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Economic Research

Liberty Street Economics
A Closer Look at Recent Tightening in Consumer Credit
The Federal Reserve Bank of New York’s Center for Microeconomic Data (CMD) released results from its October 2018 SCE Credit Access Survey, which provides information on consumers' experiences with and expectations about credit demand and credit access. In this post, our bloggers examine recent developments surrounding credit cards and account closures.
By Olivier Armantier, Joelle Scally, Kyle Smith, and Wilbert van de Klaauw
Breaking Down TRACE Volumes Further
Our bloggers build upon their earlier work that examined aggregate trading volume in the Treasury cash market across venues, relying upon the transactions data reported to the Financial Industry Regulatory Authority’s Trade Reporting and Compliance Engine (TRACE). They continue their analysis with a look at volume across security type, seasoned-ness (time since issuance), and maturity.
By Doug Brain, Michiel De Pooter, Dobrislav Dobrev, Michael Fleming, Peter Johansson, Frank Keane, Michael Puglia, Tony Rodrigues, and Or Shachar
Is the United States Relying on Foreign Investors to Fund Its Larger Budget Deficit?
The federal tax cut and increase in federal spending at the beginning of 2018 substantially increased the government deficit, which required an increase in the amount of Treasury securities needed to fund the gap. Our bloggers examine whether the U.S. government will have to rely on foreign investors to buy those securities—So far, the country has not had to increase the pace of borrowing from abroad.
By Thomas Klitgaard and Linda Wang
Just Released: Interactive R-star Charts
The New York Fed is now running—and sharing the output of—models that its new Bank President, John Williams, helped develop to obtain estimates of the natural rate of interest, or r-star, for the United States and other advanced economies. Enhanced by new interactive capabilities, the Bank will provide quarterly estimates of r-star and related variables in downloadable Excel files, plus the replication code and documentation for both the Laubach-Williams (LW) and Holston-Laubach-Williams (HLW) models.
By Anna Snider
The Pre-FOMC Announcement Drift: More Recent Evidence
Our bloggers use more recent data to update their earlier analysis, which found that U.S. and international equity markets have seen large and statistically significant excess returns in the twenty-four hours prior to scheduled meetings of the Federal Open Market Committee (FOMC). Here they find evidence of continued large excess returns during FOMC meetings, but only for those meetings featuring a press conference by the Chair of the FOMC.
By David Lucca and Emanuel Moench
Recent Publications
Special Issue: The Appropriate Role of Government in U.S. Mortgage Markets
The U.S. mortgage finance system was one of the focal points of the 2007-08 financial crisis, yet legislative decisions about the appropriate role of the federal government in the system remain unsettled. This special volume of the Economic Policy Review explores key components of housing finance reform. The eight articles were developed from presentations delivered at “The Workshop on the Appropriate Government Role in U.S. Mortgage Markets,” held at the Federal Reserve Bank of New York in April 2017.
The Marginal Propensity to Hire
The rise in unemployment following the financial crisis underscored the importance of links between financial and labor markets. In this paper, the author exploits the idea that, when financial constraints bind, a firm adjusts its employment in response to cash flow shocks, which the author labels the marginal propensity to hire (MPH). Using a novel combination of three large data sets from the United Kingdom, the study shows that for every additional £1 of cash flow, on average 39 pence are spent on employment.
Davide Melcangi, Staff Report 875, December 2018
Local Banks, Credit Supply, and House Prices
The author studies the effects of an increase in the supply of local mortgage credit on local house prices and employment by exploiting a natural experiment from Switzerland: Losses in U.S. security holdings triggered a migration of customers from a large, universal bank (UBS) to local mortgage lenders in mid-2008. He shows that house prices in neighborhoods immediately around exogenously shocked local banks grow over 50 percent more than house prices around unaffected banks. There was also an increase in the number of employees at small firms, reliant on real estate collateral, in these neighborhoods.
Kristian Blickle, Staff Report 874, November 2018
The Affordable Care Act and the Market for Higher Education
Obtaining health insurance in America is intimately connected to choosing whether and where to work. But the Affordable Care Act has changed this model and affected people’s incentives for further education. The authors employ a triple-difference strategy comparing counties with different levels of uninsurance pre-ACA, and in states with different Medicaid expansion decisions across time, to investigate changes in enrollment in different types of higher education institutions.
Rajashri Chakrabarti and Maxim Pinkovskiy, Staff Report 873, October 2018
Getting Ahead by Spending More? Local Community Response to State Merit Aid Programs
In more than half of U.S. states, implementation of merit-based aid programs has led to a large reduction in the net tuition expense of in-state college students. Using two different estimation strategies, the authors find that merit aid programs led to a statistically and economically significant increase in state funding for higher education while state funding for kindergarten through twelfth-grade education fell markedly. The authors argue that their findings have important implications because educators and policymakers should be aware of unintended consequences that might undercut the positive benefits of merit aid.
Rajashri Chakrabarti, Nicole Gorton, and Joydeep Roy, Staff Report 872, October 2018
Identifying Shocks via Time-Varying Volatility
This paper presents a general argument that structural shocks can be identified via time-varying volatility. The previous literature offers identification arguments based on a path of variances available for very few parametric models of the variance process. The author’s approach makes minimal assumptions on the variances as a stochastic process. This approach highlights a novel channel of identification based on heteroskedasticity that frees researchers from needing to assume a particular functional form—or any functional form—to obtain identifying moments.
Daniel J. Lewis, Staff Report 871, October 2018
Flighty Liquidity
The authors study the predictability of liquidity and the downside risk to the liquidity of U. S. investment-grade and high-yield corporate bonds. They find evidence of liquidity spillovers across credit rating categories: greater current liquidity of high-yield bonds is associated with lower uncertainty about the future liquidity of investment-grade bonds, while greater liquidity of investment-grade bonds is associated with greater uncertainty about the future liquidity of high-yield bonds.
Nina Boyarchenko, Domenico Giannone, and Or Shachar, Staff Report 870, October 2018