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Economic Research

At the New York Fed: Implications of Federal Reserve Actions in Response to the COVID-19 Pandemic
This post by the event’s organizers provides an overview of a recent virtual conference hosted by the Federal Reserve Bank of New York on the implications of the Federal Reserve’s actions in response to the COVID-19 pandemic. New York Fed President John Williams gave the opening and concluding remarks.
By Nina Boyarchenko, Anna Kovner, and Antoine Martin
Insurance Companies and the Growth of Corporate Loans’ Securitization
Collateralized loan obligation (CLO) issuances in the United States increased by a factor of thirteen between 2009 and 2019, and the volume of outstanding CLOs more than doubled. In this post, the authors examine the role that insurance companies have played in the growth of the securitization of corporate loans and identify the key factors behind that role.
By Fulvia Fringuellotti and João A. C. Santos
An Update on the U.S.–China Phase One Trade Deal
An August 2020 Liberty Street Economics post on the Phase One trade agreement between the United States and China found that the deal’s impact on U.S. economic growth could have been much larger than originally foreseen by many of its critics because the pandemic had depressed the U.S. economy. This post revisits those considerations with an additional year’s worth of trade data and a much different economic environment in the United States.
By Hunter L. Clark
What Quantity of Reserves Is Sufficient?
A concern of the Federal Reserve is how to manage its balance sheet and whether, over the long run, the balance sheet should be small or large. In this post, the authors highlight results from a recent Staff Report in which they show how, even during a period of “ample” reserves, the Fed’s management of its balance sheet had material impacts on funding markets and especially the repo market.
By Adam Copeland, Darrell Duffie, and Yilin (David) Yang
The Spillover Effects of COVID-19 on Productivity throughout the Supply Chain
Although the shocks from COVID-19 were concentrated in a handful of contact-intensive industries, they had rippling effects throughout the economy, which culminated in a considerable decline in U.S. GDP. In this post, the authors estimate how much of the fall in U.S. GDP during the pandemic was driven by spillover effects from the productivity losses of contact-intensive industries.
By Victoria E. Agwam, Pablo D. Azar, and Kyra Frye
Recruiting Opportunities
The Real Consequences of Macroprudential FX Regulations
The author examines whether macroprudential foreign exchange (FX) regulations imposed on financial intermediaries have real effects on nonfinancial sectors. Specifically, the author studies how a regulation that limits bank ratios of FX derivative (FXD) positions to equity capital affects the supply of FXD and firm exports. By exploiting a natural experiment in South Korea at the bank level that can be traced through firms, the author shows that the regulation caused a reduction in the supply of FXD and, in turn, induced firms to reduce exports.
Hyeyoon Jung, Staff Report 989, October 2021
The Option Value of Municipal Liquidity: Evidence from Federal Lending Cutoffs during COVID-19
The authors estimate the option value of municipal liquidity by studying bond market activity and public sector hiring decisions when government budgets are severely distressed. Using a regression discontinuity design, they exploit lending eligibility population cutoffs introduced by the federal sector’s Municipal Liquidity Facility (MLF) to study the effects of an emergency liquidity option on yields, primary debt issuance, and public sector employment.
Andrew Haughwout, Benjamin Hyman, and Or Shachar, Staff Report 988, October 2021
The Heterogeneous Impact of Referrals on Labor Market Outcomes
The authors document a new set of facts on the impact of referrals on labor market outcomes, using a novel data set that enables them to distinguish between different types of referrals and different occupations. They develop an on-the-job search model that incorporates referrals, and calibrate it to key moments in the data. The calibrated model yields new insights into the roles played by different types of referrals in the match formation process, and provides quantitative estimates of the effects of referrals on employment, earnings, output, and inequality.
Benjamin Lester, David A. Rivers, and Giorgio Topa, Staff Report 987, October 2021
Implications of the Federal Reserve’s COVID-19 Facilities
In response to the economic dislocations brought about by the COVID-19 pandemic, the Federal Reserve launched a number of facilities and other policy interventions to support market functioning and the flow of credit to households and businesses, in order to bolster American employment and the economy. Nine new papers focus on those facilities, offering background on the market conditions that led to their establishment, details on the facilities’ design, and assessments of their impact.
Staff Reports 978-986, SEPTEMBER 2021
Aggregate Output Measurements: A Common Trend Approach
The authors analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. They also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, they apply their framework to U.S. quarterly data on GDP and gross domestic income (GDI), obtaining an improved aggregate output measure.
Martín Almuzara, Gabriele Fiorentini, and Enrique Sentana, Staff Report 962, March 2021
U.S. Market Concentration and Import Competition
An increase in the concentration among domestic firms in the United States has raised concerns of increasing market power. Using confidential census data for the manufacturing sector, the authors show that typical measures of concentration, once adjusted for sales by foreign exporters, actually stayed constant between 1992 and 2012. They reconcile these findings by linking part of the increase in domestic concentration to import competition. Although concentration among U.S.-based firms rose, the growth of foreign firms, mostly at the bottom of the sales distribution, counteracted this increase.
Mary Amiti and Sebastian Heise, Staff Report 968, May 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
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
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