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Economic Research

Liberty Street Economics
The New York Fed DSGE Model Forecast—June 2019
This post presents the latest quarterly update to the economic forecasts generated by the New York Fed’s dynamic stochastic general equilibrium (DSGE) model and its change since January. The current 2019 Q4/Q4 GDP growth forecast of 1.8 percent is a bit stronger than the projection of 1.6 percent in January.
By Sushant Acharya, Michael Cai, Marco Del Negro, Ethan Matlin, and Reca Sarfati
The Cost of College Continues to Climb
In the first of two posts, our bloggers examine the rising cost of college and whether getting a college degree is still “worth it.” They update their 2014 study by estimating the cost of college in terms of both out-of-pocket expenses and opportunity costs. They find that the cost of college has increased sharply over the past several years as opportunity costs have increased, substantially owing to a rise in the wages of those without a college degree.
By Jaison R. Abel and Richard Deitz
Is There Too Much Business Debt?
By many measures, nonfinancial corporate debt has been increasing as a share of GDP and assets since 2010. As the May Federal Reserve Financial Stability Report explained, high business debt can be a financial stability risk because heavily indebted corporations may need to cut back spending more sharply when shocks occur. Our bloggers review measures of corporate leverage in the United States and find that, although corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.
By Anna Kovner and Brandon Zborowski
New China Tariffs Increase Costs to U.S. Households
Tariffs on $200 billion of U.S. imports from China were increased from 10 percent to 25 percent beginning May 10, 2019, following a breakdown in trade negotiations. In this post, the authors analyze the cost of these new, higher tariffs and find that they impose an annual cost of $831 on the typical U.S. household.
By Mary Amiti, Stephen J. Redding, and David E. Weinstein
Press Briefing on the Evolution and Future of Homeownership
The New York Fed today held a press briefing on homeownership in the United States in connection with its release of the 2019 SCE Housing Survey, a part of the broader Survey of Consumer Expectations (SCE). The briefing, which opened with remarks by New York Fed President John Williams, included a presentation by Bank economists on how homeownership has evolved over the past fifty-plus years.
By Olivier Armantier, Andrew Haughwout, Gizem Kosar, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Recent Publications
Monetary Policy and Financial Conditions: A Cross-Country Study
The authors provide a novel rationale for the importance of financial conditions in the conduct of monetary policy by showing that financial conditions are highly significant forecasting variables for the conditional distribution of the output gap. They extend recent research to a multi-country setting, focusing on the GDP gap (difference between GDP and its potential), instead of GDP growth. They document that loose financial conditions forecast a high GDP gap and low GDP volatility up to six quarters. This finding is robust across countries, conditioning variables, and time periods.
Tobias Adrian, Fernando Duarte, Federico Grinberg, and Tommaso Mancini-Griffoli, Staff Report 890, June 2019
A Unified Approach to Measuring u*
The authors combine the key features of two popular approaches to estimate the natural rate of unemployment, u*, in the United States in the period from 1960 to 2018. They use both data on labor market flows and a forward-looking Phillips curve that links inflation to current and expected deviations of unemployment from its unobserved natural rate. The authors estimate that the natural rate of unemployment was around 4.0 percent toward the end of 2018 and that the unemployment gap was roughly closed.
Richard K. Crump, Stefano Eusepi, Marc Giannoni, and Ayşegül Şahin, Staff Report 889, May 2019
Demographic Origins of the Startup Deficit
Why has the U.S. startup rate—measured as the ratio of new employers to all employers—been trending down for nearly four decades? The authors point to a slowdown in labor supply growth since the late 1970s, which explains roughly two-thirds of the decline and why incumbent firm survival and average growth over the lifecycle have been little changed. The authors show these results in a standard model of firm dynamics, testing the underlying economic mechanism using shocks to labor supply growth across states.
Fatih Karahan, Benjamin Pugsley, and Ayşegül Şahin, Staff Report 888, May 2019
The Long Road to Recovery: New York Schools in the Aftermath of the Great Recession
This study investigates school finance patterns in New York for the four years following the Great Recession. The authors find that $6 billion in federal stimulus funding initially helped schools offset a loss in state and local support and maintain total funding and expenditure per student in line with pre-recession trends. The stimulus, however, ended in 2011, before the state and local economies fully recovered, forcing school districts to make widespread cuts in expenditures, including for classroom instruction.
Rajashri Chakrabarti and Max Livingston, Economic Policy Review, Forthcoming
Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates
This paper uses a standard New Keynesian model to analyze the effects and implementation of various monetary policy frameworks in the presence of a low natural rate of interest and a lower bound on interest rates.
Thomas M. Mertens and John C. Williams, Staff Report 887, May 2019
Tick Size Change and Market Quality in the U.S. Treasury Market
Tick size, or the minimum price increment, influences trading strategies and market outcomes. The authors study a recent tick size reduction in the U.S. Treasury securities market and identify the effects on the market's liquidity and price efficiency. Among their findings: Based on difference-in-difference regressions, the bid-ask spread narrows significantly, even for large trades, coupled with increased trading activity. Overall, the authors conclude that the tick size reduction improves market quality.
Michael Fleming, Giang Nguyen, and Francisco Ruela, Staff Report 886, April 2019
Money, Credit, Monetary Policy, and the Business Cycle in the Euro Area: What Has Changed since the Crisis?
This article studies the relationship between the business cycle and financial intermediation in the euro area. The authors establish stylized facts and study their stability during the global financial crisis and the European sovereign debt crisis. Long-term interest rates have been exceptionally high, and long-term loans and deposits have been exceptionally low, since the Lehman collapse. However, short-term interest rates and short-term loans and deposits did not show abnormal dynamics in the course of the financial and sovereign debt crisis.
Domenico Giannone, Michele Lenza, and Lucrezia Reichlin, Staff Report 885, April 2019