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Economic Research

The New York Fed DSGE Model Forecast—September 2020
The authors present an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. They describe their forecast and its change since June 2020. The DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process.
By William Chen, Marco Del Negro, Keshav Dogra, Shlok Goyal, and Alissa Johnson
Market Failures and Official Sector Interventions
The official sector, including institutions such as Congress and the Treasury, typically has minimal involvement in market activities absent a clear rationale to justify intervention, such as a market failure. The authors consider arguments for official sector intervention and discuss how it can increase social welfare by acting to minimize the fixed costs of business start-up and failure.
By Anna Kovner and Antoine Martin
Expanding the Toolkit: Facilities Established to Respond to the COVID-19 Pandemic
The authors argue that the new lending facilities launched in response to the COVID-19 pandemic, although unprecedented, are a natural extension of the Federal Reserve’s toolkit. They also explain why these new facilities are particularly useful as part of the response to the pandemic, which is an economic shock very different from a financial crisis.
By Anna Kovner and Antoine Martin
Did State Reopenings Affect Small Business?
The loosening of restrictions imposed to slow the spread of COVID-19 had positive and significant effects in the short term on small business revenues, the number of active merchants, and the number of employees working in small businesses. The authors investigate how much small business activity increased after the reopenings but do not assess whether or how states should loosen or tighten restrictions.
By Rajashri Chakrabarti, Sebastian Heise, Davide Melcangi, Maxim Pinkovskiy, and Giorgio Topa
Did State Reopenings Increase Consumer Spending?
In March, most states imposed severe restrictions on households and businesses to slow the spread of COVID-19. This was followed by a gradual loosening of restrictions (“reopening”) starting in April. Taken together, these measures raise the question of how closures and reopenings affect consumer spending. The authors investigate how much consumer spending increased after the reopenings but do not assess whether or how states should loosen or tighten restrictions.
By Rajashri Chakrabarti, Sebastian Heise, Davide Melcangi, Maxim Pinkovskiy, and Giorgio Topa
Recruiting Opportunities
State Investment in Higher Education: Effects on Human Capital Formation, Student Debt, and Long-Term Financial Outcomes of Students
The U.S. higher education system is dominated by public institutions that rely heavily on state funding. The authors present an analysis on how changes in state appropriations, while students are enrolled in college, affect short- and long-run educational and credit outcomes. Their results suggest that state appropriations have positive long-run effects on student outcomes that take somewhat different forms across the two-year and four-year sectors.
Rajashri Chakrabarti, Nicole Gorton, and Michael F. Lovenheim, Staff Report 941, September 2020
Measuring Global Financial Market Stresses
The authors propose measures of financial market stress for forty-six countries and regions across the world. Their measures indicate that worldwide financial market stresses rose significantly in March in the wake of the COVID-19 pandemic but financial market conditions have since normalized rapidly. They also show that their financial stress measures have predictive power across most parts of the world for the near-term economic outlook, with the exception of China.
Jan J. J. Groen, Michael B. Nattinger, and Adam I. Noble, Staff Report 940, September 2020
Trading by Professional Traders: An Experiment
The authors study how professional traders behave in laboratory experiments—a trading game and a guessing game—that are informative of financial market behavior. They find three differences between traders and students: traders do not produce the price bubbles observed in previous studies with students; traders aggregate private information better; and traders show higher levels of strategic sophistication in the guessing game.
Marco Cipriani, Roberta De Filippis, Antonio Guarino, and Ryan Kendall, Staff Report 939, August 2020
Alternative Trading Systems in the Corporate Bond Market
The authors investigate the trading of corporate bonds on alternative trading system (ATS) platforms. Most ATS provide at least one of the two most common electronic trading protocols. The authors assess the types of securities that trade more frequently on ATS platforms and in each type of protocol, and estimate the impact of ATS platforms on transaction costs.
Matthew Kozora, Bruce Mizrach, Matthew Peppe, Or Shachar, and Jonathan Sokobin, Staff Report 938, August 2020
Pirates without Borders: The Propagation of Cyberattacks through Firms' Supply Chains
The authors study the propagation effects through supply chains of the most damaging cyberattack in history and the important role that banks played in mitigating its impact. The authors show that losses were larger for customers with fewer alternative suppliers. Affected customers used their internal liquidity and increased their borrowing, mainly through bank credit lines, which helped affected customers to maintain investment and employment.
Matteo Crosignani, Marco Macchiavelli, and André F. Silva, Staff Report 937, July 2020
Managing the Maturity Structure of Marketable Treasury Debt: 1953-1983
The author examines the evolution of the maturity structure of marketable Treasury debt from 1953 to 1983. Average maturity contracted erratically from 1953 to 1960, then went through periods of expansion, contraction, and expansion again into the early 1980s. What accounts for these broad trends? In particular, what were the maturity objectives of Treasury debt managers? Were they able to achieve their objectives? Why or why not?
Kenneth Garbade, Staff Report 936, July 2020
It’s What You Say and What You Buy: A Holistic Evaluation of the Corporate Credit Facilities
The corporate bond market experienced historic turmoil as investors shed risky assets in response to the COVID-19 pandemic. The authors document that the Federal Reserve’s announcement of the Primary and Secondary Market Corporate Credit Facilities had an immediate positive impact on prices and liquidity in corporate bond markets. They also find that the improvement in corporate credit markets can be attributed both to the effect of Federal Reserve intervention announcements on the economy more broadly as well as to the facilities specifically.
Nina Boyarchenko, Anna Kovner, and Or Shachar, Staff Report 935, July 2020
Fundamental Disagreement about Monetary Policy and the Term Structure of Interest Rates
Bond yields reflect investors’ expectations about the future path of short rates as well as their attitudes toward risk. Most term structure models specify these two components of interest rates for a representative investor. In this paper, the authors propose and estimate a term structure model that explicitly incorporates differences in beliefs about future short rates.
Shuo Cao, Richard K. Crump, Stefano Eusepi, and Emanuel Moench, Staff Report 934, July 2020