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Economic Research

First-Time Buyers Were Undeterred by Rapid Home Price Appreciation in 2021
Tight inventories combined with strong demand pushed up national house prices by an eye-popping 19 percent in January 2022 as compared to a year earlier. This rocketing upward of house prices created concerns that first-time buyers would increasingly be priced out of owning a home. However, using the New York Fed Consumer Credit Panel the authors find that the share of purchase mortgages going to first-time buyers actually increased slightly in 2021 as compared to 2020.
By Donghoon Lee and Joseph Tracy
Refinance Boom Winds Down
Approximately $8.4 trillion in new mortgage debt originated in the past two years, as a steady upward climb in purchase mortgages was accompanied by an historically large boom in mortgage refinances. The team behind the Center for Microeconomic Data’s latest Quarterly Report on Household Debt and Credit takes a close look at mortgage refinances and how they compare to recent purchase mortgages, using the New York Fed Consumer Credit Panel, which is based on anonymized credit reports from Equifax.
By Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw
What Might Happen When Student Loan Forbearance Ends?
Federal student loan relief was recently extended through August 31, 2022, marking the sixth extension during the pandemic. Such debt relief includes the suspension of student loan payments, a waiver of interest, and the pause of collections activity on defaulted loans. With the end date of the student loan relief drawing near, the authors focus on whether and how the discontinuation of student debt relief might affect households. Moreover, will these effects vary by demographics?
By Rajashri Chakrabarti, Jessica Lu, and Wilbert van der Klaauw
Who Are the Federal Student Loan Borrowers and Who Benefits from Forgiveness?
Concerns that federal student loan delinquencies could surpass pre-pandemic levels after pandemic forbearance ends have revived debate over the possibility of blanket loan forgiveness. Most proposals center around blanket federal student loan forgiveness (typically $10,000 or $50,000) or loan forgiveness with certain income limits for eligibility. In this post, the authors use representative data from anonymized credit reports that enables them to identify federal loans, calculate the total cost of these proposals, explore important heterogeneity in who owes federal student loans, and examine who would likely benefit from federal student loan forgiveness.
By Jacob Goss, Daniel Mangrum, and Joelle Scally
Inflation Persistence: How Much Is There and Where Is It Coming From?
The surge in inflation since early 2021 has sparked intense debate. Is it a largely transitory phenomenon or will it prove to be persistent? Is it driven by price increases in a few sectors or is it broad-based? The authors think the issue is not whether inflation is transitory or broad- based, but how much of it is. In this post, they address this question through a quantitative lens.
By Martin Almuzara and Argia Sbordone
The GSCPI: A New Barometer of Global Supply Chain Pressures
The authors propose a novel indicator to capture pressures that arise at the global supply chain level, the Global Supply Chain Pressure Index (GSCPI). The authors assess the GSCPI's capacity to explain inflation outcomes, using the local projection method. Their analysis shows that recent inflationary pressures are closely related to the behavior of the GSCPI, especially at the level of producer price inflation in the United States and the euro area.
Gianluca Benigno, Julian di Giovanni, Jan J.J. Groen, and Adam I. Noble, Staff Report 1017, May 2022
Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms
The authors review the theoretical macro-finance literature on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. They draw three main lessons. First, financial vulnerabilities are inherent to financial systems and tend to be procyclical. Second, financial vulnerabilities amplify the effects of adverse shocks to the economy. And finally, monetary policy can affect the buildup of vulnerabilities.
Andrea Ajello, Nina Boyarchenko, Francois Gourio, and Andrea Tambalotti, Staff Report 1002, February 2022
Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications
A government’s purchase of goods and services is done by awarding public procurement contracts to private firms. The authors employ a newly created panel data set of administrative data that merges Spanish credit register loan data, quasi-census firm-level data, and public procurement projects to study firm selection into procurement and the effects of procurement on credit growth and firm growth.
Julian di Giovanni, Manuel-García Santana, Priit Jeenas, Enrique Moral-Benito, and Josep Pijoan-Mas, Staff Report 1006, February 2022
A New Approach to Assess Inflation Expectations Anchoring Using Strategic Surveys
Long-run inflation expectations that are consistent with an (implicit or explicit) central bank’s inflation objective are viewed as one measure of successful monetary policy. The authors propose a new approach for assessing the anchoring of inflation expectations using “strategic surveys.” Namely, they measure households’ revisions in long-run inflation expectations after they are presented with different economic scenarios. A key advantage of this approach is that it provides a causal interpretation in terms of how inflation events affect long-run inflation expectations.
Olivier Armantier, Argia Sbordone, Giorgio Topa, Wilbert van der Klaauw, and John C. Williams, Staff Report 1007, February 2022
Uncertainty Shocks, Capital Flows, and International Risk Spillovers
The authors model an open economy with financial intermediaries that are balance-sheet-constrained and subject to time-varying uncertainty in the prospective returns on their capital holdings. They show that in a financially integrated world, an increase in U.S. uncertainty leads to global deleveraging pressure, a decrease in global asset prices, and a rise in global risk premia, with magnitudes consistent with those obtained in the data. Their model also implies an appreciation of the dollar, a depreciation of the foreign currency, and a rise in uncovered interest parity premia on foreign currencies in the wake of higher U.S. uncertainty, also consistent with the data.
Ozge Akinci, Sebnem Kalemli-Ozcan, and Albert Queralto, Staff Report 1016, May 2022
Managing Monetary Policy Normalization
The authors propose a new framework for monetary policy analysis to study monetary policy normalization when exiting a liquidity trap. The optimal combination of reserves and interest rate policy requires an increase in liquidity (reserves) a few quarters after the policy rate is set at the effective lower bound. Removal of accommodation requires that quantitative tightening starts before the liftoff of the policy rate. Moreover, the withdrawal of liquidity takes place at a very slow pace relative to the normalization of the policy rate.
Macroeconomic Drivers and the Pricing of Uncertainty, Inflation, and Bonds
Over the past quarter century, there has been a marked downward trend in the correlation between changes in market-based measures of uncertainty and changes in expected inflation in the United States. At the beginning of this century, this correlation was essentially zero, but it has since turned negative. The authors analyze the theoretical implications of a decline in the natural rate of interest on the correlation between uncertainty shocks and changes in expectations of future inflation and test these predictions empirically using financial market data.

Brandyn Bok, Thomas M. Mertens, and John C. Williams, April 2022, Staff Report 1011

Climate Regulatory Risks and Corporate Bonds
Investor concerns about climate and other environmental regulatory risks suggest that these risks should affect corporate bond risk assessment and pricing. The authors test this hypothesis and find that firms with poor environmental profiles or high carbon footprints tend to have lower credit ratings and higher yield spreads, particularly when their facilities are located in states with stricter regulatory enforcement. Using the December 2015 Paris Agreement as a shock to expected climate risk regulations, they provide evidence that climate regulatory risks causally affect bond credit ratings and yield spreads. Accordingly, the composition of institutional ownership also changes after the Agreement.
Lee Seltzer, Laura T. Starks, and Qifei Zhu , Staff Report 1014, April 2022
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