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NY Fed

The Federal Reserve Bank of New York was incorporated in May 1914 and opened for business in November later that year. To commemorate the New York Fed’s centennial, take a look at the people and events that helped shape our history.

Articles by NY Fed

Investigating the Effect of Health Insurance in the COVID-19 Pandemic

2 days ago

Rajashri Chakrabarti, Maxim Pinkovskiy, Will Nober, and Lindsay Meyerson

Does health insurance improve health? This question, while apparently a tautology, has been the subject of considerable economic debate. In light of the COVID-19 pandemic, it has acquired a greater urgency as the lack of universal health insurance has been cited as a cause of the profound racial gap in coronavirus cases, and as a cause of U.S. difficulties in managing the pandemic more generally. However, estimating the effect of health insurance is difficult because it is (generally) not assigned at random. In this post, we approach this question in a novel way by exploiting a natural experiment—the adoption of the Affordable Care Act (ACA) Medicaid expansion by some states but not others—to tease out the

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The Official Sector’s Response to the Coronavirus Pandemic and Moral Hazard

3 days ago

Anna Kovner and Antoine Martin

Third of three posts

Any time the Federal Reserve or the official sector more broadly provides support to the economy during a crisis, the intervention raises concerns related to moral hazard. Moral hazard can occur when market participants do not bear the negative consequences of the risks they take. This lack of consequences can encourage even greater risks, due to the expectation of future government help. In this post, we consider the potential for moral hazard stemming from the official sector’s response to the coronavirus pandemic and explain why moral hazard concerns were likely more severe in 2008.

What is the moral hazard risk in the response to the pandemic?

Countless articles and academic papers that consider the

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Market Failures and Official Sector Interventions

4 days ago

Anna Kovner and Antoine Martin

Second of three posts

In the United States and other free market economies, the official sector typically has minimal involvement in market activities absent a clear rationale to justify intervention, such as a market failure. In this post, we consider arguments for official sector intervention, focusing on the market failure arising from externalities related to business closures. These externalities are likely to be particularly high for closures arising from pandemic-related economic disruptions. We discuss how the official sector, including institutions such as Congress and the Treasury, can increase social welfare by acting to minimize the fixed costs of business start-up and failure, including the costs associated with unemployment, beyond

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Expanding the Toolkit: Facilities Established to Respond to the COVID-19 Pandemic

5 days ago

Anna Kovner and Antoine Martin

First of three posts

The Federal Reserve’s response to the coronavirus pandemic has been unprecedented in its size and scope. In a matter of months, the Fed has, among other things, cut the federal funds rate to the zero lower bound, purchased a large amount of Treasury securities and agency mortgage‑backed securities (MBS) and, together with the U.S. Treasury, introduced several lending facilities. Some of these facilities are very similar to ones introduced during the 2007-09 financial crisis while others are completely new. In this post, we argue that the new facilities, while unprecedented, are a natural extension of the Fed’s toolkit, as they operate through similar economic mechanisms to prevent self-reinforcing bad outcomes. We also

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How Did State Reopenings Affect Small Businesses?

6 days ago

Rajashri Chakrabarti, Sebastian Heise, Davide Melcangi, Maxim Pinkovskiy, and Giorgio Topa

In our previous post, we looked at the effects that the reopening of state economies across the United States has had on consumer spending. We found a significant effect of reopening, especially regarding spending in restaurants and bars as well as in the healthcare sector. In this companion post, we focus specifically on small businesses, using two different sources of high-frequency data, and we employ a methodology similar to that of our previous post to study the effects of reopening on small business activity along various dimensions. Our results indicate that, much like for consumer spending, reopenings had positive and significant effects in the short term on small business revenues,

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Did State Reopenings Increase Consumer Spending?

8 days ago

Rajashri Chakrabarti, Sebastian Heise, Davide Melcangi, Maxim Pinkovskiy, and Giorgio Topa

The spread of COVID-19 in the United States has had a profound impact on economic activity. Beginning in March, most states imposed severe restrictions on households and businesses to slow the spread of the virus. This was followed by a gradual loosening of restrictions (“reopening”) starting in April. As the virus has re-emerged, a number of states have taken steps to reverse the reopening of their economies. For example, Texas and Florida closed bars again in June, and Arizona additionally paused operations of gyms and movie theatres. Taken together, these measures raise the question of how closures and reopenings affect consumer spending. In this post, we investigate how much consumer

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What’s Up with the Phillips Curve?

9 days ago

William Chen, Marco Del Negro, Michele Lenza, Giorgio Primiceri, and Andrea Tambalotti

U.S. inflation used to rise during economic booms, as businesses charged higher prices to cope with increases in wages and other costs. When the economy cooled and joblessness rose, inflation declined. This pattern changed around 1990. Since then, U.S. inflation has been remarkably stable, even though economic activity and unemployment have continued to fluctuate. For example, during the Great Recession unemployment reached 10 percent, but inflation barely dipped below 1 percent. More recently, even with unemployment as low as 3.5 percent, inflation remained stuck under 2 percent. What explains the emergence of this disconnect between inflation and unemployment? This is the question we address in

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Tracking the Spread of COVID-19 in the Region

August 27, 2020

Jaison R. Abel, Jason Bram, Richard Deitz, and Jonathan Hastings

The New York Fed today unveiled a set of charts that track COVID-19 cases in the Federal Reserve’s Second District, which includes New York, Northern New Jersey, Fairfield County Connecticut, Puerto Rico, and the U.S. Virgin Islands. These charts, available in the Indicators section of our Regional Economy webpage, are updated daily with the latest data on confirmed COVID-19 cases from The New York Times, which compiles information from state and local health agencies. Case counts are measured as the seven-day average of new reported daily cases and are presented on a per capita basis to allow comparisons to the nation and between communities in the region. Recent data indicate that after spiking to extraordinary

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How Does the Liquidity of New Treasury Securities Evolve?

August 26, 2020

Michael Fleming

In a recent Liberty Street Economics post, we showed that the newly reintroduced 20-year bond trades less than other on-the-run Treasury securities and has similar liquidity to that of the more interest‑rate‑sensitive 30-year bond. Is it common for newly introduced securities to trade less and with higher transaction costs, and how does security trading behavior change over time? In this post, we look back at how liquidity evolved for earlier reintroductions of Treasury securities so as to gain insight into how liquidity might evolve for the new 20-year bond.

New 20-Year Bond Trades Less than Other Securities

In May 2020, the Treasury Department reintroduced the 20-year bond, which it had last sold in 1986. The new 20-year bond trades less than other

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Explaining the Puzzling Behavior of Short-Term Money Market Rates

August 24, 2020

Antoine Martin, James J. McAndrews, Ali Palida, and David Skeie

Since 2008, the Federal Reserve has dramatically increased the supply of bank reserves, effectively adopting a floor system for monetary policy implementation. Since then, the behavior of short-term money market rates has been at times puzzling. In particular, short-term rates have been surprisingly firm in recent months, despite the large increase in reserves by the Fed as a part of its response to the coronavirus pandemic. In this post, we provide evidence that both the supply of reserves and the supply of short-term Treasury securities are important factors for explaining short-term rates.

Money Market Rates in a Floor System

During the 2007-09 crisis the Fed sought to stabilize financial markets by greatly

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Market Function Purchases by the Federal Reserve

August 20, 2020

Kenneth D. Garbade and Frank M. Keane

In response to disorderly market conditions in mid-March 2020, the Federal Reserve began an asset purchase program designed to improve market functioning in the Treasury and agency mortgage-backed securities (MBS) markets. The 2020 purchases have no parallel, but there are several instances of large SOMA purchases undertaken to support Treasury market functions in earlier decades. This post recaps three such episodes, one in 1939 at the start of World War II, one in 1958 in connection with a poorly received Treasury financing, and a third in 1970, also in connection with a Treasury financing. The three episodes, together with the more recent intervention, demonstrate the Fed’s long-standing and continuing commitment to the maintenance of

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Debt Relief and the CARES Act: Which Borrowers Face the Most Financial Strain?

August 19, 2020

Rajashri Chakrabarti, Andrew Haughwout, Donghoon Lee, William Nober, Joelle Scally, and Wilbert van der Klaauw

In yesterday’s post, we studied the expected debt relief from the CARES Act on mortgagors and student debt borrowers. We now turn our attention to the 63 percent of American borrowers who do not have a mortgage or student loan. These borrowers will not directly benefit from the loan forbearance provisions of the CARES Act, although they may be able to receive some types of leniency that many lenders have voluntarily provided. We ask who these borrowers are, by age, geography, race and income, and how does their financial health compare with other borrowers.

Who is Without Mortgage and Student Debt?
To understand the distribution of borrowers who will be

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Debt Relief and the CARES Act: Which Borrowers Benefit the Most?

August 18, 2020

Rajashri Chakrabarti, Andrew Haughwout, Donghoon Lee, William Nober, Joelle Scally, and Wilbert van der Klaauw

COVID-19 and associated social distancing measures have had major labor market ramifications, with massive job losses and furloughs. Millions of people have filed jobless claims since mid-March—6.9 million in the week of March 28 alone. These developments will surely lead to financial hardship for millions of Americans, especially those who hold outstanding debts while facing diminishing or disappearing wages. The CARES Act, passed by Congress on April 2, 2020, provided $2.2 trillion in disaster relief to combat the economic impacts of COVID-19. Among other measures, it included mortgage and student debt relief measures to alleviate the cash flow problems of

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Are Financially Distressed Areas More Affected by COVID-19?

August 17, 2020

Rajashri Chakrabarti, William Nober, and Maxim Pinkovskiy

Building upon our earlier Liberty Street Economics post, we continue to analyze the heterogeneity of COVID-19 incidence. We previously found that majority-minority areas, low-income areas, and areas with higher population density were more affected by COVID-19. The objective of this post is to understand any differences in COVID-19 incidence by areas of financial vulnerability. Are areas that are more financially distressed affected by COVID-19 to a greater extent than other areas? If so, this would not only further adversely affect the financial well-being of the individuals in these areas, but also the local economy. This post is the first in a three-part series looking at heterogeneity in the credit market as it

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The Disproportionate Effects of COVID-19 on Households with Children

August 13, 2020

Olivier Armantier, Gizem Koşar, Rachel Pomerantz, and Wilbert van der Klaauw

A growing body of evidence points to large negative economic and health impacts of the COVID-19 pandemic on low-income, Black, and Hispanic Americans (see this LSE post and reports by Pew Research and Harvard). Beyond the consequences of school cancellations and lost social interactions, there exists considerable concern about the long-lasting effects of economic hardship on children. In this post, we assess the extent of the underlying economic and financial strain faced by households with children living at home, using newly collected data from the monthly Survey of Consumer Expectations (SCE).

We find evidence of disproportionate hardship: households with children have been more likely to

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Token- or Account-Based? A Digital Currency Can Be Both

August 12, 2020

Rod Garratt, Michael Lee, Brendan Malone, and Antoine Martin

Digital currencies, including potential central bank digital currencies (CBDC), have generated a lot of interest over the past decade, since the emergence of Bitcoin. The interest has only grown in recent months because of a desire for contactless payment methods, stemming from the coronavirus pandemic. In this post, we discuss a common distinction made between “token-based” and “account-based” digital currencies. We show that this distinction is problematic because Bitcoin and many other digital currencies satisfy both definitions.

Tokens vs. Accounts

It is common to make a distinction between account-based and token-based digital currencies, as in this report from the Committee on Payments and Market

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Implications of the COVID-19 Disruption for Corporate Leverage

August 10, 2020

Anna Kovner, Stephan Luck, and Sungmin An

Editor’s note: When this post was first published, the table showed incorrect figures for the Professional/Business Services industry; the table has been corrected. (August 10, 10:20 a.m.)

The COVID-19 pandemic has caused significant economic disruptions among U.S. corporations. In this post, we study the preliminary impact of these disruptions on the cash flow and leverage of public U.S. corporations using public filings through April 2020. We find that the pandemic had a negative impact on cash flow while also reducing corporations’ interest expenses. However, the cash flow shock far outpaced the benefits of lower interest payments, especially in industries that were disproportionately levered. Looking ahead, we find that a sizable

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Securing Secured Finance: The Term Asset-Backed Securities Loan Facility

August 7, 2020

Elizabeth Caviness and Asani Sarkar

This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak.

The asset-backed securities (ABS) market, by supporting loans to households and businesses such as credit card and student loans, is essential to the flow of credit in the economy. The COVID-19 pandemic disrupted this market, resulting in higher interest rate spreads on ABS and halting the issuance of most ABS asset classes. On March 23, 2020, the Fed established the Term Asset-Backed Securities Loan Facility (TALF) to facilitate the issuance of ABS backed by a variety of loan types including student loans, credit card loans, and loans guaranteed by the Small

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A Monthly Peek into Americans’ Credit During the COVID-19 Pandemic

August 6, 2020

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Total household debt was roughly flat in the second quarter of 2020, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. But, for the first time, the dynamics in household debt balances were driven primarily by a sharp decline in credit card balances, as consumer spending plummeted. In an effort to gain greater clarity, the New York Fed and the Federal Reserve System have acquired monthly updates for the New York Fed Consumer Credit Panel, based on anonymized Equifax credit report data. We’ve been closely watching the data as they roll in, and here we present six key takeaways on the consumer balance sheet in the months since

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Reconsidering the Phase One Trade Deal with China in the Midst of the Pandemic

August 5, 2020

Matthew Higgins and Thomas Klitgaard

It may be hard to remember given the pandemic, but trade tensions between the United States and China eased in January 2020 with the inking of the Phase One agreement. Under the deal, China committed to a massive increase in its purchases of U.S. goods and services, with targets set for various types of products. At the time of the pact, the U.S. economy was operating near full capacity, and any increase in U.S. exports stemming from the pact would likely have resulted in only a small boost to growth. The environment is now starkly different, with the U.S. economy operating far below potential. While the promised increase in Chinese purchases seems unlikely to be achieved, any appreciable increase in exports from the agreement is now more

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Tracking the COVID-19 Economy with the Weekly Economic Index (WEI)

August 4, 2020

Daniel Lewis, Karel Mertens, and James Stock

At the end of March, we launched the Weekly Economic Index (WEI) as a tool to monitor changes in real activity during the pandemic. The rapid deterioration in economic conditions made it important to assess developments as soon as possible, rather than waiting for monthly and quarterly data to be released. In this post, we describe how the WEI has measured the effects of COVID-19. So far in 2020, the WEI has synthesized daily and weekly data to measure GDP growth remarkably well. We document this performance, and we offer some guidance on evaluating the WEI’s forecasting abilities based on 2020 data and interpreting WEI updates and revisions.

Understanding the WEI

As detailed in our March post (and associated Staff Report),

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The Federal Reserve’s Large-Scale Repo Program

August 3, 2020

Kevin Clark, Antoine Martin, and Tim Wessel

The repo market faced extraordinary liquidity strains in March amid broader financial market volatility related to the coronavirus pandemic and uncertainty regarding the path of policy. The strains were particularly severe in the term repo market, in which borrowing and lending arrangements are for longer than one business day. In this post, we discuss the causes of the liquidity disruptions that arose in the repo market as well as the Federal Reserve’s actions to address those disruptions.

Overnight and Term Repo Markets

As described in this Staff Report, the repo market serves in part to transfer liquidity from cash investors to cash borrowers, with securities dealers acting as intermediaries. In addition, dealers typically finance

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MBS Market Dysfunctions in the Time of COVID-19

July 17, 2020

Jiakai Chen, Haoyang Liu, David Rubio, Asani Sarkar, and Zhaogang Song

The COVID-19 pandemic elevated financial market illiquidity and volatility, especially in March 2020. The mortgage-backed securities (MBS) market, which plays a critical role in the housing market by funding the vast majority of U.S. residential mortgages, also suffered a period of dysfunction. In this post, we study a particular aspect of MBS market disruptions by showing how a long-standing relationship between cash and forward markets broke down, in spite of MBS dealers increasing the provision of liquidity. (See our related staff report for greater detail.) We also highlight an innovative response by the Federal Reserve that seemed to have helped to normalize market functioning.

The Parallel

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Federal Reserve Agency CMBS Purchases

July 16, 2020

Woojung Park, Julia Gouny, and Haoyang Liu

On March 23, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York initiated plans to purchase agency commercial mortgage-backed securities (agency CMBS) at the direction of the FOMC in order to support smooth market functioning of the markets for these securities. This post describes the deterioration in market conditions that led to agency CMBS purchases, how the Desk conducts these operations, and how market functioning has improved since the start of the purchase operations.

The Agency CMBS Market

Agency CMBS are primarily securitizations of multifamily residential properties, typically apartment buildings or complexes with five or more rental units. The multifamily real estate market accounts for a

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Delaying College During the Pandemic Can Be Costly

July 13, 2020

Jaison R. Abel and Richard Deitz

Many students are reconsidering their decision to go to college in the fall due to the coronavirus pandemic. Indeed, college enrollment is expected to be down sharply as a growing number of would-be college students consider taking a gap year. In part, this pullback reflects concerns about health and safety if colleges resume in-person classes, or missing out on the “college experience” if classes are held online. In addition, poor labor market prospects due to staggeringly high unemployment may be leading some to conclude that college is no longer worth it in this economic environment. In this post, we provide an economic perspective on going to college during the pandemic. Perhaps surprisingly, we find that the return to college actually

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Medicare and Financial Health across the United States

July 8, 2020

Paul Goldsmith-Pinkham, Maxim Pinkovskiy, and Jacob Wallace

Consumer financial strain varies enormously across the United States. One pernicious source of financial strain is debt in collections—debt that is more than 120 days past due and that has been sold to a collections agency. In Massachusetts, the average person has less than $100 in collections debt, while in Texas, the average person has more than $300. In this post, we discuss our recent staff report that exploits the fact that virtually all Americans are universally covered by Medicare at 65 to show that health insurance not only improves financial health on average, but also is a major explanation for the heterogeneity in financial strain across the country. We find that Medicare affects different parts of the

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Do College Tuition Subsidies Boost Spending and Reduce Debt? Impacts by Income and Race

July 8, 2020

Rajashri Chakrabarti, William Nober, and Wilbert van der Klaauw

In an October post, we showed the effect of college tuition subsidies in the form of merit-based financial aid on educational and student debt outcomes, documenting a large decline in student debt for those eligible for merit aid. Additionally, we reported striking differences in these outcomes by demographics, as proxied by neighborhood race and income. In this follow-up post, we examine whether and how this effect passes through to other debt and consumption outcomes, namely those related to autos, homes, and credit cards. We find that access to merit aid leads to an immediate but temporary increase in eligible individuals’ consumption in these categories. The increase is followed by a decline in consumption and a

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Measuring Racial Disparities in Higher Education and Student Debt Outcomes

July 8, 2020

Rajashri Chakrabarti, William Nober, and Wilbert van der Klaauw

Across the United States, the cost of all types of higher education has been rising faster than overall inflation for more than two decades. Despite rising costs, aggregate undergraduate enrollment rose steadily between 2000 and 2010 before leveling off and dipping slightly to its current level. Rising college costs have steadily increased dependence on student debt for college financing, with many students and parents turning to federal and private loans to pay for higher education. An earlier post in this series reported that borrowers in majority Black areas have higher student loan balances and rates of default than those in both majority white and majority Hispanic areas. In this post, we study how differences

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Who Has Been Evicted and Why?

July 8, 2020

Andrew Haughwout, Haoyang Liu, and Xiaohan Zhang

More than two million American households are at risk of eviction every year. Evictions have been found to cause prolonged homelessness, worsened health conditions, and lack of credit access. During the COVID-19 outbreak, governments at all levels implemented eviction moratoriums to keep renters in their homes. As these moratoriums and enhanced income supports for unemployed workers come to an end, the possibility of a wave of evictions in the second half of the year is drawing increased attention. Despite the importance of evictions and related policies, very few economic studies have been done on this topic. With the exception of the Milwaukee Area Renters Study, evictions are rarely measured in economic surveys. To fill this

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Inequality in U.S. Homeownership Rates by Race and Ethnicity

July 8, 2020

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Homeownership has historically been an important means for Americans to accumulate wealth—in fact, at more than $15 trillion, housing equity accounts for 16 percent of total U.S. household wealth. Consequently, the U.S. homeownership cycle has triggered large swings in Americans’ net worth over the past twenty-five years. However, the nature of those swings has varied significantly by race and ethnicity, with different demographic groups tracing distinct trajectories through the housing boom, the foreclosure crisis, and the subsequent recovery. Here, we look into the dynamics underlying these divergences and explore some potential explanations.

A quick look at the 2016 Survey of Consumer

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