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Economic Research

Do People View Housing as a Good Investment and Why?
The authors use data from the just released SCE Housing Survey to answer several questions about how households view housing as an investment: Is housing viewed as a good investment choice in comparison to financial assets, such as stocks? Are there cross-sectional differences in preferences for housing as an investment? What factors do households consider when making an investment choice between housing and financial assets?
By Andrew Haughwout, Haoyang Liu, Dean Parker, and Xiaohan Zhang
The New York Fed DSGE Model Forecast—March 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 December 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, Shlok Goyal, Alissa Johnson, and Andrea Tambalotti
Who Pays What First? Debt Prioritization during the COVID Pandemic
Since the depths of the Great Recession, household debt has increased from a low of $11 trillion in 2013 to more than $14 trillion in 2020. The authors examine how consumers’ repayment priorities have evolved. Specifically, they seek to answer: When consumers repay some but not all of their loans, which types do they prioritize?
By William J. Arnesen, Jacob Conway, and Matthew Plosser
Reasonable Seasonals? Seasonal Echoes in Economic Data after COVID-19
Seasonal adjustment is a key statistical procedure underlying the creation of many economic series. Large economic shocks, such as the 2007-09 downturn, can generate lasting seasonal echoes in subsequent data. The authors discuss the prospects for this echo effect after last year’s sharp economic contraction due to COVID-19 by focusing on the payroll employment series published by the U.S. Bureau of Labor Statistics.
By David Lucca and Jonathan Wright
Did Dealers Fail to Make Markets during the Pandemic?
In March 2020, at the onset of the COVID-19 pandemic, the ability of dealers to maintain liquid conditions in a range of financial markets was questioned. Reflecting these concerns, authorities took numerous steps, including providing regulatory relief. The authors examine liquidity provision by dealers in several financial markets during the pandemic: how much was provided, possible causes of any shortfalls, and the effects of the Federal Reserve’s actions.
By Jiakai Chen, Haoyang Liu, David Rubio, Asani Sarkar, and Zhaogang Song
Aggregate Output Measurements: A Common Trend Approach
The authors analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. They also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, they apply their framework to U.S. quarterly data on GDP and gross domestic income (GDI), obtaining an improved aggregate output measure.
Martín Almuzara, Gabriele Fiorentini, and Enrique Sentana, Staff Report 962, March 2021
Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico
To study inflation expectations and associated risk premia in emerging bond markets, the authors provide estimates for Mexico based on an arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for their liquidity risk. Their results indicate that long-term inflation expectations in Mexico are well anchored close to the inflation target of the Bank of Mexico. Furthermore, Mexican inflation risk premia are larger and more volatile than those in Canada and the United States.
Remy Beauregard, Jens H. E. Christensen, Eric Fischer, and Simon Zhu, Staff Report 961, March 2021
Credit Access and Mobility during the Flint Water Crisis
Beginning in April 2014, the residents of Flint, Michigan, were exposed to lead-contaminated water as a result of a series of governmental missteps. In this paper, the authors use the spatial distribution of lead and galvanized pipes in Flint to study the effect of the crisis on households’ financial health—including loan balances, repayment of outstanding debt, and Equifax risk scores— as well as on household mobility.
Nicole Gorton and Maxim Pinkovskiy, Staff Report 960, February 2021
Monetary Policy and Racial Inequality
The authors aim to provide an improved understanding of the relationship between monetary policy and racial inequality. They investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between Black and white households. They conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities. On the contrary, it may well accentuate inequalities for extended periods.
Alina K. Bartscher, Moritz Kuhn, Moritz Schularick, and Paul Wachtel, Staff Report 959, January 2021
Monetizing Privacy
The majority of retail payments in the United States are digital. The authors show that payment data drives the formation of a market monopoly in markets where consumers choose between payment options and firms compete with products and prices. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers’ welfare by enabling them to monetize their private information. The authors discuss the potential role of central banks in providing digital cash.
Rodney John Garratt and Michael Junho Lee, Staff Report 958, January 2021
Measuring Corporate Bond Market Dislocations
The authors measure dislocations in the corporate bond market in real time with the Corporate Bond Market Distress Index (CMDI), which allows for the aggregation of a broad set of measures of market functioning from primary and secondary bond markets into a single measure. They document that the CMDI correctly identifies periods of dislocations, is robust to alternative choices of the aggregation procedure, and provides differential predictive information for future real outcomes relative to common spread measures.
Nina Boyarchenko, Richard K. Crump, Anna Kovner, and Or Shachar, Staff Report 957, January 2021
Sophisticated and Unsophisticated Runs
In March 2020, at the beginning of the COVID-19 pandemic, investors redeemed en masse from prime money market funds (MMFs). The authors use the run to characterize the behavior of sophisticated (institutional) and unsophisticated (retail) investors. They show that the behavior of these two classes were dramatically different, which the authors attribute to their varying levels of sophistication.
Marco Cipriani and Gabriele La Spada, Staff Report 956, December 2020
Zombie Credit and (Dis-)Inflation: Evidence from Europe
The authors show that “zombie credit”—cheap credit to impaired firms—has a disinflationary effect. By helping distressed firms stay afloat, such credit creates excess production capacity, thereby putting downward pressure on product prices. They find that without a rise in zombie credit, inflation in Europe would have been 0.4 percentage point higher post-2012.
Viral V. Acharya, Matteo Crosignani, Tim Eisert, and Christian Eufinger, Staff Report 955, December 2020
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