Tweets by @NYFedResearch

Economic Research

If Prices Fall, Mortgage Foreclosures Will Rise
The recent growth in house prices reminds many of the first decade of the 2000s when house prices reversed, contributing to a broad housing market collapse that led to a financial crisis and a prolonged recession. This post explores the risk that such an event could recur if home prices go into reverse now. The authors find that there are important differences in the current environment that are likely to mitigate the risks emanating from the housing sector.
By Andrew Haughwout and Belicia Rodriguez
The Housing Boom and the Decline in Mortgage Rates
During the pandemic, national home values and housing activity soared as mortgage rates declined to historic lows. Under the “user cost” house price model, home values are held to be very sensitive to interest rates, especially at low interest rate levels. But the authors’ empirical estimates and prior studies suggest that the decline in mortgage rates can only explain low single-digit house price increases. Instead, they find that housing activity, both sales and construction, are very sensitive to interest rates.
By Haoyang Liu, David Lucca, Dean Parker, and Gabriela Rays-Wahba
Going with the Flow: Changes in Banks’ Business Model and Performance Implications
Does the performance of banks improve or worsen when banks enter into new business activities? And does it matter which activities a bank expands into, or retreats from, and when that decision is made? Drawing on research that uses a unique data set to detail the organizational structure of the entire population of U.S. bank holding companies, the authors show that while scope expansion on average hurts performance, entering into activities that are highly synergistic with core banking at a given point in time yields net performance benefits.
By Nicola Cetorelli, Michael G. Jacobides, and Samuel Stern
Forbearance Participation Declines as Programs’ End Nears
The Center for Microeconomic Data’s Quarterly Report on Household Debt and Credit for the second quarter of 2021 shows that overall household debt increased at a quick clip over the period, with a $322 billion increase in balances. Although some borrowers are originating new loans, struggling borrowers remain in forbearance programs, where they are pausing repayment on their debts and creating upward pressure on outstanding mortgage balances.
By Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Who Received Forbearance Relief?
Forbearance on debt repayment was a key provision of the CARES Act. The pause provided on required payments for federally guaranteed mortgages and student loans has offered temporary relief to those affected by the COVID-19 pandemic. Using a special survey section fielded with the March Survey of Consumer Expectations, the authors aim to understand who benefitted from these provisions. Specifically, were there differences by age, race, income, and educational background?
By Rajashri Chakrabarti, Jessica Lu, Joelle Scally, and Wilbert van der Klaauw
Recruiting Opportunities
The Market Events of Mid-September 2019
U.S. money markets unexpectedly experienced severe upward rate pressures on September 16 and 17, 2019, and on the 17th, the effective federal funds rate exceeded the top of the target range set by the Federal Open Market Committee. The authors provide an overview of the money markets that were most affected—the fed funds market and the repo market—and describe two primary factors that may have contributed to the market stress.
Gara Afonso, Marco Cipriani, Adam Copeland, Anna Kovner, Gabriele La Spada, and Antoine Martin, Economic Policy Review, August 2021
A Large Bayesian VAR of the United States Economy
The authors model the United States macroeconomic and financial sectors using a formal and unified econometric model. Through shrinkage, their Bayesian vector autoregression (VAR) provides a flexible framework for modeling the dynamics of thirty-one variables, many of which are tracked by the Federal Reserve. Considering its breadth and versatility for policy applications, their modeling approach gives a reliable, reduced form alternative to structural models.
Richard K. Crump, Stefano Eusepi, Domenico Giannone, Eric Qian, and Argia Sbordone, Staff Report 976, August 2021
Insurance Companies and the Growth of Corporate Loans' Securitization
Collateralized loan obligations have experienced extraordinary growth over the last decade. However, to date, little attention has been devoted to the drivers of that growth. The authors investigate the role that insurance companies have played in the growth of corporate loans' securitization and identify the key factors behind that role.
Fulvia Fringuellotti and João A. C. Santos, Staff Report 975, August 2021
Reserves Were Not So Ample After All
The Federal Reserve's “balance-sheet normalization"—which reduced aggregate reserves between 2017 and September 2019—increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses. Normalization culminated with a significant disruption in Treasury repo markets in mid-September 2019. The authors show that repo rates rose above efficient-market levels when the total reserve balances held at the Federal Reserve by the largest repo-active bank holding companies declined, and that repo rate spikes are strongly associated with delayed intraday payments of reserves to these large bank holding companies.
Adam Copeland, Darrell Duffie, and Yilin (David) Yang, Staff Report 974, July 2021
Tough Choices: New Jersey Schools during the Great Recession and Beyond
The authors study school finance patterns in New Jersey over the four years following the Great Recession, a period encompassing a severe economic downturn, an influx of federal stimulus funding, and the funding’s eventual depletion. Understanding the effects of the Great Recession on school finances is essential from policy, social, and scholarly perspectives. It is all the more relevant since the findings can provide unique insight into the possible effects of the current recession driven by the COVID-19 pandemic on school finances.
Rajashri Chakrabarti and Max Livingston, Economic Policy Review, July 2021
Who Pays the Price? Overdraft Fee Ceilings and the Unbanked
Nearly 25 percent of low-income households in the United States are unbanked—high fees are often cited as a reason. The authors use the federal preemption of state limits on overdraft fees to study the impact of fee ceilings on low-income households. They find that after preemption, the share of low-income households that are unbanked decreases, consistent with price ceilings causing the rationing of both overdraft and banking services.
Jennifer L. Dlugosz, Brian T. Melzer, and Donald P. Morgan, Staff Report 973, June 2021
U.S. Monetary Policy Spillovers to Emerging Markets: Both Shocks and Vulnerabilities Matter
The authors explore the interaction of sources of policy changes and country vulnerabilities in shaping how shifts in U.S. monetary policy transmit to foreign economies in a New Keynesian DSGE model. They show that higher U.S. interest rates arising from stronger U.S. demand generate modestly positive spillovers to output in economies with stronger fundamentals but can be detrimental for vulnerable emerging market economies due to tightening of their financial conditions.
Shaghil Ahmed, Ozge Akinci, and Albert Queralto, Staff Report 972, June 2021
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
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.   Close