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Economic Research

The Transatlantic Economy Policy Responses to the Pandemic and the Road to Recovery Conference
The Federal Reserve Bank of New York, the European Commission, and the Center for Economic and Policy Research jointly organized the “Transatlantic Economic Policy Responses to the Pandemic and the Road to Recovery” conference on November 18, 2021. The conference was held before the Russian invasion of Ukraine and the global monetary tightening. Still, its medium to long-term focus provides interesting insights on economic policy challenges ahead. This post summarizes the principal themes and findings of the conference discussion.
By Moreno Bertoldi, Paolo Pesenti, and Hélène Rey
The Bond Market Selloff in Historical Perspective
Treasury yields have risen sharply in recent months. Increasing yields result in realized or mark-to-market losses for fixed-income investors. In this post, the authors put these losses in historical perspective and investigate whether longer-term yield changes are better explained by expectations of higher short-term rates, or by investors demanding greater compensation for holding Treasuries.
By Tobias Adrian and Michael Fleming
Do Corporate Profits Increase When Inflation Increases?
When inflation is high, companies may raise prices to keep up with the higher costs. However, market watchers and journalists have wondered if corporations have taken advantage of high inflation to increase corporate profits. The authors look at this question through the lens of public companies, finding that in general, increased prices in an industry are often associated with higher corporate profits. However the current relationship between inflation and profit growth is not unusual in the historical context.
By Mathias Andler and Anna Kovner
The Global Dash for Cash in March 2020
The economic disruptions associated with the COVID-19 pandemic sparked a global dash for cash. Selling pressure occurred across advanced sovereign bond markets and caused a deterioration in market functioning, leading to a number of central bank actions. The authors show that these disruptions occurred disproportionately in the U.S. Treasury market. They also explain why the selling was more pronounced and broad-based in the U.S. than in other sovereign bond markets.
By Jordan Barone, Alain Chaboud, Adam Copeland, Cullen Kavoussi, Frank Keane, and Seth Searls
Consumer Scores and Price Discrimination
Most consumers likely are familiar with credit scores. But there are a plethora of scores that have emerged recently, as a consequence of the abundant consumer data that can be gathered online. Unlike traditional credit scores, however, these scores are not available to consumers. Can consumers benefit from data collection even if the ensuing scores are eventually used “against” them, for instance, by enabling firms to set individualized prices?
By Alessandro Bonatti and Gonzalo Cisternas
Special Issue:
Policy Actions in Response to the COVID-19 Pandemic
In response to the economic dislocations brought about by the COVID-19 pandemic, the Federal Reserve, along with other players in the official sector—including institutions like the Treasury and Congress—launched a number of facilities and other policy interventions to support market functioning and the flow of credit to households and businesses. Ten new articles focus on those facilities, offering background on the market conditions that led to their establishment, details on the facilities’ design, and assessments of their impact.

View the individual articles
View the full issue
Income Inequality and Job Creation
Since the 1970s the share of income accruing to high-income households in the United States has increased substantially. Today the top 10 percent income share stands at around 50 percent, and addressing inequality has become a central issue for policy makers. The authors establish a link between top income shares and job creation at firms of different sizes. They propose a novel mechanism through which rising top income shares alter the relative availability of funding between small and large firms, and thereby affect their job creation.
Donggyu Lee, Sebastian Doerr, and Thomas Drechsel, Staff Report 1021, June 2022
A Bayesian Approach for Inference on Probabilistic Surveys
The authors propose a nonparametric Bayesian approach for conducting inference on probabilistic surveys. They study whether U.S. Survey of Professional Forecasters density projections for output growth and inflation are consistent with the noisy rational expectations hypothesis. They find that in contrast to theory, for horizons close to two years there is no relationship whatsoever between subjective uncertainty and forecast accuracy for output growth density projections, both across forecasters and over time, and only a mild relationship for inflation projections. As the horizon shortens, the relationship becomes one-to-one, as the theory would predict.
Marco Del Negro, Roberto Casarin, and Federico Bassetti, Staff Report 1025, July 2022
Fragility of Safe Asset Markets
Safe assets play several special roles in the economy. The authors argue that safe asset markets suffer from fragility because of two key characteristics of the assets—safety and liquidity—that interact with each other and with frictions in how the markets operate. Drawing on this interaction, their model helps to understand the unprecedented events in U.S. Treasury markets at the onset of the COVID-19 pandemic in March 2020 and highlights the risks of such events repeating in the future in safe asset markets more broadly.
Thomas M. Eisenbach and Gregory Phelan, Staff Report 1026, July 2022
Global Supply Chain Pressures, International Trade, and Inflation
COVID-19 has been a historically unique shock to the global economy. The authors study the impact of the COVID-19 pandemic on euro area inflation and how it compares to the experiences of other countries, such as the United States, over the two-year period 2020-21.
Julian di Giovanni, Şebnem Kalemli-Özcan, Alvaro Silva, and Muhammed A. Yildirim, Staff Report 1024, July 2022
Intermediary Balance Sheets and the Treasury Yield Curve
The U.S. Treasury market is one of the most important financial markets in the world. Treasury bonds have long been considered a safe haven for global investors. In this paper, the authors document that the dynamics of how Treasury yields changed substantially at the time of the global financial crisis and propose a framework to explain these changes.
Wenxin Du, Benjamin Hébert, and Wenhao Li, Staff Report 1023, July 2022
When It Rains, It Pours: Cyber Risk and Financial Conditions
The authors explore how systemic cyber risk is related to financial system disruptions, to see whether it’s appropriate to continue to view cyber and other financial shocks as uncorrelated vulnerabilities. In other words, when it rains and negative shocks lead to financial market dislocations, does it also pour by increasing the risks posed by a cyber attack?
Thomas M. Eisenbach, Anna Kovner, and Michael Junho Lee, Staff Report 1022, June 2022
A Robust Test for Weak Instruments with Multiple Endogenous Regressors
First-stage tests—as those proposed in Stock and Yogo (2005), or more recently Montiel Olea and Pflueger (2013)—are a widely used diagnostic tool to assess instrument relevance in empirical applications that involve instrumental variables. When researchers are not comfortable imposing homoskedasticity assumptions for second-stage inference, they should also avoid imposing such assumptions in first-stage testing procedures. In this paper, the authors generalize the testing approach of Montiel, Olea, and Pflueger (2013) to provide a first-stage test that is valid under heteroskedasticity and autocorrelation regardless of the number of endogenous regressors.
Daniel J. Lewis and Karel Mertens, Staff Report 1020, June 2022
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