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Economic Research

The New York Fed DSGE Model Forecast—June 2021
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 March 2021. 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, Shlok Goyal, and Alissa Johnson
Who Benefited from PPP Loans by Fintech Lenders?
The authors ask whether smaller firms received the amount of Paycheck Protection Program credit they requested, and whether loans went to the hardest-hit areas and mitigated job losses. Their results indicate that fintech providers were a key channel in reaching minority-owned firms, the smallest of small businesses, and the borrowers most affected by the coronavirus pandemic.
By Jessica Battisto, Nathan Godin, Claire Kramer Mills, and Asani Sarkar
Who Received PPP Loans by Fintech Lenders?
The U.S. government launched the Paycheck Protection Program (PPP) to provide guaranteed and potentially forgivable loans to small businesses that were hard hit by the pandemic. The authors examine financial technology (fintech) lenders participating in the PPP and find that, although disbursing only a small share of total loan amounts, these lenders provided important support to minority business owners, who have in the past been underserved by the traditional banking industry.
By Jessica Battisto, Nathan Godin, Claire Kramer Mills, and Asani Sarkar
COVID-19 and Small Businesses: Uneven Patterns by Race and Income
The authors examine trends in the revenue of small businesses during the course of the pandemic. They find that all counties experienced a drastic decline in consumer spending when the pandemic hit, but the extent of the decline differed as did the rates of recovery along the demographic lines of race and income.
By Ruchi Avtar, Rajashri Chakrabarti, Davide Melcangi, Maxim Pinkovskiy, and Giorgio Topa
The Overnight Drift in U.S. Equity Returns
Since the advent of electronic trading, S&P 500 futures have traded close to 24 hours a day. The authors document that holding U.S. equity futures overnight has earned a large positive return during the opening hours of European markets. The largest positive returns in the 1998–2019 sample have accrued between 2 a.m. and 3 a.m. U.S. Eastern time—the opening of European stock markets—and averaged 3.6 percent on an annualized basis, a phenomenon they call the overnight drift.
By Nina Boyarchenko, Lars C. Larsen, and Paul Whelan
Interest, Reserves, and Prices
The authors have proposed a new framework for monetary policy analysis that encompasses, as a special case, the Neo-Wicksellian paradigm. A general form of an aggregate-demand equation reveals a role for liquidity, as well as less effective movements in future real rates with respect to current ones, in stimulating aggregate demand. The quantity of reserves and their interest rate both matter for determining inflation and economic activity.
Gianluca Benigno and Pierpaolo Benigno, Staff Report 971, June 2021
Combinatorial Growth with Physical Constraints: Evidence from Electronic Miniaturization
Although the effect of the increasing quality of computers and electronics on GDP has been widely studied, the question of how electronic miniaturization affects economic growth has not been explored. To quantify the effect of electronic miniaturization on GDP, this paper builds an economic growth model that incorporates physical constraints on firms' production sets. Using a new data set of product weights and sizes, the author tests the predictions of the model and shows that Moore's Law accounts for approximately 3.5 percent of all productivity growth in the 1982-2007 period, and for 37.5 percent of the productivity growth in heavy manufacturing industries.
Pablo Azar, Staff Report 970, May 2021
The Value of Internal Sources of Funding Liquidity: U.S. Broker-Dealers and the Financial Crisis
The authors use confidential and novel data to measure the benefit to broker-dealers of being affiliated with a bank holding company and the resulting access to internal sources of funding. They compare the balance sheets of broker-dealers that are associated with bank holding companies to those that are not and find that the latter dramatically restructured their balance sheets during the 2007-9 financial crisis, pivoting away from trading illiquid assets and toward more liquid government securities.
Cecilia Caglio, Adam Copeland, and Antoine Martin, Staff Report 969, May 2021
U.S. Market Concentration and Import Competition
An increase in the concentration among domestic firms in the United States has raised concerns of increasing market power. Using confidential census data for the manufacturing sector, the authors show that typical measures of concentration, once adjusted for sales by foreign exporters, actually stayed constant between 1992 and 2012. They reconcile these findings by linking part of the increase in domestic concentration to import competition. Although concentration among U.S.-based firms rose, the growth of foreign firms, mostly at the bottom of the sales distribution, counteracted this increase.
Mary Amiti and Sebastian Heise, Staff Report 968, May 2021
Specialization in Banking
Using highly detailed data on the loan portfolios of large U.S. banks, the authors document that these banks "specialize" by concentrating their lending disproportionately in one industry. This specialization improves a bank’s industry-specific knowledge and enables it to offer generous loan terms to borrowers, especially to firms with access to alternate sources of funding and during periods of greater nonbank lending. Specialization also counteracts a well-documented trend of reduced lending by large banks to opaque small and medium-size enterprises.
Kristian Blickle, Cecilia Parlatore, and Anthony Saunders, Staff Report 967, May 2021
Complexity and Riskiness of Banking Organizations: Evidence from the International Banking Research Network
Financial sector reforms implemented in the past decade have aimed to reduce and to better manage the risk implications of bank complexity. Yet surprisingly little is known about changes in complexity across countries, its drivers, and its effects. The International Banking Research Network used data and analytical advances to generate rich cross-country insights on the complexity and riskiness of banking organizations.
Claudia M. Buch and Linda Goldberg, Staff Report 966, May 2021
Defragmenting Markets: Evidence from Agency MBS
The authors study the economic consequences of fragmentation in the agency mortgage backed securities (MBS) market dominated by the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. MBS trading is concentrated in the “To-Be-Announced” (TBA) forward market. But until recently, MBS issued by the two GSEs traded separately in this market. The authors study the effects of this fragmentation, and then analyze a recent change in market structure, the “Single Security Initiative,” which consolidated Fannie Mae and Freddie Mac MBS into a single market in June 2019.
Haoyang Liu, Zhaogang Song, and James Vickery, Staff Report 965, May 2021
The Netting Efficiencies of Marketwide Central Clearing
Market disruptions in response to the COVID pandemic spurred calls for the consideration of marketwide central clearing of Treasury securities, which might better enable dealers to intermediate large customer trading flows. The authors assess the netting efficiencies of increased central clearing using nonpublic Treasury TRACE transactions data.
Michael Fleming and Frank Keane, Staff Report 964, April 2021
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