Andrej Cupák, Pirmin Fessler, Joanne W. Hsu, Piotr R. Paradowski | We employ recent Survey of Consumer Finances (SCF) microdata from the US to analyze the impacts of confidence in one's own financial knowledge, confidence in the economy, and objective financial literacy on investment in risky financial assets (equity and bonds) on both the extensive and intensive margins. Controlling for a rich set of covariates including risk aversion, we find that objective financial literacy is positively related to investment in risky assets as well as debt securities. Moreover, confidence in own financial skills additionally increases the probability of holding risky assets and bonds. While these relationships are rather robust for the extensive margin, they break down with regard to the conditional share of financial wealth in risky assets of those who actually hold them. The relevance of financial literacy as well as confidence varies considerably with the distribution of wealth as well as across several socio-economic dimensions such as age, education and race.

Fergus Cumming and Lisa Dettling | This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Using administrative data on mortgages and births in the UK, our empirical strategy exploits variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in the monetary policy rate that occurred during the Great Recession. We estimate that each 1 percentage point drop in the policy rate increased birth rates by 2 percent. In aggregate, this pass-through of accommodative monetary policy to mortgage rates was sufficiently large to outweigh the headwinds of the Great Recession and prevent a "baby bust" in the UK, in contrast to the US. Our results provide new evidence on the nature of monetary policy transmission to households and suggest a new mechanism via which mortgage contract structures can affect both aggregate demand and supply.

Chang Ma, John Rogers, and Sili Zhou | We document the effect on Chinese firms of the Shanghai (Shenzhen)-Hong Kong Stock Connect. The Connect was an important capital account liberalization introduced in the mid-2010s. It created a channel for cross-border equity investments into a selected set of Chinese stocks while China's overall capital controls policy remained in place. Using a difference-in-difference approach, and with careful attention to sample selection issues, we find that mainland Chinese firm-level investment is negatively affected by contractionary U.S. monetary policy shocks and that firms in the Connect are more adversely affected than those outside of it. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We also find that firms in the Connect enjoy lower financing costs, invest more, and have higher profitability than unconnected firms. We discuss the implications of our results for the debate on capital controls and independence of Chinese monetary policy.

John Rogers and Jiawen Xu | Despite the enormous reach and influence of the literature on economic and economic policy uncertainty, one surprisingly under-researched topic has been the forecasting performance of economic uncertainty measures. We evaluate the ability of seven popular measures of uncertainty to forecast in-sample and out-of-sample over real and financial outcome variables. We also evaluate predictive content over different quantiles of the GDP growth distribution. Real-time data and estimation considerations are highly consequential, and we devote considerable attention to them. Four main findings emerge. First, there is some explanatory power in all uncertainty measures, with relatively good performance by macroeconomic uncertainty (Jurado, Ludvigson, and Ng, 2015). Second, macro uncertainty has additional predictive content over the widely-used excess bond premium of (Gilchrist and Zakrajsek, 2012) and the National Financial Conditions Index. Third, quantile regressions for GDP growth indicate strong predictive power, especially at the lower ends of the distribution, for all uncertainty measures except the VIX. Finally, we construct new real-time versions of both macroeconomic and financial uncertainty and compare them to their ex-post counterparts used in the literature. Real-time uncertainty measures have comparatively poor forecasting performance, even to the point of overturning some of the conclusions that emerge from using ex-post uncertainty measures.