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Economic Research

At the New York Fed: Sixth Annual Conference on the U.S. Treasury Market
The New York Fed recently hosted the sixth annual U.S. Treasury Market Conference. The agenda featured a number of panels and speeches on the effects of the COVID-19 pandemic on the Treasury market in March 2020, the ensuing policy response, and ways that market resiliency could be improved in light of the vulnerabilities revealed. Two speeches also touched on the ongoing transition from LIBOR to alternative reference rates.
By Michael J. Fleming, Gabriel Herman, and Frank Keane
How Do Consumers Believe the Pandemic Will Affect the Economy and Their Households?
The authors analyze consumers’ beliefs about the duration of the economic impact of the pandemic. They also present new evidence on consumers’ expected spending, income, debt delinquency, and employment outcomes conditional on different scenarios for the future path of the pandemic. Among their findings: Between June and August respondents grew less optimistic about the pandemic’s economic consequences ending in the near future.
By Olivier Armantier, Leo Goldman, Gizem Koşar, Jessica Lu, Rachel Pomerantz, and Wilbert van der Klaauw
COVID-19 Has Temporarily Supercharged China’s Export Machine
China’s export performance has been stronger than expected this year. But a closer look reveals that this growth has not been broad-based. Instead it’s concentrated in areas that were well-positioned to take advantage of the COVID-19 crisis—for example, production of medical supplies. Once the crisis passes, China’s exports will likely return to their pre-coronavirus growth path, including a gradual loss of market share to other countries.
By Hunter L. Clark
How Have Households Used Their Stimulus Payments and How Would They Spend the Next?
The authors examine how households used economic impact payments, a large component of the CARES Act. Signed into law in March, the Cares Act directed stimulus payments to many Americans to help offset the economic fallout from the coronavirus pandemic. The analysis shows that although the stimulus acted as a significant economic boon, households spent a relatively small share of their payments by June 2020.
By Olivier Armantier, Leo Goldman, Gizem Koşar, Jessica Lu, Rachel Pomerantz, and Wilbert van der Klaauw
Weathering the Storm: Who Can Access Credit in a Pandemic?
Credit enables firms to weather temporary disruptions in their business. The onset of the COVID recession sparked a massive increase in bank credit, largely driven by firms drawing on pre-committed credit lines. In this post, the authors review findings from their recent Staff Report in which they investigate which firms were able to tap into bank credit to help sustain their business over the ensuing downturn.
By Gabriel Chodorow-Reich, Harry Cooperman, Olivier Darmouni, Stephan Luck, and Matthew Plosser
Recruiting Opportunities
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
How Stable Is China’s Growth? Shedding Light on Sparse Data
Disagreements on China’s business cycle stem from differing views on the reliability and accuracy of China’s official economic statistics and on differing approaches to addressing perceived shortcomings in the official data. The authors seek to add some alternative indicators to policymakers’ toolbox for measuring China’s cyclical fluctuations, which, in turn, can be used as inputs for making relevant policy decisions. They also offer some observations on what the indicators say about cyclical fluctuations in longer-term trend growth.
Hunter Clark, Jeff Dawson, and Maxim Pinkovskiy, Economic Policy Review
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
China's Growth Outlook: Is High-Income Status in Reach?
Decades of rapid economic growth have propelled China out of poverty and into middle-income status. Now it faces a new challenge: escaping the so-called “middle-income trap.” The author develops a set of growth projections, drawing on the experience of other countries that have reached China's current income level. The results are stark. Given an aging population and diminishing returns to capital, China can only attain high-income status in the coming decade by sustaining productivity growth at the top end of the range attained by its Pacific Rim neighbors.
Matthew Higgins, Economic Policy Review
The Impact of Foreign Slowdown on the U.S. Economy: An Open Economy DSGE Perspective
The authors use a multi-country dynamic stochastic general equilibrium (DSGE) model to study the role of financial integration in the global transmission of demand shocks—examining the impact of economic spillovers to the United States from slowdowns originating in the euro area and China. They first consider a foreign slowdown scenario in which policy space in the advanced foreign economy (AFE) bloc is unrestricted and interest rates are above the zero lower bound. They then consider a scenario in which policy space in the AFE bloc is restricted in order to assess the role of limited policy space in the advanced economies outside the United States.
Ozge Akinci, Gianluca Benigno, and Paolo Pesenti, 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
Bank Liquidity Provision across the Firm Size Distribution
The authors investigate differences in the provision of bank liquidity across the range of firm sizes. Using supervisory data covering two-thirds of all commercial and industrial loans, including 50,000 small and medium enterprises (SMEs), they present five facts about differences in loan terms to large and small firms that reflect lender commitment to the former and discretion to the latter.
Gabriel Chodorow-Reich, Olivier Darmouni, Stephan Luck, and Matthew Plosser, Staff Report 942, October 2020
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