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Tag Archives: Federal Reserve

Building Defenses Against the Next Economic Downturn

By David Lipton عربي, Français,  日本語, Русский The global economy faces a number of complex challenges from technological change and globalization, and the lingering effects of the 2008-9 financial crisis. At the same time, we are witnessing lower levels of trust in the core institutions that have helped to deliver tremendous growth and prosperity over the past 40 years. These developments threaten to fragment the international order that has governed the global economy. History suggests...

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Did Banks Subject to LCR Reduce Liquidity Creation?

Daniel Roberts, Asani Sarkar, and Or Shachar Banks traditionally provide loans that are funded mostly by deposits and thereby create liquidity, which benefits the economy. However, since the loans are typically long-term and illiquid, whereas the deposits are short-term and liquid, this creation of liquidity entails risk for the bank because of the possibility that depositors may “run” (that is, withdraw their deposits on short notice). To mitigate this risk, regulators...

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“The Narrow Bank”

 A strange new bank called TNB, or The Narrow Bank, recently applied to get a clearing account at the Federal Reserve Bank of New York, only to be refused. Funny enough, TNB is run by the New York Fed's former director of research James McAndrews, who left in 2016 in order to get the bank up and running. McAndrews and TNB are now suing the New York Fed.There's a backstory to all of this kerfuffle. While still employed by the New York Fed, McAndrews coauthored a paper in 2015 entitled...

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How Do the Fed’s MBS Holdings Affect the Economy?

Antoine Martin and Sam Schulhofer-Wohl In our previous post, we discussed the meaning of the term “credit allocation” and how it relates to the Federal Reserve’s holdings of agency mortgage-backed securities (MBS). We concluded that the Fed’s MBS holdings do not pose significant credit risk but that the Fed does influence the relative market price of credit when it purchases agency MBS, and this indirectly influences decisions by investors. Today, we take the next step and discuss...

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How Do the Fed’s MBS Purchases Affect Credit Allocation?

Antoine Martin and Sam Schulhofer-Wohl It is sometimes said that the Federal Reserve should not engage in “credit allocation.” But what does credit allocation actually mean? And how do current Fed policies affect the allocation of credit? In this post, we describe two separate ideas often associated with credit allocation. The first idea is that the Fed should not take credit risk, which taxpayers would ultimately have to bear. The second idea is that the Fed’s actions should not...

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The Global Expansion: Still Strong but Less Even, More Fragile, Under Threat

By Maurice Obstfeld July 16, 2018 Versions in عربي, Baˈhasa indoneˈsia, 中文, Español, Français, 日本語, Português, Русский  The escalation of trade tensions is the greatest near-term threat to global growth (photo: wildpixel/Getty Images by iStock) Amid rising tensions over international trade, the broad global expansion that began roughly two years ago has plateaued and become less balanced. In our latest World Economic Outlook Update, we continue to project global growth rates of just...

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An Imbalance in Global Banks’ Dollar Funding

By John Caparusso, Yingyuan Chen, Hideo Hashimoto, David Jones, Will Kerry and Aki Yokoyama June 12, 2018 Versions in Español, Deutsche, Français, 日本語, Português The US Treasury is issuing more T-bills, potentially putting upward pressure on the interest rates non-US banks must pay for short-term dollar funding (photo: Jennifer Hack/KRT/Newscom) For companies and investors outside the United States, the dollar is often the currency of choice. Surprisingly, though, US banks play only a...

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Hey, Economist! Outgoing New York Fed President Bill Dudley on FOMC Preparation and Thinking Like an Economist

Bill Dudley will soon turn over the keys to the vault—so to speak. But before his tenure ends after nine years as president of the New York Fed, Liberty Street Economics sought to capture his parting reflections on economic research, FOMC preparation, and leadership. Publications editor Trevor Delaney recently caught up with Dudley. This transcript has been lightly edited. Q: Lawyers sometimes refer to ‘thinking like a lawyer.’ How would you describe what it means to ‘think...

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There’s water everywhere, but John Taylor wants us all to be thirsty

"Water water everywhere, and not a drop to drink" - Rime of the Ancient Mariner (Gustave Doré woodcut) In a recent paper, John Taylor rhapsodizes about bringing back the good ol' federal funds market: I think the case can be made for such a framework. Peter Fisher ran the trading desk at the New York Fed for many years, and knows well how these markets work. His assessment is that such a framework would work, saying “we could get back and manage it with quantities; it’s not impossible. We...

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Indians’ “ill-informed notions” concerning the legitimacy of ₹10 coins

The BBC has an interesting story about India's coinage. Apparently more and more Indians  believe that the ₹10 coin is not real, or that it has been banned by the authorities, and as a result they are unwilling to accept them in trade. Doubts about the ₹10 coin have been emerging for several years now: Amol Agarwal has covered the story here, here, and here.This is an excerpt from the BBC article: "Nobody accepts the coins - grocery shops, tea stalls, nobody accepts it", an auto rickshaw...

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