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Economic Research

Real Inventory Slowdowns
The authors examine whether inventory investment amplifies or dampens economic fluctuations following a tightening in financial conditions. They find evidence that inventories act as amplifiers of the business cycle. Their analysis suggests that inventory accumulation will be a drag on economic activity this year but provide a boost in 2020.
By Richard Crump, David Lucca, and Casey McQuillan
Racial Disparities in Student Loan Outcomes
A $20 billion rise in student loan balances in the third quarter of this year contributed to a $92 billion increase in total household debt, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. This post explores racial disparities in student loan outcomes using information about the borrowers’ locations, grouping zip codes based upon which racial group constitutes the majority of an area’s residents.
By Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
The Side Effects of Shadow Banking on Liquidity Provision
Over the past two decades, the growth of shadow banking has transformed the way the U.S. banking system provides funding to corporations. In this post, the authors describe how this growth has affected both the term loan and credit line businesses, and how the changes have resulted in a reduction in the liquidity insurance provided to corporations.
By Teodora Paligorova and João A.C. Santos
At the New York Fed: Fifth Annual Conference on the U.S. Treasury Market
The New York Fed recently co-sponsored the fifth annual Conference on the U.S. Treasury Market with the U.S. Department of the Treasury, the Federal Reserve Board, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission. This year’s agenda covered a variety of topics, including issues related to LIBOR transition, data transparency and reporting requirements, and market structure and risk.
By Michael J. Fleming, Peter Johansson, Frank M. Keane, and Justin Meyer
Trade Policy Uncertainty May Affect the Organization of Firms’ Supply Chains
Uncertainty about global trade policy has increased largely because of a changing tariff regime between the United States and China. The authors argue that trade policy can have a significant effect on firms’ organization of supply chains. When the probability of a trade war rises, firms become less likely to form long-term, just-in-time relationships with foreign suppliers. The authors show that, even in the absence of actual tariff changes, an increased likelihood of a trade war can significantly distort U.S. imports.
By Sebastian Heise, Justin R. Pierce, Georg Schaur, and Peter K. Schott
Federal Reserve Participation in Public Treasury Offerings
The author describes the evolution of the Federal Reserve System’s participation in public Treasury offerings from the period before 1935 to the present day. The discussion includes how the System adapted its operating procedures to comply with a 1935 limitation imposed by the Banking Act of 1935, how it modified its operating procedures from time to time in response to changes in Treasury funding techniques, and how the System and the Treasury worked together to improve both Treasury debt management and System reinvestment operations.
Kenneth Garbade, Staff Report 906, December 2019
Individual and Market-Level Effects of UI Policies: Evidence from Missouri
Extending unemployment insurance (UI) benefits is one of the most commonly used macroeconomic stabilization tools in the United States. The authors develop a method to jointly measure the response of worker search effort (individual effect) and vacancy creation (market-level effect) to changes in the duration of UI benefits. To implement this approach, they exploit an unexpected cut in UI durations in Missouri and provide quasi-experimental evidence on the effect of UI on the labor market.
Fatih Karahan, Kurt Mitman, and Brendan Moore, Staff Report 905, December 2019
Firms’ Precautionary Savings and Employment during a Credit Crisis
Can the macroeconomic effects of credit supply shocks be large even when a small share of firms are credit-constrained? The author uses U.K. firm-level accounting data to discipline a heterogeneous-firm model in which the interaction between real and financial frictions induces precautionary cash holdings.
Davide Melcangi, Staff Report 904, November 2019
Multimodality in Macro-Financial Dynamics
The authors propose a new non-parametric approach to estimate the joint distribution of economic and financial conditions in the United States, which enables them to uncover a novel feature of the data: although the conditional joint distribution is unimodal and approximately Gaussian during normal times, multimodality emerges when financial conditions are tight, regardless of how benevolent the economic conditions are.
Tobias Adrian, Nina Boyarchenko, and Domenico Giannone, Staff Report 903, November 2019
Latent Heterogeneity in the Marginal Propensity to Consume
The authors develop a flexible approach to uncover latent heterogeneity in cross-sectional and short-panel data, and use it to estimate heterogeneity in the marginal propensity to consume (MPC). They find that households display a considerable degree of heterogeneity in MPCs. They also show that different consumption goods are associated with different distributions, suggesting the need to take good-specific heterogeneity seriously in consumption/savings models.
Daniel Lewis, Davide Melcangi, and Laura Pilossoph, Staff Report 902, November 2019
The Federal Funds Market over the 2007-09 Crisis
To measure how the 2007-09 financial crisis affected the U.S. federal funds market, the author develops and estimates a structural model in which borrowers have an unobserved probability of default. The model estimates imply that there is an increase in the expected default probability, but the increase does not cause a severe disruption in the fed funds market because there is a simultaneous increase in the supply of funds.
Adam Copeland, Staff Report 901, November 2019
Endogenous Leverage and Default in the Laboratory
Do markets set collateral requirements high enough to prevent default? The authors address this question through a laboratory experiment. The laboratory results confirm that whether collateral is financial or nonfinancial matters. Default rates and loss from default are higher when the assets used as collateral are nonfinancial, stemming from laxer collateral requirements.
Marco Cipriani, Ana Fostel, and Daniel Houser, Staff Report 900, November 2019
Optimal Policy for Macro-Financial Stability
The authors show that the same set of policy tools that implements “constrained efficient allocation”—defined as a planning problem in which the social planner faces resource and technological constraints along with the borrowing limit—can also be used optimally by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. The constrained social planner approach may lead to inaccurate characterizations of welfare-maximizing policies relative to the Ramsey approach.
Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci, and Eric R. Young, Staff Report 899, October 2019