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Economic Research

Racial Disparities in Student Loan Outcomes
A $20 billion rise in student loan balances in the third quarter of this year contributed to a $92 billion increase in total household debt, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. This post explores racial disparities in student loan outcomes using information about the borrowers’ locations, grouping zip codes based upon which racial group constitutes the majority of an area’s residents.
By Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
At the New York Fed: Fifth Annual Conference on the U.S. Treasury Market
The New York Fed recently co-sponsored the fifth annual Conference on the U.S. Treasury Market with the U.S. Department of the Treasury, the Federal Reserve Board, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission. This year’s agenda covered a variety of topics, including issues related to LIBOR transition, data transparency and reporting requirements, and market structure and risk.
By Michael J. Fleming, Peter Johansson, Frank M. Keane, and Justin Meyer
Trade Policy Uncertainty May Affect the Organization of Firms’ Supply Chains
Uncertainty about global trade policy has increased largely because of a changing tariff regime between the United States and China. The authors argue that trade policy can have a significant effect on firms’ organization of supply chains. When the probability of a trade war rises, firms become less likely to form long-term, just-in-time relationships with foreign suppliers. The authors show that, even in the absence of actual tariff changes, an increased likelihood of a trade war can significantly distort U.S. imports.
By Sebastian Heise, Justin R. Pierce, Georg Schaur, and Peter K. Schott
Since the Financial Crisis, Aggregate Payments Have Co-moved with Aggregate Reserves. Why?
Banks use Fedwire Funds to wire money to one another throughout the day. Historically, the total value of Fedwire payments has been roughly proportional to economic activity. Since the financial crisis, however, there has been a strong co-movement between total payments and the level of aggregate reserves. In this post, the authors investigate why total payments would co-move with total reserves.
By Thomas Eisenbach, Kyra Frye, and Helene Hall
Introducing the SCE Public Policy Survey
Although many surveys measure individuals’ expectations for their own financial situations and for the economy, little is known about their outlook for public policy change. To fill this gap, we introduce the SCE Public Policy Survey as part of our Survey of Consumer Expectations, tracking expectations for changes in a wide range of programs and policies, including income and capital gains tax rates, Medicare, and Social Security.
By Gizem Kosar, Kyle Smith, and Wilbert van der Klaauw
Endogenous Leverage and Default in the Laboratory
Do markets set collateral requirements high enough to prevent default? The authors address this question through a laboratory experiment. The laboratory results confirm that whether collateral is financial or nonfinancial matters. Default rates and loss from default are higher when the assets used as collateral are nonfinancial, stemming from laxer collateral requirements.
Marco Cipriani, Ana Fostel, and Daniel Houser, Staff Report 900, November 2019
The Federal Funds Market over the 2007-09 Crisis
To measure how the 2007-09 financial crisis affected the U.S. federal funds market, the author develops and estimates a structural model in which borrowers have an unobserved probability of default. The model estimates imply that there is an increase in the expected default probability, but the increase does not cause a severe disruption in the fed funds market because there is a simultaneous increase in the supply of funds.
Adam Copeland, Staff Report 901, November 2019
Announcement-Specific Decompositions of Unconventional Monetary Policy Shocks and Their Macroeconomic Effects
The author proposes to identify monetary policy announcement–specific decompositions of asset price changes to identify monetary policy shocks without assuming time-invariance across announcements. To do so, he treats all asset price movements over the course of an announcement day as responses to a series of news shocks. In the period following a monetary policy announcement, these news shocks can be interpreted as monetary policy shocks. The author applies this approach to each scheduled FOMC announcement from 2007-18.
Daniel J. Lewis, Staff Report 891, June 2019
Optimal Policy for Macro-Financial Stability
The authors show that the same set of policy tools that implements “constrained efficient allocation”—defined as a planning problem in which the social planner faces resource and technological constraints along with the borrowing limit—can also be used optimally by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. The constrained social planner approach may lead to inaccurate characterizations of welfare-maximizing policies relative to the Ramsey approach.
Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci, and Eric R. Young, Staff Report 899, October 2019
Spatial Wage Gaps and Frictional Labor Markets
The authors develop a novel job-ladder model that allows labor to reallocate across both firms and space. They apply their framework to analyze data on the persistent wage gap between East and West Germany. The authors find that location matters and therefore carefully measure the frictions contributing to the lack of worker mobility across space.
Sebastian Heise and Tommaso Porzio, Staff Report 898, October 2019
Do Monetary Policy Announcements Shift Household Expectations?
The authors use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. They find that surprises about the federal funds target rate have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood.
Daniel J. Lewis, Christos Makridis, and Karel Mertens, Staff Report 897
Firm-to-Firm Relationships and the Pass-Through of Shocks: Theory and Evidence
Using transaction-level U.S. import data, the author shows that a firm-to-firm relationship’s price becomes more responsive to exchange rate shocks both as the relationship ages and as it trades more intensively. To understand how old relationships differ from new ones, the author documents a set of stylized facts about the life cycle of a relationship. His findings suggest that aggregate mark-ups and the responsiveness of prices to shocks co-vary negatively with an economy’s relationship creation rate, which falls in recessions.
Sebastian Heise, Staff Report 896, August 2019
Corporate Credit Provision
Productive firms can access credit markets directly by issuing corporate bonds, or in an intermediated manner by borrowing through loans. The authors study the cyclical properties of corporate credit provision through these two types of debt instruments in major advanced economies. They argue that the cyclicality of corporate credit is intimately related to the cyclicality of the types of financial intermediaries active in the provision of credit.
Nina Boyarchenko and Philippe Mueller, Staff Report 895, August 2019