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Economic Research

Liberty Street Economics
Just Released: Very Favorable Business Climate Indicated in February Business Leaders Survey
The latest Business Leaders Survey from the New York Fed indicates that the services sector in the New York-Northern New Jersey region is continuing to expand at a fairly robust pace. The business climate index reached a record high, and the activity, employment, and capital spending indexes were all fairly steady at high levels.
By Jason Bram and Richard Deitz
Does More "Skin in the Game" Mitigate Bank Risk Taking?
If shareholders were liable for the entirety of a bank’s losses, rather than just their initial investment, would their private risk-taking decisions be more aligned with socially optimal risk taking? Our bloggers present their preliminary findings from an analysis of historical data prior to the Great Depression, when bank owners’ liability for losses in the event of bank failure differed by state and primary regulator.
By Haelim Anderson, Daniel Barth, and Dong Beom Choi
What Do Cryptocurrencies Have to Do with Trust?
Bitcoin and other cryptocurrencies have been in the headlines lately, particularly because of their wild gyrations in value. In this Q&A, Michael Lee and Antoine Martin, economists in the New York Fed’s Money and Payment Studies function, offer some insight about how cryptocurrencies are particularly useful in situations where trust is absent.
By Michael Lee and Antoine Martin
A New Perspective on Low Interest Rates
In the opening post of a new series exploring the persistence of historically low interest rates, our bloggers review leading academic explanations of the phenomenon before proposing an alternative hypothesis centered on the premium associated with safe and liquid assets. They argue that the increase in this premium since the late 1990s has been a key driver of the decline in the real return on U.S. Treasury securities.
By Marco Del Negro, Domenico Giannone, Marc Giannoni, and Andrea Tambalotti
A DSGE Perspective on Safety, Liquidity, and Low Interest Rates
Our bloggers address the extent to which the decline in real interest rates is driven by a decline in r*—the natural rate of interest extracted from an estimated dynamic stochastic general equilibrium model. They find that the trends in r* coincide with those in the real rate of interest obtained from the vector autoregression approach presented in the prior post, suggesting that the Federal Reserve’s interest rate policy cannot be the primary driver of low interest rates. Rather, they find that the increased premium for safety and liquidity drives much of the decline in r*over the past two decades.
By Marco Del Negro, Domenico Giannone, Marc Giannoni, Abhi Gupta, Pearl Li, and Andrea Tambalotti
Recent Publications
International Capital Flow Pressures
The authors propose a new measure of capital flow pressures in the form of an Exchange Market Pressure index. The measure captures pressures in actual international capital flows as well as pressures that result in exchange rate adjustments. They also propose a Global Risk Response Index, which assesses the country-specific sensitivity of capital flow pressures to measures of global risk aversion.
By Linda Goldberg and Signe Krogstrup, Staff Reports 834, February 2018
Fiscal Implications of the Federal Reserve's Balance Sheet Normalization
The authors survey the recent literature on the fiscal implications of central bank balance sheets—placing a focus on political economy issues. They simulate the transition of the Federal Reserve’s balance sheet to four alternative longer-run sizes in an effort to understand the implications for the Fed’s earnings remittances to the U.S. Treasury and, more broadly, for the government's overall fiscal position.
By Michele Cavallo, Marco Del Negro, W. Scott Frame, Jamie Grasing, Benjamin A. Malin, and Carlo Rosa, Staff Reports 833, January 2018
An Overview of the Survey of Consumer Expectations
One of the key products of the New York Fed’s Center for Microeconomic Data, the Survey of Consumer Expectations collects timely information on consumers’ expectations and decisions on a broad variety of topics, among them: inflation, household finance, the labor market, and the housing market. The authors discuss the origins of the survey and the computation of various statistics that are reported every month.
By Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar, Economic Policy Review, Volume 23, Number 2, December 2017
Priors for the Long Run
Vector autoregressions (VARs) are flexible statistical models, routinely used for the description and forecasting of macroeconomic time series, and for the analysis of their sources of fluctuations. In this paper, the authors propose a class of prior distributions that discipline the long-run predictions of VARs.
By Domenico Giannone, Michele Lenza, and Giorgio E. Primiceri, Staff Reports 832, November 2017
Escaping Unemployment Traps
The authors find that accommodative monetary policy at the onset of a recession can prevent temporary shocks from permanently scarring the economy. Loosening monetary policy later on, once the economy has already been hurt, however, may be powerless to restore full employment.
By Sushant Acharya, Julien Bengui, Keshav Dogra, and Shu Lin Wee, Staff Reports Number 831, November 2017
Macroeconomic Nowcasting and Forecasting with Big Data
The authors explain how econometric techniques have advanced to mimic and automate the best practices of forecasters on trading desks, at central banks, and in other market-monitoring roles. They present in detail the methodology underlying the New York Fed Staff Nowcast, which employs these innovative techniques to produce early estimates of GDP growth by synthesizing a wide range of macroeconomic data as it becomes available.
By Brandyn Bok, Daniele Caratelli, Domenico Giannone, Argia Sbordone, and Andrea Tambalotti, Staff Reports Number 830
The Mortgage Rate Conundrum
The authors document the emergence of a disconnect between mortgage and Treasury interest rates in the summer of 2003 that led to significantly and persistently easier mortgage credit conditions. Their analysis also reveals that delinquency rates started to rise for loans originated after mid-2003, exactly when this disconnect emerged.
By Alejandro Justiniano, Giorgio E. Primiceri, and Andrea Tambalotti, Staff Reports Number 829, November 2017