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Economic Research

Businesses Want Remote Work, Just Not as Much
How much remote work will persist and how much are businesses comfortable with? Results from the New York Fed’s August regional business surveys show that more than 20 percent of all service work and 4 percent of all manufacturing work is currently being done remotely, nearly identical to what was reported a year ago. However, service firms now say they prefer less remote work and have begun to require more on-site work.
By Jaison R. Abel, Richard Deitz, Dan Garcia, and Ben Hyman
A Consumers’ Perspective on the Recent Movements in Inflation
Economists and policymakers have expressed differing views about which factors contributed to unusually large movements in inflation in the last few years. However, little is known about consumers’ perspective on what caused these sudden movements in inflation. This post seeks to answer this question using a special module of the New York Fed’s Survey of Consumer Expectations.
By Felix Aidala, Olivier Armantier, Fatima Boumahdi, Gizem Kosar, Devon Lall, Jason Somerville, Giorgio Topa, Wilbert van der Klaauw
What Makes Cryptocurrencies Different?
Permissionless blockchains, which support the most popular cryptocurrency networks, such as Bitcoin and Ethereum, have shown that it is possible to transfer value without relying on centralized trusted third parties. What makes this transfer possible is the combination of several components that all need to work together. In this post, we provide a high-level overview of these components and how they interact, taking Bitcoin as an example.
By Anders Brownworth, Jon Durfee, Michael Lee, and Antoine Martin
The Federal Reserve’s Two Key Rates: Similar but Not the Same?
Since the global financial crisis, the Federal Reserve has relied on two main rates to implement monetary policy—the rate paid on reserves balances (IORB rate) and the rate offered at the overnight reverse repo facility (ON RRP rate). This post explores how these tools steer the federal funds rate within the Federal Reserve’s target range and how effective they have been at supporting rate control.
By Gara Afonso, Marco Cipriani, Gabriele La Spada, and Peter Prastakos
The Evolution of Short-Run r* after the Pandemic
This post discusses the evolution of the short-run r* over the past year and a half, according to the New York Fed DSGE model, and its implications for inflation and output projections. From the model’s perspective, r* has increased notably, outpacing the large increase in the policy rate to some extent. This suggests that the drag on the economy from recent policy tightening may have been limited, explaining why economic conditions remain relatively buoyant despite the elevated level of interest rates.
By Katie Baker, Logan Casey, Marco Del Negro, Aidan Gleich, and Ramya Nallamotu
The Post-Pandemic r*
The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures—with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This post covers the evolution of both in the aftermath of the pandemic.
By Katie Baker, Logan Casey, Marco Del Negro, Aidan Gleich, and Ramya Nallamotu
Recruiting Opportunities
Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?
Stablecoins and money market funds seek to provide investors with safe, money-like assets but are vulnerable to runs in times of stress. Although flight-to-safety dynamics in money market funds have been extensively documented, little is known about whether such dynamics are also at play among stablecoins. This paper investigates similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020.
Kenechukwu Anadu, Pablo D. Azar, Marco Cipriani, Thomas M. Eisenbach, Catherine Huang, Mattia Landoni, Gabriele La Spada, Marco Macchiavelli, Antoine Malfroy-Camine, and J. Christina Wang, Staff Report 1073, September 2023
Capital Management and Wealth Inequality
Incorporating capital management into a standard Ramsey-Cass-Koopmans model generates substantial long-run wealth inequality: The majority of the population works and holds no capital, while a small minority holds a large amount of capital and manages it full time. One explanation of these return differentials is that there is a cost, in terms of time or money, to managing one's wealth efficiently. This paper studies how capital management affects long-run wealth inequality, and what this implies regarding the role of financial innovations and policy interventions in reducing inequality.
James Best and Keshav Dogra, Staff Report 1072, September 2023
Estimating HANK for Central Banks
A few central banks have begun to develop models that speak to the relationship between monetary policy and inequality. This paper provides a toolkit for efficient repeated estimation of heterogeneous agent (HA) New Keynesian (NK) models that can be used by researchers at central banks and in academia. The authors use this toolkit to compare the out-of-sample forecasting accuracy of a prominent HANK model, Bayer et al. (2022), to that of the Smets and Wouters (2007) model.
Sushant Acharya, William Chen, Marco Del Negro, Keshav Dogra, Aidan Gleich, Shlok Goyal, Ethan Matlin, Donggyu Lee, Reca Sarfati, and Sikata Sengupta, Staff Report 1071, August 2023
Firm Dynamics and Random Search over the Business Cycle
Recessions have been shown to markedly increase inflows into unemployment and to decrease the pace at which workers find new jobs. To what extent do fluctuations in worker flows reallocate workers to better firms? The answer to this question matters for the design of economic policies. The author has developed a quantitative framework to measure worker reallocation over the business cycle. The key features of this framework are firm dynamics, a frictional labor market where workers can search while employed, and aggregate shocks.
Richard Audoly, Staff Report 1069, August 2023
Beta-Sorted Portfolios
The authors provide a comprehensive framework to study the economic and statistical properties of beta-sorted portfolios—portfolios comprised of assets with similar covariation to selected risk factors. They first translate the two-step estimation algorithm with beta-adaptive portfolio construction into a corresponding statistical model. They show that the model has key features which are important to consider for valid interpretation of the empirical results.
Matias Cattaneo, Richard K. Crump, and Weining Wang, Staff Report 1068, July 2023
A Measure of Core Wage Inflation
Because wage inflation is perceived as tightly linked to the evolution of prices, it is one of the key indicators monitored for the conduct of monetary policy. It also provides a signal about the state of the labor market, and it is an important input for households’ and firms’ decisions. But which measure of wage inflation is appropriate for these purposes? This paper describes a framework to isolate the persistent (“core”) latent component of wage inflation.
Martín Almuzara, Richard Audoly, and Davide Melcangi, Staff Report 1067, July 2023
Measuring the Climate Risk Exposure of Insurers
Climate change risks, commonly categorized into physical risk and transition risk, can significantly impact insurance companies. Physical risk relates to the potential damage caused by extreme events and climate pattern shifts, while transition risk arises from policy, technology, and preference changes toward less carbon-intensive economies. The authors use a novel approach to quantify the climate risk exposure of life, and property and casualty insurance companies in the United States.
Hyeyoon Jung, Robert Engle, Shan Ge, and Xuran Zeng, Staff Report 1066, July 2023
Stimulus through Insurance: The Marginal Propensity to Repay Debt
The authors present new empirical evidence on fiscal transfers: Most households, especially those with low net wealth-to-income ratios, report using cash windfalls to pay down debt, rather than spending immediately to consume. Using their calibrated model, the authors then study whether and how this marginal propensity to repay debt alters the aggregate implications of fiscal transfers. They uncover a trade-off between stimulus and insurance, as high-debt individuals gain considerably from transfers, but consume relatively little immediately.
Gizem Koşar, Davide Melcangi, Laura Pilossoph, and David Wiczer, Staff Report 1065, June 2023
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