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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

What Is behind the Global Jump in Personal Saving during the Pandemic?

2 days ago

Matthew Higgins and Thomas Klitgaard

Household saving has soared in the United States and other high-income countries during the COVID-19 pandemic, despite widespread declines in wages and other private income streams. This post highlights the role of fiscal policy in driving the saving boom, through stepped-up social benefits and other income support measures. Indeed, in the United States, Japan, and Canada, government assistance has pushed household income above its pre-pandemic trajectory. We argue that the larger scale of government assistance in these countries helps explain why saving in these countries has risen more strongly than in the euro area. Going forward, how freely households spend out of their newly accumulated savings will be a key factor determining the

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How COVID-19 Affected First-Time Homebuyers

4 days ago

Donghoon Lee and Joseph Tracy

Efforts in the spring of 2020 to contain the spread of COVID-19 resulted in a sharp contraction in U.S. economic growth and an unprecedented, rapid rise in unemployment. While the first wave of the pandemic slowed the spring housing market, home sales rebounded sharply over the rest of the year, with strong gains in house prices. Given the rising house prices and continuing high unemployment, concerns arose that COVID-19 may have negatively affected first-time homebuyers. Using a new and more accurate measure of first-time homebuyers, we find that these buyers have not been adversely affected by the pandemic. At the same time, gains from lower mortgage rates have gone to existing homeowners and not to households purchasing their first home.

The

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An Update on How Households Are Using Stimulus Checks

9 days ago

Olivier Armantier, Leo Goldman, Gizem Koşar, and Wilbert van der Klaauw

In October, we reported evidence on how households used their first economic impact payments, which they started to receive in mid-April 2020 as part of the CARES Act, and how they expected to use a second stimulus payment. In this post, we exploit new survey data to examine how households used the second round of stimulus checks, issued starting at the end of December 2020 as part of the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act, and we investigate how they plan to use the third round authorized in March under the American Rescue Plan Act. We find remarkable stability in how stimulus checks are used over the three rounds, with a slight decline in the share dedicated to consumption

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Do People View Housing as a Good Investment and Why?

10 days ago

Andrew Haughwout, Haoyang Liu, Dean Parker, and Xiaohan Zhang

Housing represents the largest asset owned by most households and is a major means of wealth accumulation, particularly for the middle class. Yet there is limited understanding of how households view housing as an investment relative to financial assets, in part because of their differences beyond the usual risk and return trade-off. Housing offers households an accessible source of leverage and a commitment device for saving through an amortization schedule. For an owner-occupied residence, it also provides stability and hedges for rising housing costs. On the other hand, housing is much less liquid than financial assets and it also requires more time to manage. In this post, we use data from our just released SCE

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“Excess Savings” Are Not Excessive

11 days ago

Florin Bilbiie, Gauti Eggertsson, Giorgio Primiceri, and Andrea Tambalotti

How will the U.S. economy emerge from the ongoing COVID-19 pandemic? Will it struggle to return to prior levels of employment and activity, or will it come roaring back as soon as vaccinations are widespread and Americans feel comfortable travelling and eating out? Part of the answer to these questions hinges on what will happen to the large amount of “excess savings” that U.S. households have accumulated since last March. According to most estimates, these savings are around $1.6 trillion and counting. Some economists have expressed the concern that, if a considerable fraction of these accumulated funds is spent as soon as the economy re-opens, the ensuing rush of demand might be destabilizing. This

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The New York Fed DSGE Model Forecast—March 2021

16 days ago

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

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. The model projects solid growth over the next two years, with core inflation slowly rising toward 2 percent. Uncertainty for both output and inflation forecasts remains large.

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.

Modifying the Model for the Pandemic and the New Monetary Policy Framework

The key driver of

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Who Pays What First? Debt Prioritization during the COVID Pandemic

18 days ago

William J. Arnesen, Jacob Conway, and Matthew Plosser

Since the depths of the Great Recession, household debt has increased from a low of $11 trillion in 2013 to more than $14 trillion in 2020 (see the New York Fed Household Debt and Credit Report). In this post, we examine how consumers’ repayment priorities have evolved over that time. Specifically, we seek to answer the following question: When consumers repay some but not all of their loans, which types do they choose to keep paying and which do they fall behind on?

We use data from the New York Fed’s Consumer Credit Panel to construct a “head-to-head conflict” among different types of debt. In other words, if a consumer chooses to repay all of their auto loans, while defaulting on their consumer debt, that would

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Reasonable Seasonals? Seasonal Echoes in Economic Data after COVID-19

22 days ago

David Lucca and Jonathan Wright

Seasonal adjustment is a key statistical procedure underlying the creation of many economic series. Large economic shocks, such as the 2007-09 downturn, can generate lasting seasonal echoes in subsequent data. In this Liberty Street Economics post, we discuss the prospects for these echo effects after last year’s sharp economic contraction by focusing on the payroll employment series published by the U.S. Bureau of Labor Statistics (BLS). We note that seasonal echoes may lead the official numbers to overstate actual changes in payroll employment modestly between March and July of this year after which distortions flip the other way.

Seasonal Echoes after the Great Recession

Many economic series present periodic patterns within each calendar

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Did Dealers Fail to Make Markets during the Pandemic?

23 days ago

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

In March 2020, as the COVID-19 pandemic disrupted a range of financial markets, the ability of dealers to maintain liquid conditions in these markets was questioned. Reflecting these concerns, authorities took numerous steps, including providing regulatory relief to dealers. In this post, we examine liquidity provision by dealers in several financial markets during the pandemic: how much was provided, possible causes of any shortfalls, and the effects of the Federal Reserve’s actions.

Dealer Inventory Positions during the Pandemic

Dealers support market liquidity by intermediating customer trades—for example, by taking customer sell orders into inventory when buyers are absent. Hence, changes in the size of

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The Persistent Compression of the Breakeven Inflation Curve

25 days ago

Richard K. Crump, Nikolay Gospodinov, and Desi Volker

Breakeven inflation, defined as the difference in the yield of a nominal Treasury security and a Treasury Inflation-Protected Security (TIPS) of the same maturity, is closely watched by market participants and policymakers alike. Breakeven inflation rates provide a signal about the expected path of inflation as perceived by market participants although they are also affected by risk and liquidity premia. In this post, we scrutinize the dynamics of breakeven inflation, highlighting some intriguing behavior which has persisted for a number of years and even through the pandemic. In particular, we document a substantial downward shift in the level of breakeven inflation as well as a marked flattening of the breakeven inflation curve.

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Looking Back at 10 Years of Liberty Street Economics

28 days ago

Beverly Hirtle

This month the Liberty Street Economics blog is celebrating its tenth anniversary. We first welcomed readers to Liberty Street on March 21, 2011 and since then our annual page views have grown from just over 260,000 to more than 3.3 million.

At the time of our launch we dubbed the blog an “experiment.” The then Research Directors Jamie McAndrews and Simon Potter set out to provide our staff of more than sixty economists with a platform to offer insight on economic issues more quickly and frequently than some of our other publications. And since that time we’ve not looked back. We’re proud of how far the blog has come and that we’ve been able to consistently provide readers with accessible and timely analysis.

This past year has underscored the importance

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Will Capital Flows through Global Banks Support Economic Recovery?

March 1, 2021

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

February 24, 2021

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

February 22, 2021

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?

February 18, 2021

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

February 17, 2021

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

February 17, 2021

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?

February 11, 2021

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

February 9, 2021

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

February 9, 2021

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

February 9, 2021

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

February 5, 2021

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

February 3, 2021

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

February 1, 2021

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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