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Economic Research

How Bank Reserves Are Distributed Matters. How You Measure Distribution Matters Too.
Changes in the distribution of banks’ reserve balances are important since they may impact conditions in the federal funds market and alter trading dynamics in money markets more generally. The authors propose using the Lorenz curve and Gini coefficient as a new approach to measuring reserve concentration.
By Gara Afonso, Marco Cipriani, Steph Clampitt, Haitham Jendoubi, Gabriele La Spada, and Will Riordan
How Has COVID-19 Affected Banking System Vulnerability?
The COVID-19 pandemic has led to significant changes in banks’ balance sheets. To understand how these changes have affected the stability of the U.S. banking system, the authors provide an update of four analytical models that aim to capture different aspects of banking system vulnerability. The four models monitor vulnerabilities of U.S. banking firms and the way in which these vulnerabilities interact to amplify negative shocks.
By Kristian Blickle, Matteo Crosignani, Fernando Duarte, Thomas Eisenbach, Fulvia Fringuellotti, and Anna Kovner
The Fed Funds Market during the 2007-09 Financial Crisis
The U.S. federal funds market played a central role in the financial system during the 2007-09 crisis, because it was the market that provided banks with immediate liquidity, even late in the day. The author highlights results from a working paper that untangles the impact of economic drivers behind the fed funds rates and measures their respective effects on the marketplace using data over a sample period leading up to and during the financial crisis.
By Adam Copeland
Has the Pandemic Reduced U.S. Remittances Going to Latin America?
Workers' remittances—funds that migrants send to their country of birth—are an important source of income for a number of economies in Latin America, with the bulk of these funds coming from the United States. The authors find that remittances initially faltered under the COVID-19 recession but rebounded in the summer months, performing better than during the last U.S. recession despite more severe job losses.
By Matthew Higgins and Thomas Klitgaard
How Has China’s Economy Performed under the COVID-19 Shock?
China’s economy was the first to be hit by the COVID-19 outbreak, the first to be locked down, and the first to begin an economic recovery. The authors examine the impact of the COVID-19 crisis on China’s GDP growth using a set of alternative growth indicators, or proxies, given the long-standing controversies over the accuracy of China’s official GDP growth statistics. Their alternative indicators are based on methodologies recently published in a special China-focused issue of the New York Fed’s Economic Policy Review.
By Hunter L. Clark, Jeffrey B. Dawson, and Maxim Pinkovskiy
Recruiting Opportunities
How Economic Crises Affect Inflation Beliefs: Evidence from the COVID-19 Pandemic
In macroeconomic models, inflation expectations drive a wide range of decisions including consumption, saving, borrowing, wage bargaining, and thus have a direct impact on realized inflation. The authors study how inflation beliefs reported in the New York Fed’s Survey of Consumer Expectations have evolved since the start of the COVID-19 pandemic. Among their findings: Household inflation expectations responded slowly and mostly at the short-term horizon.
Olivier Armantier, Gizem Koşar, Rachel Pomerantz, Daphné Skandalis, Kyle Smith, Giorgio Topa, and Wilbert van der Klaauw, Staff Report 949, November 2020
The Affordable Care Act and the COVID-19 Pandemic: A Regression Discontinuity Analysis
The authors investigate whether Medicaid expansion in accordance with the Affordable Care Act has had an effect on the spread and intensity of COVID-19 across the United States. To answer this question they use a regression discontinuity analysis at the county level near the borders of the states that expanded Medicaid with states that did not.
Rajashri Chakrabarti, Lindsay Meyerson, William Nober, and Maxim Pinkovskiy, Staff Report 948, November 2020
Foreign Shocks as Granular Fluctuations
The authors study the international transmission of business cycle shocks at both the micro and macro levels using a quantitative multi-country model. Their study relies upon a dataset covering the universe of French firm-level sales, imports, and exports over the period 1993-2007. The authors present one micro and one macro finding. The micro result is that foreign shocks are predominantly granular fluctuations.
Julian di Giovanni, Andrei A. Levchenko, and Isabelle Mejean, Staff Report 947, November 2020
The Financial (In)Stability Real Interest Rate, R**
The authors introduce the concept of the financial stability real interest rate, r**. As a vehicle to illustrate their idea, they use a macroeconomic banking model where the banking sector faces a constraint in terms of a limit on the amount of funds that it can raise. r** is the threshold interest rate above which the constraint becomes binding. They show that as the banking sector becomes more leveraged, r** falls.
Ozge Akinci, Gianluca Benigno, Marco Del Negro, and Albert Queralto, Staff Report 946, November 2020
Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy
The recent era of globalization witnessed (1) greater cross-country trade integration as firms' production chains have spread across the world and (2) stock market returns becoming more correlated across countries. The authors analyze how the global production network impacts the transmission of U.S. monetary policy shocks to world stock markets.
Julian di Giovanni and Galina Hale, Staff Report 945, November 2020
Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach
The global financial crisis triggered strong renewed interest in understanding the causes, consequences, and remedies of financial crises. In this context, dynamic stochastic general equilibrium (DSGE) models with occasionally binding financial frictions proved successful as laboratories to study the anatomy of both business cycles and crises, and to explore optimal policy responses to these dynamics. In this paper, the authors propose a new approach to specifying and solving DSGE models with occasionally binding frictions that is suitable for structural estimation.
Gianluca Benigno, Andrew Foerster, Christopher Otrok, and Alessandro Rebucci, Staff Report 944
Alternative Indicators for Chinese Economic Activity Using Sparse PLS Regression
China’s official GDP growth rates over the past decade have been remarkably, and perhaps unrealistically, smooth. In an attempt to model Chinese business cycle fluctuations, the authors created a sparse partial least squares (PLS) factor from a large array of high-frequency data. The resulting factor demonstrates the cyclicality expected of China’s economic growth and performs well in out-of-sample testing. The authors believe that their sparse PLS model provides an accurate measure of Chinese economic growth at a high frequency.
Jan J. J. Groen and Michael B. Nattinger, Economic Policy Review
Labor Market Policies during an Epidemic
The COVID-19 pandemic and the ensuing policy interventions to contain it have had unprecedented negative effects on the U.S. labor market. In response, the U.S. government implemented two types of labor market policies: expanding unemployment insurance payments and granting payroll subsidies to vulnerable firms. In this paper, the authors study the usefulness of these policies both in isolation and in conjunction.
Serdar Birinci, Fatih Karahan, Yusuf Mercan, and Kurt See, Staff Report 943, October 2020
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