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Economic Research

Recent Publications
Trends in Credit Market Arbitrage
Corporate bonds are an important source of funding for public corporations. In this paper, the authors examine recent trends in arbitrage-based measures of liquidity in the cash bond and the credit default swap (CDS) markets. They evaluate potential explanations proposed for the widening in both arbitrage trades between mid-2015 and early 2016.
By Nina Boyarchenko, Pooja Gupta, and Jacqueline Yen, Staff Reports 784, July 2016
The First Debt Ceiling Crisis
The United States risked exceeding the statutory limit on Treasury debt for the first time back in 1953. In this paper, the author describes how Congress, the White House, and Treasury officials dealt with the looming crisis by taking several steps, which ultimately included raising the debt ceiling.
By Kenneth D. Garbade, Staff Reports 783, June 2016
The Science of Monetary Policy: An Imperfect Knowledge Perspective
New Keynesian theory identifies a set of principles central to the design and implementation of monetary policy. The authors review what is understood about the challenges to the New Keynesian paradigm posed by imperfect knowledge. They also assess the degree of confidence with which one should hold the basic prescriptions of modern monetary economics.
By Stefano Eusepi and Bruce Preston, Staff Reports 782, June 2016
Health Spending Slowed Down in Spite of the Crisis
There is disagreement about why the growth rate of health care spending has fallen to historically low levels since 2009. The authors use a set of credit reforms to provide evidence that, contrary to conventional wisdom, the financial crisis and the Great Recession increased health care spending rather than decreased it.
By Marco DiMaggio, Andrew Haughwout, Amir Kermani, Matthew Mazewski, and Maxim Pinkovskiy, Staff Reports 781, June 2016
Repurchase Agreements as an Instrument of Monetary Policy at the Time of the Accord
Following the Treasury-Federal Reserve Accord of March 1951, the Federal Open Market Committee focused on free reserves—the difference between excess reserves and borrowed reserves—as the touchstone of U.S. monetary policy. The author surveys the two leading policy instruments for managing free reserves: 1) open market purchases and sales of Treasury bills and 2) repurchase agreements.
By Kenneth Garbade, Staff Reports 780, June 2016
The Payment System Benefits of High Reserve Balances
The authors document a shift in the timing of payments over the Fedwire® Funds Service since the financial crisis. They present regression results suggesting that the vast majority of the shift toward early settlements is explained by an increase in aggregate bank reserve balances, and they discuss the benefit of high balances going forward.
By James McAndrews and Alexander Kroeger, Staff Reports 779, June 2016
Newer Need Not Be Better: Evaluating the Penn World Tables and the World Development Indicators Using Nighttime Lights
Nighttime lights data are a measure of economic activity, with a measurement error that is plausibly independent of the measurement errors of most conventional indicators. The authors use nighttime lights as an independent benchmark to assess which vintages of existing measures of economic activity better estimate true income per capita.
By Maxim Pinkovskiy and Xavier Sala-i-Martin, Staff Reports 778, June 2016