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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

Will Capital Flows through Global Banks Support Economic Recovery?

1 day ago

Claudia M. Buch, Matthieu Bussière, and Linda S. Goldberg

While policymakers around the world have aggressively and swiftly reacted to the common negative economic shock from COVID-19, the timing and forms of policy responses in the economic recovery stage may be more geographically differentiated. The range in policy responses, along with variations in the financial health of banks, likely will affect the flow of international credit through global banks. In this post, we ask whether, based on historical precedent, global banks are likely to provide additional support to the economic recovery in the locations they serve.

Unprecedented Policy Reactions to the Pandemic

In response to the global economic decline triggered by COVID-19, authorities applied a variety of monetary,

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State-of-the-Field Conference on Cyber Risk to Financial Stability

6 days ago

Jennifer Gennaro, Jason Healey, Anna Kovner, Michael Lee, and Patricia Mosser

The Federal Reserve Bank of New York partnered with Columbia University’s School of International and Public Affairs (SIPA) for the second annual State-of-the-Field Conference on Cyber Risk to Financial Stability on December 14-15, 2020. Hosted virtually due to the COVID-19 pandemic, the conference took place amidst the unfolding news of a cyberattack against a major cybersecurity vendor and software vendor, underscoring vulnerabilities from cyber risk.

Cyber Risks Can Be Systemic

SIPA Dean Merit E. Janow opened the conference with a fireside discussion with Arthur Lindo, Deputy Director, Regulation and Supervision, Federal Reserve Board, and Jason Witty, Head of Cybersecurity & Technology

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Measuring the Forest through the Trees: The Corporate Bond Market Distress Index

8 days ago

Nina Boyarchenko, Richard Crump, Anna Kovner, and Or Shachar

With more than $10.4 trillion outstanding as of Q3:2020, the U.S. corporate bond market is a significant source of funding for most large U.S. corporations. While prior literature offers a variety of measures to capture different aspects of corporate bond market functioning, there is little consensus on how to use those measures to identify periods of distress in the market as a whole. In this post, we describe the U.S. Corporate Bond Market Distress Index (CMDI), which offers a single measure to quantify joint dislocations in the primary and secondary corporate bond markets. As detailed in a new working paper, the index provides more salient information about the state of the corporate bond market relative to

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How Competitive are U.S. Treasury Repo Markets?

12 days ago

Adam Copeland, R. Jay Kahn, Antoine Martin, Matthew McCormick, William Riordan, Kevin Clark, and Tim Wessel

The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding portion of the repo market is competitive by demonstrating that trading is not concentrated overall and explaining how the pricing of inter-dealer repo trades is available to a wide range of market participants. By extension, rate-indexes based on repo trades, such as SOFR, reflect a deep market with a

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Mortgage Rates Decline and (Prime) Households Take Advantage

13 days ago

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

Today, the New York Fed’s
Center for Microeconomic Data reported that household debt balances increased by $206 billion in the fourth quarter of 2020, marking a $414 billion increase since the end of 2019. But the COVID pandemic and ensuing recession have marked an end to the dynamics in household borrowing that have characterized the expansion since the Great Recession, which included robust growth in auto and student loans, while mortgage and credit card balances grew more slowly. As the pandemic took hold, these dynamics were altered. One shift in 2020 was a larger bump up in mortgage balances. Mortgage balances grew by $182 billion, the biggest quarterly uptick since 2007, boosted by

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February Regional Business Surveys Find Widespread Supply Disruptions

13 days ago

Jason Bram and Richard Deitz

Business activity increased in the region’s manufacturing sector in recent weeks but continued to decline in the region’s service sector, continuing a divergent trend seen over the past several months, according to the Federal Reserve Bank of New York’s February regional business surveys. Looking ahead, however, businesses expressed widespread optimism about the near-term outlook, with service firms increasingly confident that the business climate will be better in six months. The surveys also found that supply disruptions were widespread, with manufacturing firms reporting longer delivery times and rising input costs, a likely consequence of such disruptions. Many firms also noted that minimum wage hikes implemented in January in both New York and

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Did Subsidies to Too-Big-To-Fail Banks Increase during the COVID-19 Pandemic?

19 days ago

Asani Sarkar

Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to become distressed, the government would likely bail it out. In a recent post, I showed that the implicit funding subsidies to systemically important banks (SIBs) declined, on average, after a set of reforms for eliminating TBTF perceptions was implemented. In this post, I discuss whether these subsidies increased again during the COVID-19 pandemic and, if so, whether the increase accrued to large firms in all sectors of the economy.

Expected Effects of the COVID-19 Pandemic on TBTF Subsidies

Unlike the global financial crisis (GFC), the COVID-19 pandemic did not directly affect

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Black and White Differences in the Labor Market Recovery from COVID-19

21 days ago

David Dam, Meghana Gaur, Fatih Karahan, Laura Pilossoph, and Will Schirmer

The ongoing COVID-19 pandemic and the various measures put in place to contain it caused a rapid deterioration in labor market conditions for many workers and plunged the nation into recession. The unemployment rate increased dramatically during the COVID recession, rising from 3.5 percent in February to 14.8 percent in April, accompanied by an almost three percentage point decline in labor force participation. While the subsequent labor market recovery in the aggregate has exceeded even some of the most optimistic scenarios put forth soon after this dramatic rise, the recovery has been markedly weaker for the Black population. In this post, we document several striking differences in labor market

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Understanding the Racial and Income Gap in Commuting for Work Following COVID-19

21 days ago

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

The introduction of numerous social distancing policies across the United States, combined with voluntary pullbacks in activity as responses to the COVID-19 outbreak, resulted in differences emerging in the types of work that were done from home and those that were not. Workers at businesses more likely to require in-person work—for example, some, but not all, workers in healthcare, retail, agriculture and construction—continued to come in on a regular basis. In contrast, workers in many other businesses, such as IT and finance, were generally better able to switch to working from home rather than commuting daily to work. In this post, we aim to understand whether following the onset of the pandemic there was a wedge in the

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Some Workers Have Been Hit Much Harder than Others by the Pandemic

21 days ago

Jaison R. Abel and Richard Deitz

As the COVID-19 pandemic took hold in the United States, in just two months—between February and April 2020—the nation saw well over 20 million workers lose their jobs, an unprecedented 15 percent decline. Since then, substantial progress has been made, but employment still remains 5 percent below its pre-pandemic level. However, not all workers have been affected equally. This post is the first in a three-part series exploring disparities in labor market outcomes during the pandemic—and represents an extension of ongoing research into heterogeneities and inequalities in people’s experience across large segments of the economy including access to credit, health, housing, and education. Here we find that some workers were much more likely to lose

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Up on Main Street

25 days ago

Donald P. Morgan and Steph Clampitt

The Main Street Lending Program was the last of the facilities launched by the Fed and Treasury to support the flow of credit during the COVID-19 pandemic. The others primarily targeted Wall Street borrowers; Main Street was for smaller firms that rely more on banks for credit. It was a complicated program that worked by purchasing loans and sharing risk with lenders. Despite its delayed launch, Main Street purchased more debt than any other facility and was accelerating when it closed in January 2021. This post first locates Main Street in the constellation of COVID-19 credit programs, then looks in detail at its design and usage with an eye toward any future programs.

Main Street in the Universe

Facility space is a jumble of

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Equity Volatility Term Premia

27 days ago

Peter Van Tassel and Charles Smith

Investors can buy volatility hedges on the stock market using variance swaps or VIX futures. One motivation for hedging volatility is its negative relationship with the stock market. When volatility increases, stock returns tend to decline contemporaneously, a result known as the leverage effect. In this post, we measure the cost of volatility hedging by decomposing the prices of variance swaps and VIX futures into volatility forecasts and estimates of expected returns (“equity volatility term premia”) from January 1996 to June 2020.

Variance Swaps and VIX Futures

Variance swaps allow investors to hedge against realized variance shocks over different horizons. The payoff to a variance swap is the difference between the fixed variance swap

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The Law of One Price in Equity Volatility Markets

29 days ago

Peter Van Tassel and Charles Smith

Can option traders take a square root? Surprisingly, maybe not. This post shows that VIX futures prices exhibit significant deviations from their option-implied upper bounds—the square root of variance swap forward rates—thus violating the law of one price, a fundamental concept in economics and finance. The deviations widen during periods of market stress and predict the returns of VIX futures. Just as the stock market struggles with multiplication, the equity volatility market appears unable to take a square root at times.

The Law of One Price and Anomalies

The law of one price (LOOP) states that assets with identical payoffs must have the same price. If assets with identical payoffs have different prices, competitive traders will exploit the

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Job Seekers’ Beliefs and the Causes of Long-Term Unemployment

January 29, 2021

Andreas I. Mueller, Johannes Spinnewijn, and Giorgio Topa

In addition to its terrible human toll, the COVID-19 pandemic has also caused massive disruption in labor markets. In the United States alone, more than 25 million people lost their jobs during the first wave of the pandemic. While many have returned to work since then, a large number have remained unemployed for a prolonged period of time. The number of long-term unemployed (defined as those jobless for twenty-seven weeks or longer) has surged from 1.1 million to almost 4 million. An important concern is that the long-term unemployed face worse employment prospects, but prior work has provided no consensus on what drives this decline in employment prospects. This post discusses new findings using data on elicited beliefs

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Discretionary and Nondiscretionary Services Expenditures during the COVID-19 Recession

January 15, 2021

Jonathan McCarthy

The coronavirus pandemic and the various measures to address it have led to unprecedented convulsions to the U.S. and global economies. In this post, I examine those extraordinary impacts through the lens of personal consumption expenditures on discretionary and nondiscretionary services, a framework I developed in a 2011 post (and subsequently employed in 2012, 2014, and 2017). In particular, I show that there were exceptional declines in both services categories during the spring; their recoveries, however, have displayed notably different patterns in recent months, with nondiscretionary services expenditures nearly back to their prior level and discretionary services expenditures seemingly stalled well below their pre-pandemic peak.

A Historical

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Understanding the Racial and Income Gap in COVID-19: Essential Workers

January 12, 2021

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

This is the fourth and final post in this series aimed at understanding the gap in COVID-19 intensity by race and by income. The previous three posts focused on the role of mediating variables—such as uninsurance rates, comorbidities, and health resource in the first post; public transportation, and home crowding in the second; and social distancing, pollution, and age composition in the third—in explaining the racial and income gap in the incidence of COVID-19. In this post, we now investigate the role of employment in essential services in explaining this gap.

Background

Ever since the pandemic hit and shelter-in-place and stay-at-home orders were issued, there has been a lot of discussion regarding essential

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Understanding the Racial and Income Gap in COVID-19: Social Distancing, Pollution, and Demographics

January 12, 2021

Ruchi Avtar, Raji Chakrabarti, Lindsay Meyerson, and Maxim Pinkovskiy

This is the third post in a series looking to explain the gap in COVID-19 intensity by race and by income. In the first two posts, we have investigated whether comorbidities, uninsurance, hospital resources, and home and transit crowding help explain the income and minority gaps. Here, we continue our investigation by looking at three additional potential channels: the fraction of elderly people, pollution, and social distancing at the beginning of the pandemic in the county. We aim to understand whether these three factors affect overall COVID-19 intensity, whether the income and racial gaps of COVID-19 can be further explained when we additionally include these factors, and whether and to what extent these

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Understanding the Racial and Income Gap in COVID-19: Public Transportation and Home Crowding

January 12, 2021

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

This is the second post in a series that aims to understand the gap in COVID-19 intensity by race and income. In our first post, we looked at how comorbidities, uninsurance rates, and health resources may help to explain the race and income gap observed in COVID-19 intensity. We found that a quarter of the income gap and more than a third of the racial gap in case rates are explained by health status and system factors. In this post, we look at two factors related to indoor density—namely public transportation use and home crowding. Here, we will aim to understand whether these two factors affect overall COVID-19 intensity, whether the income and racial gaps of COVID-19 can be further explained when we additionally

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Understanding the Racial and Income Gap in Covid-19: Health Insurance, Comorbidities, and Medical Facilities

January 12, 2021

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

Our previous work documents that low-income and majority-minority areas were considerably more affected by COVID-19, as captured by markedly higher case and death rates. In a four-part series starting with this post, we seek to understand the reasons behind these income and racial disparities. Do disparities in health status translate into disparities in COVID-19 intensity? Does the health system play a role through health insurance and hospital capacity? Can disparities in COVID-19 intensity be explained by high-density, crowded environments? Does social distancing, pollution, or the age composition of the county matter? Does the prevalence of essential service jobs make a difference? This post will focus on the first

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The International Spillover of U.S. Monetary Policy via Global Production Linkages

January 6, 2021

Julian di Giovanni

The recent era of globalization has witnessed growing cross-country trade integration as firms’ production chains have spread across the world, and with stock market returns becoming more correlated across countries. While research has predominantly focused on how financial integration impacts the propagation of shocks across international financial markets, trade also influences these cross-border spillovers. In particular, one important aspect, highlighted by the recent work of di Giovanni and Hale (2020), is how the global production network influences the transmission of U.S. monetary policy to world stock markets.

World Production Linkages and Stock Market Correlations

The production process of a good or a service may spread across several

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Understanding the Impact of COVID-19: The Top Five LSE Posts of 2020

December 23, 2020

Anna Snider

An annual tradition at Liberty Street Economics is to present our most‑read posts of the year. Given the events of 2020, New York Fed economists and guest coauthors focused their analysis on the effects of the coronavirus pandemic, writing some seventy articles since March on the subject. Our leading posts, in terms of traffic, all touch on the theme in some way. Consider this space a hub for COVID-19 coverage for some time to come, and take a look back at the top five posts grabbing attention in 2020.

Our top post of the year took on a topic of significant relevance for policymakers today: What are the economic costs of a pandemic and do closures and quarantines worsen the bite? A look at the U.S. experience of the 1918 flu pandemic yielded some

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The New York Fed DSGE Model Forecast—December 2020

December 23, 2020

William Chen, Marco Del Negro, Shlok Goyal, and Alissa Johnson

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since September 2020.

As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A. Note that interactive charts are now available for DSGE model forecasts.

In response to the pandemic, we changed the New York Fed’s DSGE model to reflect the fact that the economic disruptions caused by COVID‑19

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How Does Zombie Credit Affect Inflation? Lessons from Europe

December 22, 2020

Viral V. Acharya, Matteo Crosignani, Tim Eisert, and Christian Eufinger

Even after the unprecedented stimulus by central banks in Europe following the global financial crisis, Europe’s economic growth and inflation have remained depressed, consistently undershooting projections. In a striking resemblance to Japan’s “lost decades,” the European economy has been recently characterized by persistently low interest rates and the provision of cheap bank credit to impaired firms, or “zombie credit.” In this post, based on a recent staff report, we propose a “zombie credit channel” that links the rise of zombie credit to dis-inflationary pressures.

How does zombie credit affect inflation?

Weak banks have an incentive to extend zombie credit to avoid, or at least

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What’s Up with Stocks?

December 21, 2020

Fernando Duarte

“U.S. stocks are racing toward a second consecutive quarter of dramatic gains, continuing a historic stock-market recovery that few predicted in the depths of the March downturn,” said a September Wall Street Journal article. “The stock market is detached from economic reality. A reckoning is coming,” said the Washington Post. What is going on? In this post, I look not at what stocks have actually done or will do, but at what investors expected should have happened, and what they expect will happen going forward. It turns out that, at least by the particular measure of expectations I consider, investors expected stock returns to be high all along and continue to expect the same in the future.

The Equity Risk Premium, Then and Now

The chart below shows an

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How Did Market Perceptions of the FOMC’s Reaction Function Change after the Fed’s Framework Review?

December 18, 2020

Ryan Bush, Haitham Jendoubi, Matthew Raskin, and Giorgio Topa

In late August, as part of the Federal Reserve’s review of Monetary Policy Strategy, Tools, and Communications, the Federal Open Market Committee (FOMC) published a revised Statement on Longer-Run Goals and Monetary Policy Strategy. As observers have noted, the revised statement incorporated important changes to the Federal Reserve’s approach to monetary policy. This includes emphasizing maximum employment as a broad-based and inclusive goal and focusing on “shortfalls” rather than “deviations” of employment from its maximum level. The statement also noted that, in order to anchor longer-term inflation expectations at the FOMC’s longer-run goal, the Committee would seek to achieve inflation that averages 2 percent

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The Regional Economy during the Pandemic

December 2, 2020

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

The New York-Northern New Jersey region experienced an unprecedented downturn earlier this year, one more severe than that of the nation, and the region is still struggling to make up the ground that was lost. That is the key takeaway at an economic press briefing held today by the New York Fed examining economic conditions during the pandemic in the Federal Reserve’s Second District. Despite the substantial recovery so far, business activity, consumer spending, and employment are all still well below pre-pandemic levels in much of the region, and fiscal pressures are mounting for state and local governments. Importantly, job losses among lower-wage workers and people of color have been particularly consequential.

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The Costs of Corporate Debt Overhang Following the COVID-19 Outbreak

December 1, 2020

Kristian S. Blickle and João A. C. Santos

Leading up to the COVID-19 outbreak, there were growing concerns about corporate sector indebtedness. High levels of borrowing may give rise to a “debt overhang” problem, particularly during downturns, whereby firms forego good investment opportunities because of an inability to raise additional funding. In this post, we show that firms with high levels of borrowing at the onset of the Great Recession underperformed in the following years, compared to similar—but less indebted—firms. These findings, together with early data on the revenue contractions following the COVID-19 outbreak, suggest that debt overhang during the COVID-recession could lead to an up to 10 percent decrease in growth for firms in industries most affected by the

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Treasury Market When-Issued Trading Activity

November 30, 2020

Michael Fleming, Or Shachar, and Peter Van Tassel

When the U.S. Treasury sells a new security, the security is announced to the public, auctioned a number of days later, and then issued sometime after that. When-issued (WI) trading refers to trading of the new security after the announcement but before issuance. Such trading promotes price discovery, which may reduce uncertainty at auction, potentially lowering government borrowing costs. Despite the importance of WI trading, and the advent of Treasury trading volume statistics from the Financial Industry Regulatory Authority (FINRA), little is known publicly about the level of WI activity. In this post, we address this gap by analyzing WI transactions recorded in FINRA’s Trade Reporting and Compliance Engine (TRACE) database.

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How Bank Reserves Are Distributed Matters. How You Measure Their Distribution Matters Too.

November 24, 2020

Gara Afonso, Marco Cipriani, Steph Clampitt, Haitham Jendoubi, Gabriele La Spada, and Will Riordan

Changes in the distribution of banks’ reserve balances are important since they may impact conditions in the federal funds market and alter trading dynamics in money markets more generally. In this post, we propose using the Lorenz curve and Gini coefficient as a new approach to measuring reserve concentration. Since 2013, concentration, as captured by the Lorenz curve and the Gini coefficient, has co-moved with aggregate reserves, decreasing as aggregate reserves declined (such as in 2015-18) and increasing as aggregate reserves increased (such as at the onset of the COVID-19 pandemic).

How Do We Traditionally Measure Reserve Concentration?
A widely used measure of reserve

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Monetizing Privacy with Central Bank Digital Currencies

November 23, 2020

Rod Garratt and Michael Lee

In prior research, we documented evidence suggesting that digital payment adoptions have accelerated as a result of the COVID-19 pandemic. While digitalization of payment activity improves data utilization by firms, it can also infringe upon consumers’ right to privacy. Drawing from a recent paper, this blog post explains how payment data acquired by firms impacts market structure and consumer welfare. Then, we discuss the implications of introducing a central bank digital currency (CBDC) that offers consumers a low-cost, privacy-preserving electronic means of payment—essentially, digital cash.

Payment-Driven Data Monopolies

We consider a market in which (1) firms use historical data to develop more attractive goods and services for future

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