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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

Discretionary and Nondiscretionary Services Expenditures during the COVID-19 Recession

13 days ago

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

16 days ago

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

16 days ago

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

16 days ago

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

16 days ago

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

22 days ago

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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The Impact of Natural Disasters on the Corporate Loan Market

November 18, 2020

Ivan T. Ivanov, Marco Macchiavelli, and João A.C. Santos

Natural disasters are usually associated with an increase in the demand for credit by both households and companies in the affected regions. However, if capacity constraints preclude banks from meeting the local increase in demand, the banks may reduce lending elsewhere, thus propagating the shock to unaffected areas. In this post, we analyze the corporate loan market and find that banks, particularly those with lower capital, reduce credit provisioning to distant regions unaffected by natural disasters. We also find that shadow banks only partially offset the reduction in bank credit, so borrowers in regions unaffected by natural disasters experience a decline in credit supply.

The Economic Consequences of Natural

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Following Borrowers through Forbearance

November 17, 2020

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

Today, the New York Fed’s Center for Microeconomic Data reported that total household debt balances increased slightly in the third quarter of 2020, according to the latest Quarterly Report on Household Debt and Credit. This increase marked a reversal from the modest decline in the second quarter of 2020, a downturn driven by a sharp contraction in credit card balances. In the third quarter, credit card balances declined again, even as consumer spending recovered somewhat; meanwhile, mortgage originations came in at a robust $1.049 trillion, the highest level since 2003. Many of the efforts to stabilize the economy in response to the COVID-19 crisis have focused on consumer balance sheets, both through

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How Has COVID-19 Affected Banking System Vulnerability?

November 16, 2020

Kristian Blickle, Matteo Crosignani, Fernando Duarte, Thomas Eisenbach, Fulvia Fringuellotti, and Anna Kovner

The COVID-19 pandemic has led to significant changes in banks’ balance sheets. To understand how these changes have affected the stability of the U.S. banking system, we provide an update of four analytical models that aim to capture different aspects of banking system vulnerability.

The four models, introduced in a Liberty Street Economics post in 2018 and updated in a post last year, monitor vulnerabilities of U.S. banking firms and the way in which these vulnerabilities interact to amplify negative shocks. Between 2017 and the beginning of 2020, the different models had followed a common, slowly increasing trend of higher vulnerability. With the unfolding of the

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The Fed Funds Market during the 2007-09 Financial Crisis

November 10, 2020

Adam Copeland

The U.S. federal funds market played a central role in the financial system during the 2007-09 crisis, because it was the market which provided banks with immediate liquidity, even late in the day. Interpreting changes in fed funds rates is notoriously difficult, however, as many of the economic drivers behind the rates are simultaneously changing. In this post, I highlight results from a working paper which untangles the impact of these economic drivers and measures their respective effects on the marketplace using data over a sample period leading up to and during the financial crisis. The analysis shows that the spread between fed funds sold and bought widened because of increases in counterparty risk. Further, there was a large increase in the supply of cash into

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Has the Pandemic Reduced U.S. Remittances Going to Latin America?

November 9, 2020

Matthew Higgins and Thomas Klitgaard

Workers’ remittances—funds that migrants send to their country of birth—are an important source of income for a number of economies in Latin America, with the bulk of these funds coming from the United States. Have these flows dried up, given the COVID-19 recession and resulting unprecedented job losses? We find that remittances initially faltered but rebounded in the summer months, performing better than during the last U.S. recession despite more severe job losses. Large government income support payments probably explain some of this resilience. Whether remittances continue to hold up is likely to depend on how quickly the U.S. job market recovers, particularly in hard-hit service industries.

A Major Income Source
A number of

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How Has China’s Economy Performed under the COVID-19 Shock?

October 23, 2020

Hunter L. Clark, Jeffrey B. Dawson, and Maxim Pinkovskiy

China’s economy was the first to be hit by the COVID-19 outbreak, the first to be locked down, and the first to begin an economic recovery. We examine the impact of the COVID-19 crisis on China’s GDP growth using a set of alternative growth indicators. Our analysis finds that China’s official GDP growth figures over the first three quarters of this year have been broadly in line with alternative indicators and that growth presently is staging a strong rebound and providing a boost to the global economy. However, this rebound faces potential headwinds in the forms of high levels of debt, declining return to capital accumulation, and a shrinking working-age population in China.

Our analysis of China’s economic

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At the New York Fed: Sixth Annual Conference on the U.S. Treasury Market

October 23, 2020

Michael Fleming, Gabriel Herman, and Frank Keane

On September 29, 2020, the New York Fed hosted the sixth annual Conference on the U.S. Treasury Market. The one-day event, held virtually this year, was co-sponsored by the U.S. Department of the Treasury, the Federal Reserve Board, the U.S. Securities and Exchange Commission (SEC), and the U.S. Commodity Futures Trading Commission (CFTC). The agenda featured a number of panels and speeches on the effects of the COVID-19 pandemic on the Treasury market in March 2020, the ensuing policy response, and ways that market resiliency could be improved in light of the vulnerabilities revealed. Two speeches also touched on the ongoing transition from LIBOR to alternative reference rates.

The conference began with a keynote address from New

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Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

October 21, 2020

Sarah Ngo Hamerling, Donald P. Morgan, and John Sporn

Did the 2007-09 financial crisis or the regulatory reforms that followed alter how banks change their underwriting standards over the course of the business cycle? We provide some simple, “narrative” evidence on that question by studying the reasons banks cite when they report a change in commercial credit standards in the Federal Reserve’s Senior Loan Officer Opinion Survey. We find that the economic outlook, risk tolerance, and other real factors generally drive standards more than financial factors such as bank capital and loan market liquidity. Those financial factors have mattered more since the crisis, however, and their importance increased further as post-crisis reforms were phased in in the middle of the

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How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?

October 19, 2020

Nina Boyarchenko, Thomas M. Eisenbach, Pooja Gupta, Or Shachar, and Peter Van Tassel

“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of closely related assets since the 2007–09 financial crisis. In this post, we document how post-crisis changes to

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How Do Consumers Believe the Pandemic Will Affect the Economy and Their Households?

October 16, 2020

Olivier Armantier, Leo Goldman, Gizem Koşar, Jessica Lu, Rachel Pomerantz, and Wilbert van der Klaauw

In this post we analyze consumer beliefs about the duration of the economic impact of the pandemic and present new evidence on their expected spending, income, debt delinquency, and employment outcomes, conditional on different scenarios for the future path of the pandemic. We find that between June and August respondents to the New York Fed Survey of Consumer Expectations (SCE) have grown less optimistic about the pandemic’s economic consequences ending in the near future and also about the likelihood of feeling comfortable in crowded places within the next three months. Although labor market expectations of respondents differ considerably across fairly extreme scenarios for the

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COVID-19 Has Temporarily Supercharged China’s Export Machine

October 15, 2020

Hunter L. Clark

China’s export performance this year has been stronger than expected. After a sharp slump at the beginning of 2020, the country’s exports have posted positive growth—the only major economy’s to do so. However, a closer look at the data reveals that this growth has not been very broad-based, but rather concentrated in areas where China’s export structure was well-positioned to take advantage of the global crisis—namely, production of medical supplies and school-from-home and work-from-home (S/WFH) goods. Once the COVID-19 crisis passes, China’s exports will likely return to their pre-coronavirus growth path, including a gradual loss of market share to other countries.

China’s manufacturing production rebounded quickly and early from its lockdown

China was

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How Have Households Used Their Stimulus Payments and How Would They Spend the Next?

October 13, 2020

Olivier Armantier, Leo Goldman, Gizem Koşar, Jessica Lu, Rachel Pomerantz, and Wilbert van der Klaauw

In this post, we examine how households used economic impact payments, a large component of the CARES Act signed into law on March 27 that directed stimulus payments to many Americans to help offset the economic fallout from the coronavirus pandemic. An important question in evaluating how much this part of the CARES Act stimulated the economy concerns what share of these payments households used for consumption—what economists call the marginal propensity to consume (MPC). There also is interest in learning the extent to which the payments contributed to the sharp increase in the U.S. personal saving rate during the early months of the pandemic. We find in this analysis that as

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Weathering the Storm: Who Can Access Credit in a Pandemic?

October 13, 2020

Gabriel Chodorow-Reich, Harry Cooperman, Olivier Darmouni, Stephan Luck, and Matthew Plosser

Credit enables firms to weather temporary disruptions in their business that may impair their cash flow and limit their ability to meet commitments to suppliers and employees. The onset of the COVID recession sparked a massive increase in bank credit, largely driven by firms drawing on pre-committed credit lines. In this post, which is based on a recent Staff Report, we investigate which firms were able to tap into bank credit to help sustain their business over the ensuing downturn.

Bank Credit during the Pandemic
Between February 2020 and June 2020, bank credit increased by a total of $555 billion, an increase of 23.5 percent, as seen in the chart below. In contrast, at the

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