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Economic Research

Securing Secured Finance: The Term Asset-Backed Securities Loan Facility
In March, the Federal Reserve established the Term Asset-Backed Securities Loan Facility (TALF) to facilitate the issuance of asset-backed securities backed by a variety of loan types. The facility re-enabled the flow of credit to households and businesses of all sizes, which had been disrupted by the COVID-19 pandemic. The authors describe how the TALF works, its impact on market conditions, and how it differs from the TALF that the Fed established in 2009.
By Elizabeth Caviness and Asani Sarkar
A Monthly Peek into Americans’ Credit During the COVID-19 Pandemic
According to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data, for the first time, the dynamics in household debt balances were driven primarily by a sharp decline in credit card balances, as consumer spending plummeted in the second quarter. The authors present six key takeaways on the consumer balance sheet in the months since COVID-19 hit.
By Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Reconsidering the Phase One Trade Deal with China in the Midst of the Pandemic
Trade tensions between the United States and China eased with the Phase One agreement in January—China committed to a massive increase in its purchases of U.S. goods and services. At that time, the U.S. economy was operating near full capacity. The environment is now starkly different. Although the promised increase in Chinese purchases seems unlikely, any appreciable increase in exports from the agreement could deliver a meaningful boost to the U.S. economy.
By Matthew Higgins and Tom Klitgaard
Tracking the COVID-19 Economy with the Weekly Economic Index (WEI)
At the end of March, the authors launched the WEI as a tool to monitor changes in real activity during the pandemic. So far in 2020, the WEI has synthesized daily and weekly data to measure GDP growth remarkably well. This post documents this performance and offers some guidance on evaluating the WEI’s forecasting abilities based on 2020 data and interpreting WEI updates and revisions.
Daniel Lewis, Karel Mertens, and James Stock
The Federal Reserve’s Large-Scale Repo Program
The U.S. repo market suffered severe liquidity strains in March, due in part to the heightened uncertainty related to the coronavirus pandemic and to the path of policy. The strains were particularly severe in the term repo market, in which borrowing and lending arrangements are for longer than one business day. The authors discuss the causes of the liquidity disruptions that arose in the repo market as well as the Federal Reserve’s actions to address those disruptions.
By Kevin Clark, Antoine Martin, and Tim Wessel
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
Cash-Forward Arbitrage and Dealer Capital in MBS Markets: COVID-19 and Beyond
The authors focus on the market for agency mortgage-backed securities (MBS) and provide empirical evidence on the economic channels underlying the asset market disruptions during the COVID-19 crisis, as well as the effect of the Federal Reserve’s interventions in its role as the “dealer of last resort.” Their analysis focuses on the price deviation between the cash market and the forward market of agency MBS, controlling for differences in MBS fundamentals.
Jiakai Chen, Haoyang Liu, Asani Sarkar, and Zhaogang Song, Staff Report 933, July 2020
Stock Market Participation, Inequality, and Monetary Policy
What is the role of stock investors in the transmission of monetary policy to the real economy? The authors argue that in order to assess the stock investment channel, it is critical to consider heterogeneity among households regarding their participation in the stock market and the amount of the investment. Accordingly, they develop a New Keynesian model with household heterogeneity that can account for the cross-sectional relation between income, saving, and stock investment.
Davide Melcangi and Vincent Sterk, Staff Report 932, July 2020