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Economic Research

Liberty Street Economics
Just Released: August Regional Survey—Businesses See Tariffs Raising Prices
Recently implemented trade tariffs are raising both input costs and selling prices for local businesses, according to the New York Fed’s August surveys of manufacturers and service firms. About three-quarters of manufacturing firms and a little more than half of service firms in the Bank’s surveys report having at least some foreign customers.
By Jason Bram and Richard Deitz
Just Released: Cleaning Up Collections
In the past ten years alone, more than 40 percent of individuals with credit reports had an account in collections at some point. In conjunction with the release of the Quarterly Report on Household Debt and Credit for the second quarter of 2018, researchers from the Center for Microeconomic Data take a closer look at collections accounts.
By Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Opening the Toolbox: The Nowcasting Code on GitHub
In April 2016, the New York Fed unveiled and began publishing its New York Fed Staff Nowcast—an estimate of GDP growth using an automated platform for tracking economic conditions in real time. Our bloggers build on that history by publishing the MATLAB code for the nowcasting model, which is available on GitHub, a public repository hosting service.
By Patrick Adams, Brandyn Bok, Daniele Caratelli, Domenico Giannone, Eric Qian, Argia Sbordone, Camilla Schneier, and Andrea Tambalotti
How do the Fed’s MBS Holdings Affect the Economy?
Our bloggers continue their analysis with a discussion of how the Federal Reserve’s purchases of mortgage-backed securities (MBS) affect the U.S. economy and, in particular, how the effect of MBS purchases can differ from the effect of purchases of Treasury securities.
By Antoine Martin and Sam Schulhofer-Wohl
How Do the Fed's MBS Purchases Affect Credit Allocation?
Our bloggers examine two ideas often associated with credit allocation. First, the Federal Reserve should not take credit risk, which taxpayers would ultimately have to bear. Second, the Fed’s actions should not influence the flow of credit to particular sectors. The authors consider whether the Fed’s holdings of agency mortgage-backed securities (MBS) could affect the allocation of credit.
By Antoine Martin and Sam Schulhofer-Wohl
Recent Publications
Is Size Everything?
Firm size has traditionally been viewed as the main source of systemic risk, but since the crisis of 2007-08, there has been increased focus on complexity and interconnectedness risk, both by regulators and market participants. The authors construct factors based on these three criteria—while also accounting for leverage and liquidity risk—and estimate the amount of subsidies implied by the factor loadings.
By Samuel Antill and Asani Sarkar, Staff Report 864, August 2018
Credit Market Choice
Which markets do financial institutions use to change their exposure to credit risk? The authors employ a unique data set of transactions in corporate bonds and the credit default swap (CDS) market by large financial institutions to show that simultaneous transactions in both markets are rare. Among their findings: Institutions change their market participation decisions in response to changes in the regulatory environment.
Nina Boyarchenko, Anna M. Costello, and Or Shachar, Staff Report 863, August 2018
Insider Networks
The authors develop a model to study the formation and regulation of information transmission networks. For any given regulatory environment, agents adapt by forming networks—to disseminate and share insider information—that are sufficiently complex to circumvent prosecution by regulators. In equilibrium, regulators implement regulatory ambiguity that induces a fraction of agents to take greater risks in information transmission. Agents adapt to regulation by forming a flexible network with a core-periphery structure, which endows agents with the option to transmit information through various paths of differing length.
By Selman Erol and Michael Junho Lee, Staff Report 862, August 2018
Uncertain Booms and Fragility
The author develops a model that provides a framework that weaves together the run-up, trigger, and outbreak of a financial crisis. In equilibrium, two distinct economic states arise endogenously: normal times—periods of modest investment—and booms—periods of expansionary investment. During a boom, the subsequent arrival of negative information about an intermediary asset results in large downward shifts in investors’ confidence about the underlying quality of long-term assets. A crisis of confidence ensues. Investors collectively force costly early liquidation of the intermediated assets and move capital to safe assets, in a flight-to-quality episode.
By Michael Junho Lee, Staff Report 861, July 2018
The Pre-Crisis Monetary Policy Implementation Framework
The authors describe the Federal Reserve’s operating framework for monetary policy prior to the expansion of the Fed’s balance sheet during the financial crisis. This pre-crisis framework was effective at meeting monetary policy objectives but receives mixed reviews in terms of unimpaired financial market functioning, efficiency, and transparency. It has been abandoned in favor of a framework that enables the Federal Reserve Bank of New York’s Open Market Trading Desk(the “Desk”) to continue to carry out FOMC objectives regardless of the amount of reserves in the banking system. The Desk has successfully controlled the policy rate using this new framework, suggesting that effective monetary control may be achieved through different frameworks.
By Alexander Kroeger, John McGowan, and Asani Sarkar, Economic Policy Review, Forthcoming
Tracking and Stress-Testing U.S. Household Leverage
The authors analyze household leverage—the ratio of housing debt to housing values—over time and across states and regions, using a unique new data set. They find that leverage was low before 2006, rose rapidly through 2012, and then—as home prices recovered—fell back toward pre-crisis lows by early 2017. Their stress tests to project the likely consequences of declining home prices of different severities reveal that, while the riskiness of the household sector has declined significantly since 2012, when home prices were at their low, the sector remains vulnerable to very severe declines in house prices.
By Andreas Fuster, Benedict Guttman-Kenney, and Andrew Haughwout, Economic Policy Review, Forthcoming