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Economic Research

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Do Unexpected Inflationary Shocks Raise Workers’ Wages?
With the recent stalling of the decline in nominal wage growth and ongoing uncertainty in Ukraine and the Middle East, the author revisits the relationship between inflation and wages. If an unexpected increase in energy costs drives up the cost of living, will workers demand higher wages, reversing the recent moderation in wage growth? The author finds that when there is an unexpected jump in prices, nominal wage inflation is largely unaffected, which means that real wages fall.
By Jacob Weber
Delinquency Is Increasingly in the Cards for Maxed-Out Borrowers
According to the latest Quarterly Report on Household Debt and Credit, the nationwide aggregate credit card utilization rate (the share of the aggregate credit limit being used) was about 30 percent in the first quarter of 2024. However, the utilization rates of individuals differ widely. The authors focus on borrowers using 90 percent or more of their credit limit, or “maxed-out borrowers,” and how likely they are to miss credit card payments.
By Andrew F. Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, Wilbert van der Klaauw, and Crystal Wang
Who Is Borrowing and Lending in the Eurodollar and Selected Deposit Markets?
Eurodollars and selected deposits have played a similar role to fed funds as a source of short-term wholesale unsecured funding for banks, but there have been differences in how regulation has treated these dollar deposits. The authors explore how the differences between Eurodollars, selected deposits, and fed funds have narrowed in recent years; FBO branches are now the main borrowers in all these markets, while the set of lenders is considerably larger for Eurodollars and selected deposits.
By Gara Afonso, Gonzalo Cisternas, and Will Riordan 
The Post-Pandemic Shift in Retirement Expectations in the U.S.
One of the most striking features of the labor market recovery following the pandemic recession has been the “Great Resignation,” or the surge in quits from 2021 to mid-2023. The authors highlight a related labor market condition: a persistent change in retirement expectations, with workers reporting much lower expectations of working full-time beyond ages 62 and 67. This decline may affect the labor market for years to come and have important macroeconomic implications.
By Felix Aidala, Gizem Kosar, and Wilbert van der Klaauw
How Are They Now? A Checkup on Homeowners Who Experienced Foreclosure
The Great Recession, with its dramatic housing bust, led to a wave of home foreclosures as overleveraged borrowers found themselves unable to meet their payment obligations. Using anonymized credit report data from the New York Fed’s Consumer Credit Panel (CCP), the authors examine the longer-term impact of foreclosures on borrowers’ credit scores and borrowing experiences: have they returned to borrowing or shied away from credit use and homeownership?
By Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Belicia Rodriguez, Joelle Scally, and Wilbert van der Klaauw
Many Places Still Have Not Recovered from the Pandemic Recession
The onset of the pandemic resulted in one of the sharpest and deepest economic downturns in U.S. history. While the nation as a whole has recovered the jobs that were lost during the pandemic recession, many places have not; job shortfalls remain in more than a quarter of the country’s metro areas. The authors examine the uneven geographic recovery from the pandemic recession, noting that much of the New York-Northern New Jersey region is still way behind.
By Jaison R. Abel, Richard Deitz, Jonathan Hastings, and Joelle Scally
Wage Insurance for Displaced Workers
The authors study the effects of an innovative policy known as wage insurance, which temporarily subsidizes the earnings of displaced workers whose new job pays less than their old one. They find that wage insurance eligibility increases short-run employment probabilities and leads to higher long-run cumulative earnings. The program's effectiveness primarily results from shorter non-employment spells, which enables workers to avoid the negative consequences of duration-dependent wage offers.
Benjamin Hyman, Brian Kovak, and Adam Leive, Staff Report 1105, May 2024
Tracing Bank Runs in Real Time
Economists still have a limited understanding of how bank runs unfold. The authors offer novel insights on modern bank runs using confidential data on wholesale and retail payments from the bank runs of March 2023. Their findings suggest that these runs were driven by large depositors, rather than many small depositors, and that the banks that survived a run did so by borrowing new funds and then raising deposit rates—not by selling liquid securities.
Marco Cipriani, Thomas M. Eisenbach, and Anna Kovner, Staff Report 1104, May 2024
Can Discount Window Stigma Be Cured? An Experimental Investigation
The Federal Reserve has been operating as a lender of last resort through its “Discount Window” (DW) for more than a century. Because it aims to address liquidity problems before they have systemic consequences, the DW is the Fed’s first line of defense against financial crises. However, the DW has been plagued by stigma, based on concerns that it could be interpreted as a sign of financial weakness. The authors study how such stigma can be cured.
Olivier Armantier and Charles Holt, Staff Report 1103, May 2024
Information and Market Power in DeFi Intermediation
The decentralized nature of blockchain markets has given rise to a complex and highly heterogeneous market structure. The authors introduce the Decentralized Finance (DeFi) intermediation chain and provide theoretical and empirical evidence that private information is the key determinant of intermediation rents. They propose a repeated bargaining model that predicts that the block builder’s share of the surplus is proportional to the value of their private information.
Pablo Azar, Adrian Casillas, and Maryam Farboodi, Staff Report 1102, May 2024
Do Mortgage Lenders Respond to Flood Risk?
Using property-level mortgage data, property-level risk data, and country-wide FEMA flood maps, the authors identify the effects of flood risk on mortgage lending. Focusing on properties that face flood risk but are not in a FEMA flood zone, they find that lenders are less willing to originate mortgages and charge higher rates for lower LTV loans for properties that face “un-mapped” flood risk. Their results suggest that lenders are aware of flood risk outside FEMA’s identified flood zones.
Kristian S. Blickle, Evan Perry, and João A. C. Santos, Staff Report 1101, May 2024
The Nonlinear Case Against Leaning Against the Wind
The authors study the benefits and costs of leaning against the wind (LAW)—that is, changing the conduct of monetary policy in response to a build-up of financial vulnerabilities—in a flexible, non-parametric model of the dynamic interactions between monetary policy, financial conditions, and macroeconomic outcomes. They find that downside risk to growth increases in response to a counterfactual tightening of the path of monetary policy, suggesting there is limited evidence to support LAW.
Nina Boyarchenko, Richard K. Crump, Keshav Dogra, Leonardo Elias, and Ignacio Lopez Gaffney, Staff Report 1100, May 2024
Personal Bankruptcy Protection and Household Debt
Using changes in bankruptcy protection laws across the U.S. between 1999 and 2005, the authors revisit the question of how consumer bankruptcy protection has influenced consumer lending markets and household behavior. Among their findings: An increase in protection levels causes borrowers’ unsecured credit holdings, primarily credit card debt, to rise, while their level of secured debt, including mortgage and auto loans, remains largely unchanged; and the additional unsecured borrowing is not associated with increases in delinquency rates.
Felipe Severino, Meta Brown, and Rajashri Chakrabarti, Staff Report 1099, April 2024
Is There Hope for the Expectations Hypothesis?
The expectations hypothesis (EH) of the term structure of interest rates states that yields on government bonds reflect the average short rate expected to prevail over the life of the bond. However, the preeminent role of the EH stands in tension with the overwhelming empirical evidence stacked against it. The authors reevaluate the evidence and find that not only is the EH decisively rejected in the data, but model-implied short-rate expectations generally display, at best, only a weak co-movement with the forward rates of corresponding maturities.
Richard K. Crump, Stefano Eusepi, and Emanuel Moench, Staff Report 1098, April 2024
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