

Hedge fund exposure to the US Treasury market rose from $1.06 trillion at the end of 2017 to $2.02 trillion in mid-2020 as they profited from spread arbitrage between the spot price and the futures prices of Treasury securities., effectively serving as intermediaries between dealers and asset managers. Amid an unusually strong sell-off in Treasuries in March 2020, as fund managers sought to raise cash, prices for cash and Treasury futures diverged, prompting hedge funds to unwind their transactions. Using data from regulatory filings and transaction-level data, Daniel Barth of the Federal Reserve Board and R. Jay Kahn of the U.S. Treasury Office of Financial Research document the role that hedge funds have played in amplifying – not the cause, they point out – of “unprecedented stress”. in the largest asset market in the world. Had the Federal Reserve not stepped in with huge purchases of Treasuries, they say, the disruption would have been much more severe.

Bar chart illustrating medium-term GDP losses compared to the pre-COVID period, in emerging, developing and advanced countries.

“[One] consequence of an interconnected world has been a thirty-year race to the bottom on corporate tax rates. Competitiveness is not limited to how companies headquartered in the United States compare to other companies around the world. merger and takeover bids. It is about ensuring that governments have stable tax systems that generate enough revenue to invest in essential public goods and respond to crises, and that all citizens share the burden of government funding equitably,” says Treasury Secretary Janet Yellen.

President Biden’s proposals…call for bold domestic action, including to increase the U.S. minimum tax rate, and renewed international commitment, recognizing the importance of working with other countries to end the pressures of tax competition and the erosion of the corporate tax base. We are working with G20 countries to agree a global minimum corporate tax rate that can stop the race down. Together, we can use a global minimum tax to ensure that the global economy thrives on a fairer level playing field in the taxation of multinational corporations and drives innovation, growth and prosperity.