Federal Reserve Bank of New York Publications and Other Research

PUBLICATIONSPUBLICATIONS ANDAND OTHEROTHER RESEARCHRESEARCH

20142014

Federal Reserve Bank of New York ■ Research and Statistics Group ■ www.newyorkfed.org/research Contents 1 Introduction 2 Economic Policy Review 7 Current Issues in Economics and Finance 9 Liberty Street Economics Blog 18 The Research Group of the Federal Reserve Bank of New York 19 Staff Reports 26 Outside Journals

Federal Reserve Bank of New York Research and Statistics Group www.newyorkfed.org/research

March 2015 Follow us on Twitter: @NYFedResearch 1 Economic Current Liberty Street Staff Outside Introduction Policy Review Issues Economics Reports Journals The Research Group of the Federal Reserve Federal the of Group Research The York of New Bank in joining interested A guide for economists as an overview of our staff, as well the Group, and functions. structure, ■ Members of the Group also publish in many also of the Group Members economic and finance journals, conference these and scholarly books. A list of volumes, publications begins on page 26. ■ We also offer another series of interest of interest also offer another series We ers: to read

Staff Reports Staff technical papers intended for publication in leading economic and finance journals. Liberty Street Economics Street Liberty to engage a blog that enables our economists issues quickly and with the public on diverse frequently Second District Highlights Second Issues supplement to Current a regional Current Issues in Economics and Finance in Economics Issues Current and concise studies of topical economic financial issues Economic Policy Review Policy Economic on a policy-oriented journal focusing issues ­economic and financial market ■ ■ ■ ■ ■ This catalogue lists 2014 releases in our This catalogue lists 2014 series: ­principal research The Federal Reserve Bank of New York’s York’s New of ReserveBank Federal The a produces Group and Statistics ­Research blog posts, of publications, wide variety to business of interest and discussion papers policymakers, and banking professionals, general public. ­academics, and the Introduction ■ ■ ■ ■ ■ 2

several key financial markets and intermediaries Economic Policy under significant distress at this time. For each Introduction Review case, the author discusses the size and evolution of the funding mechanism, the sources of the TheEconomic Policy Review is a policy-oriented disruptions, and the policy responses aimed at research journal that focuses on macroeconomic,­ mitigating distress and making markets more banking, and financial market topics. liquid. The review serves as a reference on the vulnerabilities of funding structures and is EPR articles are available at www.newyorkfed useful for those considering the scope and .org/research/epr. design of reform efforts. Economic

y Review Polic Stability of Funding Models: An Analytical Volume 20 Framework Thomas Eisenbach, Todd Keister, James McAndrews, No. 1, February 2014 and Tanju Yorulmazer Special Issue: The Stability of Funding Models With the recent financial crisis, many financial Literature Review on the Stability intermediaries experienced strains created by

Issues declining asset values and a loss of funding

Current of Funding Models sources. In reviewing these stress events, one Tanju Yorulmazer notices that some arrangements appear to have Financial intermediaries have an important role been more stable—that is, better able to with- as liquidity providers—they perform maturity stand shocks to their asset values and/or and liquidity transformation by issuing liquid, funding sources—than others. Because the short-term liabilities while holding illiquid, precise determinants of this stability are not long-term assets. But there is an inherent well understood, gaining a better grasp of them fragility associated with this role. This article is a critical task for market participants and provides a review of the economics literature on policymakers as they try to design more resil-

Economics the stability of banks and other financial inter- ient arrangements and improve financial Liberty Street mediaries, with a policy-oriented focus on their regulation. This article uses a simple analytical funding models. Yorulmazer employs the framework to illustrate the determinants of a standard framework used in the literature to financial intermediary’s ability to survive stress examine the fragility of intermediaries that events. An intermediary in the framework faces conduct maturity and liquidity transformation. two types of risk: the value of its assets may He then considers potential factors that make decline and/or its short-term creditors may them more or less stable. Developments in the decide not to roll over their debt. The authors Staff

Reports financial sector that may have affected the measure stability by looking at the combina- stability of funding models are also discussed. tions of shocks the intermediary can experience while remaining solvent. They study how Case Studies on Disruptions during the Crisis stability depends on the intermediary’s balance- Tanju Yorulmazer sheet characteristics, such as its leverage, the The 2007-09 financial crisis saw many funding maturity structure of its debt, and the liquidity mechanisms challenged by a drastic reduction and riskiness of its asset portfolio. They also in market liquidity, a sharp increase in the cost show how the framework can be applied to of transactions, and, in some cases, a drying-up examine current policy issues, including Outside Journals Journals in financing. This article presents case studies of liquidity requirements, discount window policy, 3 Introduction

and different approaches to reforming money enjoyed by the largest banks is significantly market mutual funds. larger than that available to the largest nonbanks and nonfinancial corporations. This No. 2, December 2014 difference is consistent with the hypothesis that Special Issue: Large and Complex Banks

investors believe the largest banks to be too Polic y Review

big to fail. Economic Do Big Banks Have Lower Operating Costs? Anna Kovner, James Vickery, and Lily Zhou Do “Too-Big-to-Fail” Banks Take On This study examines the relationship between More Risk? bank holding company (BHC) size and compo- Gara Afonso, João A. C. Santos, and James Traina nents of noninterest expense (NIE) in order to The notion that some banks are “too big to fail” shed light on the sources of scale economies in builds on the premise that governments will banking. Drawing on detailed expense informa- offer support to avoid the adverse consequences tion provided by U.S. banking firms in the of disorderly bank failures. However, this memoranda of their regulatory filings, the

promise of support comes at a cost: Large, Current authors find a robust negative relationship complex, or interconnected banks might take Issues between size and normalized measures of NIE. on more risk if they expect future rescues. This The relationship is strongest for employee article studies the effect of potential govern- compensation expenses and components of ment support on banks’ appetite for risk. Using “other” noninterest expense such as informa- balance-sheet data for 224 banks in forty-five tion technology and corporate overhead countries starting in March 2007, the authors expenses. In addition, the authors find no find higher levels of impaired loans after an evidence that the inverse relationship between increase in government support. To measure StreetLiberty Economics banking firm size and NIE ratios disappears support, they rely on Fitch Ratings’ support above a given size threshold. In dollar terms, rating floors (SRFs), a new rating that isolates their estimates imply that for a BHC of mean potential sovereign support from other sources size, an additional $1 billion in assets reduces of external support. A one-notch rise in the noninterest expense by $1 million to $2 million SRF is found to increase the impaired loan per year, relative to a base case in which ratio by roughly 0.2—an 8 percent increase for ­operating cost ratios are unrelated to size. the average bank. The authors obtain similar results when they assess the effect of increased Evidence from the Bond Market on Banks’ support on net charge-offs and when they

“Too-Big-to-Fail” Subsidy narrow their sample to U.S. banks only. Reports João A. C. Santos Staff Components of U.S. Financial-Sector Growth, Using information on bonds issued over the 1985-2009 period, this study finds that the 1950-2013 largest banks have a funding advantage over Samuel Antill, David Hou, and Asani Sarkar their smaller peers. This advantage may not be The U.S. financial sector grew steadily as a entirely attributable to investors’ belief that the share of the total business sector from 1959 largest banks are “too big to fail,” because the until the recent financial crisis, when the trend study also finds that the largest nonbanks, as reversed. In this article, the authors develop Journals Outside well as the largest nonfinancial corporations, measures based on firm-level data to estimate have a cost advantage relative to their smaller the size of the financial sector and its subsectors peers. However, a comparison across the three relative to the total business (financial and groups reveals that the funding advantage nonfinancial) sector over time. The analysis 4

further sheds light on how these size measures Measures of Global Bank Complexity are affected by a firm’s choice of financing Introduction Nicola Cetorelli and Linda S. Goldberg (whether public or private), firm size, industry Size and complexity are customarily viewed as type, use of leverage, and regulation. The contributing to the too-big-to-fail status of authors find that the relative size of finance is financial institutions. Yet there is no standard smaller when only publicly listed firms are accepted metric for the complexity of a included. Financial firms are more prevalent “typical” financial firm, much less for a large among large firms than among small firms, firm engaged in global finance. This article with the relative size of finance being two to provides perspective on the issue of complexity three times bigger in the large firm sample than Economic by examining the number, types, and in the small firm sample within any period and y Review Polic geographical spread of global financial institu- for any measure. While large financial firms on tions’ affiliates. The authors show that standard average grew only at moderately higher rates measures of institution size are strongly related than smaller financial firms, large traditional to total counts of affiliates in an organization, banks grew substantially faster than their but are more weakly aligned with other smaller counterparts. Shadow banks increased measures of complexity. Considerable heteroge- rapidly in size at the expense of traditional neity exists across global financial organizations banks, becoming a significant portion of the Issues in measures of business and geographic Current financial sector in the mid-1990s and peaking complexity. Some business models and just before the crisis. Overall, the results show geographic tendencies have strong regional that both the pre-crisis growth and the crisis- characteristics that are linked to the organiza- era decline mainly occurred in opaque, complex, tion’s parentage. Since complexity is distinct and less-regulated subsectors of finance. from organizational size, the authors argue that Evolution in Bank Complexity its consequences and its policy relevance warrant much broader study. Nicola Cetorelli, James McAndrews, and James Traina This study documents the changing organiza- Matching Collateral Supply and Financing

Economics tional complexity of bank holding companies as Demands in Dealer Banks Liberty Street gauged by the number and types of subsidiaries. Adam Kirk, James McAndrews, Parinitha Sastry, Using comprehensive data on U.S. financial and Phillip Weed acquisitions over the past thirty years, the The failure and near-collapse of some of the authors track the process of consolidation and largest dealer banks on Wall Street in 2008 diversification, finding that banks not only highlighted the marked vulnerability of the grew in size, but also incorporated subsidiaries industry. Dealer banks are financial interme­ that span the entire spectrum of business activi- diaries that make markets for many securities Staff

Reports ties within the financial sector. Their analysis and derivatives. Like standard banks, dealer shows that bank holding companies added banks may derive the funding for a loan from banks to their firms in the early 1990s, but their own equity or from external sources, gradually expanded into nonbank intermedia- such as depositors or creditors. Unlike tion through acquisitions of already‐formed standard banks, however, dealer banks rely subsidiaries in the years following. They view heavily upon collateralized borrowing and this emergence as consistent with a move lending, which give rise to “internal” sources toward a model of finance oriented to securiti- of financing. This article provides a descrip­­ zation, and consider the implications of this tive and analytical perspective on dealer Outside Journals Journals new complexity for supervision and resolution. banks and their sources of financing, both 5 Economic Current Liberty Street Staff Outside Introduction Policy Review Issues Economics Reports Journals financial firms. the settlement of Lehman’s creditor and counter- creditor Lehman’s the settlement of to party especially those relating claims, where derivatives, (OTC) over-the-counter bank- of Lehman’s much of the complexity They find that was rooted. ruptcy resolution below rate was 28 percent, recovery creditors’ to for firms comparable historical averages poor exacerbated by Lehman. Losses were bankruptcy timely and mitigated by planning The settle- Reserve. Federal the funding from was a long and derivatives ment of OTC tracks occurring on different complex process, creditors. derivatives of groups for different was less process the resolution Consequently, than expected, and it was difficult predictable to obtain an informed view of the process. And How! Why Bail-In? Joseph H. Sommer Joseph but all liabilities are equal, created All men are equal than more liabilities are not. Some products are others. These “financial liabilities” products shift risk of financial firms. These liquidity or provide (insurance or derivatives) agreements). (bank deposits or repurchase an independent these liabilities have Since than worth more are they as products, value financial value of a The value. their net present firm, then, depends on its liability structure. insol- affect These special liabilities therefore by governed are financial firms Most law. vency not law; those that are special insolvency in the Bankruptcy special treatment receive for these well Code. These special laws work for work they do not However, special firms. one subset of financial firms: large financial major conglomerates. This article draws three no established law can conclusions. First, Second, the “bail-in” succeed with these firms. under development, which is currently process, policymakers and corpo- should succeed. Finally, rethink therate finance theorists might want to meaning of capital for ­ This study examines the resolution of Lehman This study examines the in the U.S. Bankruptcy Inc. Holdings Brothers of to clarify the sources Court in order and to inform the complexity in its resolution mechanisms resolution debate on appropriate for financial institutions. The authors focus on Michael J. Fleming and Asani Sarkar J. Fleming Michael The Failure Resolution of Lehman Brothers of Lehman Resolution Failure The Banks and financial intermediaries perform Banks important for the smooth functioning of roles from the economy such as channeling resources and providing projects to productive savers payment services. can bank failure Because an in significant costs for the economy, result mechanism is needed to resolution efficient a mitigate such costs. This article provides for analyzing the feasibility simple framework methods. The resolution and cost of different resolution private that while analysis shows methods, such as sale to a healthy bank, are options in terms of minimizing costs, preferred they may not be feasible when the distressed institution is large or complex or when its occurs during a systemic crisis. Instead, failure regulators may face second-best firms and disorderly ­solutions, entailing trade-offs between liquidation and the use of public funds. Phoebe White and Tanju Yorulmazer White Phoebe and Tanju Bank Resolution Concepts, Trade-offs, Trade-offs, Concepts, Resolution Bank and Changes in Practices internal and external. The authors conclude internal and external. may prove of financing that internal sources of sources efficient than external more times, but may be subject financing in normal reductions in stressful abruptto significant and suggests that accounting times. The analysis certain dealer banks to net rules that allow the transactions may obscure collateralized to their actual economic exposure banks’ customers, and that a prudent risk manage- the risks should acknowledge ment framework finance. in collateralized inherent 6

What Makes Large Bank Failures So Messy in resolution. This reassures holders of and What Should Be Done about It? ­uninsured liabilities that their claims will be Introduction James McAndrews, Donald P. Morgan, honored in resolution, making them less likely João A. C. Santos, and Tanju Yorulmazer to run. In a novel finding, the authors show This study argues that the defining feature of that bail-in-able debt and equity are not perfect large and complex banks that makes their substitutes in terms of stemming bank runs. failures messy is their reliance on runnable Finally, they argue that the long-term debt financial liabilities. These liabilities confer requirement should increase in line with the liquidity or money-like services that may be amount of uninsured financial liabilities the

Economic impaired or destroyed in bankruptcy. To make bank has issued. This approach has the advan- y Review Polic large bank failures more orderly, the authors tage of tying the requirement to the sources of recommend that systemically important bank messy failures, and it tends to internalize the holding companies be required to issue “bail- externalities associated with the issuance of in-able” long-term debt that converts to equity uninsured financial liabilities. Issues Current Economics Liberty Street Staff Reports Outside Journals Journals 7 Introduction

Current Issues No. 2, 2014 The Balance of Payments Crisis in the Euro in Economics Area Periphery and Finance Matthew Higgins and Thomas Klitgaard Countries in the euro area periphery borrowed Polic y Review Current Issues in Economics and Finance ­ Economic offers heavily from abroad in the years leading up to concise studies of topical economic and the sovereign debt crisis, largely to finance ­financial issues. increased consumption and housing invest- Second District Highlights—a regional supple- ment. When the crisis hit in 2010, capital ment to Current Issues—covers important flight by private investors forced these countries financial and economic developments in the to bring domestic spending back into line with Federal Reserve System’s Second District. domestic incomes—the same adjustment required of countries facing a typical balance of Both series are available at www.newyorkfed­ payments crisis. Nevertheless, adjustment to

.org/research/current_issues. Current the pullback of private capital was not as harsh Issues as might have been expected, owing to the Volume 20 workings of the euro area’s system for managing cross-border payment imbalances between regional commercial banks. This system, known No. 1, 2014 as Target2, offset much of the capital flight with Are Recent College Graduates Finding credits extended collectively by euro area

Good Jobs? central banks to central banks in the periphery. StreetLiberty Jaison R. Abel, Richard Deitz, and Yaquin Su Economics No. 3, 2014 According to numerous accounts, the Great Do the Benefits of College Still Outweigh Recession has left many recent college gradu- the Costs? ates struggling to find jobs that utilize their education. However, a look at the data on the Jaison R. Abel and Richard Deitz employment outcomes for recent graduates In recent years, students have been paying over the past two decades suggests that such more to attend college and earning less upon difficulties are not a new phenomenon: indi- graduation—trends that have led many viduals just beginning their careers often need observers to question whether a college educa- time to transition into the labor market. Still, tion remains a good investment. However, an Reports the percentage who are unemployed or “under- analysis of the economic returns to college Staff employed”—working in a job that ­typically since the 1970s demonstrates that the benefits does not require a bachelor’s degree—has risen, of both a bachelor’s degree and an associate’s particularly since the 2001 recession. Moreover, degree still tend to outweigh the costs, with both the quality of the jobs held by the underem- degrees earning a return of about 15 percent ployed has declined, with today’s recent over the past decade. The return has remained graduates increasingly accepting low-wage jobs high in spite of rising tuition and falling or working part-time. earnings because the wages of those without a Journals college degree have also been falling, keeping Outside the college wage premium near an all-time high while reducing the opportunity cost of going to school. 88

No. 4, 2014 Las causas y consecuencias del descenso poblacional en Puerto Rico Introduction The Causes and Consequences of Puerto Rico’s Declining Population Jaison R. Abel y Richard Deitz Jaison R. Abel and Richard Deitz Spanish-Language Version Puerto Rico’s population has been falling for La población de Puerto Rico ha estado nearly a decade, and the pace of decline has ­decreciendo durante casi una década y el ritmo accelerated in recent years. Although a de contracción se ha acelerado en años slowdown in the island’s birthrate has ­recientes. Aunque una disminución en la tasa ­contributed to this decline, a surge in the out- de natalidad ha contribuido a esta reducción, Economic migration of its citizens has been a more

y Review Polic un factor más importante ha sido el aumento important factor. The exodus—which includes en la migración de salida* de sus ciudadanos. a large share of younger people—has hastened El éxodo—que incluye una porción grande de population aging, but it has not necessarily led jóvenes—ha acelerado el envejecimiento de la to a “brain drain.” To counter its population población, pero no ha conducido, loss, Puerto Rico must not only adopt measures ­necesariamente, a una “fuga de cerebros”. Para to shore up its economy and expand job oppor- contrarrestar la pérdida de población, Puerto tunities, but also enact fiscal reforms and

Issues Rico no sólo debe adoptar medidas que

Current improve the island’s amenities. ­apuntalen su economía y amplíen las Second District Highlights ­oportunidades de empleo, sino que debe poner en vigor, además, reformas fiscales y realzar los atractivos de la Isla. Second District Highlights Economics Liberty Street Staff Reports

*[N. de la T.] A lo largo del texto en inglés se emplean los ­términos in-migration y out-migration (y su derivados, in-­migrant y out-migrant) para referirse a la migración entre Puerto Rico y EE.UU. Aunque consideramos emplear el equivalente “migración interna”, –que alude a los movimientos migratorios dentro de un mismo territorio–, decidimos usar “migración de entrada” y “migración de salida” para evitar cualquier posible confusión con los movimientos entre una Outside Journals Journals región y otra de Puerto Rico. 9 Introduction

January 16 Liberty Street Just Released: Introducing the Business Economics Leaders Survey Jason Bram and Richard Deitz

Our Liberty Street Economics blog, launched Polic y Review in 2011, provides a way for our economists to February 3 Economic engage with the public on diverse issues A Mis-Leading Labor Market Indicator quickly and frequently. The blog typically publishes new economic posts on Mondays Samuel Kapon and Joseph Tracy and Wednesdays. It publishes reader comments February 5 and author ­responses in the hope of generating dialogue with the public. Comparing U.S. and Euro Area Unemployment Rates libertystreeteconomics Visit the blog at Thomas Klitgaard and Richard Peck .newyorkfed.org/. Current

February 7 Issues Economic Posts in 2014 Crisis Chronicles: The Commercial Credit Crisis of 1763 and Today’s Tri-Party Repo Market January 6 James Narron and David Skeie Are Economic Values Transmitted from Parents February 10 to Children? The Transformation of Banking: Tying Loan Marco Cipriani, Paola Giuliano, and Olivier Jeanne StreetLiberty Interest Rates to Borrowers’ Credit Default Economics January 8 Swap Spreads Comparing Bank and Supervisory Stress João A. C. Santos Testing Projections February 12 Beverly Hirtle and Anna Kovner The Long and Short of It: The Impact January 10 of Unemployment Duration on Compensation Growth Crisis Chronicles: The Mississippi Bubble of 1720 and the European Debt Crisis M. Henry Linder, Richard Peach, and Robert Rich Reports

James Narron and David Skeie February 14 Staff

January 13 Puerto Rico Employment Trends—Not Quite as Bleak as They Appear Discount Window Stigma Jason Bram Olivier Armantier February 18 January 15 Just Released: Who’s Borrowing Now? The Why Do Banks Feel Discount Window Stigma? Journals Young and the Riskless! Outside Olivier Armantier Andrew Haughwout, Donghoon Lee, Wilbert van der Klaauw, and David Yun 10

Just Released: Does Transportation Spending March 10

Introduction Make Good Stimulus? Just Released: Beyond the Unemployment Rate: Andrew Haughwout, Therese McGuire, Eight Different Faces of the Labor Market and Joseph Morris Samuel Kapon and Ayşegül Şahin

February 19 Has Automated Trading Promoted Efficiency Why Is the Job-Finding Rate Still Low? in the FX Spot Market? Victoria Gregory, Christina Patterson, Ayşegül Şahin, Ernst Schaumburg and Giorgio Topa Economic March 24 y Review Polic February 20 Convexity Event Risks in a Rising Interest Rate Just Released: The Inflation Outlook in the Environment Euro Zone . . . Survey Says Allan M. Malz, Ernst Schaumburg, Roman Robert Rich, Kaivan K. Sattar, and Joseph Tracy Shimonov, and Andreas Strzodka

February 24 A Special Series on Large and Complex Banks Issues What Makes a Bank Stable? A Framework Current for Analysis March 25 Thomas Eisenbach and Tanju Yorulmazer Introducing a Series on Large and February 26 Complex Banks Factors that Affect Bank Stability Donald P. Morgan Thomas Eisenbach and Tanju Yorulmazer Do Big Banks Have Lower Operating Costs? March 3 Anna Kovner, James Vickery, and Lily Zhou

Economics How Unconventional Are Large-Scale March 26 Liberty Street Asset Purchases? Evidence from the Bond Market on Banks’ Carlo Rosa and Andrea Tambalotti “Too-Big-to-Fail” Subsidy March 5 João A. C. Santos Risk Aversion, Global Asset Prices, and Fed Do “Too-Big-to-Fail” Banks Take On Tightening Signals More Risk?

Staff Jan Groen and Richard Peck Gara Afonso, João A. C. Santos, and James Traina Reports

Just Released: Harsh Winter Weather Hampers March 27 Economic Activity in the Region The Growth of Murky Finance Jaison R. Abel and Jason Bram Samuel Antill, David Hou, and Asani Sarkar March 7 March 28 Crisis Chronicles: The Credit and Commercial Evolution in Bank Complexity Crisis of 1772 Nicola Cetorelli, James McAndrews, and James Traina Outside

Journals Journals James Narron and David Skeie 11 Introduction

March 31 April 11 Measuring Global Bank Complexity Crisis Chronicles: Not Worth a Continental— Nicola Cetorelli, Linda Goldberg, and Arun Gupta The Currency Crisis of 1779 and Today’s European Debt Crisis

April 1 James Narron and David Skeie Polic y Review Mixing and Matching Collateral in Economic Dealer Banks A Special Series on Liquidity Issues Adam Kirk, James McAndrews, Parinitha Sastry, and Phillip Weed April 14 April 2 Liquidity Risk, Liquidity Management, and Liquidity Policies Resolution of Failed Banks Tobias Adrian and João A. C. Santos Tanju Yorulmazer

Depositor Discipline of Risk-Taking by Current April 3 Issues U.S. Banks The Failure Resolution of Lehman Brothers Stavros Peristiani and João A. C. Santos Michael Fleming and Asani Sarkar April 15 Why Bail-In? On Fire-Sale Externalities, TARP Was Close Joseph H. Sommer to Optimal

April 4 Fernando Duarte and Thomas Eisenbach StreetLiberty Economics Why Large Bank Failures Are So Messy and April 16 What to Do about It? The Liquidity Stress Ratio: Measuring Liquidity James McAndrews, Donald P. Morgan, Mismatch on Banks’ Balance Sheets Joao A. C. Santos, and Tanju Yorulmazer Dong Beom Choi and Lily Zhou Parting Reflections on the Series on Large April 17 and Complex Banks Liquidity Policies and Systemic Risk James McAndrews and Donald P. Morgan Tobias Adrian and Nina Boyarchenko Reports Staff April 7 April 18 A New Idea on Bank Capital How Liquidity Standards Can Improve Hamid Mehran and Anjan Thakor Lending of Last Resort Policies João A. C. Santos and Javier Suarez April 9 Lunch Anyone? Volatility on the Tokyo Stock April 16 Exchange around the Lunch Break on Journals May 23, 2013, and Stock Market Circuit Breakers Just Released: April Surveys Find Businesses Face Outside Increasing Difficulty Retaining Skilled Workers David Lucca and Or Shachar Jason Bram and Richard Deitz 12

April 17 May 16

Introduction Just Released: The 2013 SOMA Annual Report Will the United States Benefit from the Trans- in a Historical Context Pacific Partnership? Alyssa Cambron, Michael Fleming, Deborah Leonard, Mary Amiti and Benjamin Mandel Grant Long, and Julie Remache Just Released: The New York Fed Staff April 21 Forecast—May 2014 Introduction to the Floating-Rate Note Jonathan McCarthy and Richard Peach Treasury Security

Economic Ezechiel Copic, Luis Gonzalez, Caitlin Gorback,

y Review Polic A Special Series on Trade Finance Blake Gwinn, and Ernst Schaumburg May 19 May 5 The Trade Finance Business of U.S. Banks No Good Deals—No Bad Models Friederike Niepmann and Tim Schmidt-Eisenlohr Nina Boyarchenko May 21 May 7 Issues

Current Why U.S. Exporters Use Letters of Credit Can Investors Use Momentum to Beat Friederike Niepmann and Tim Schmidt-Eisenlohr the U.S. Treasury Market? J. Benson Durham May 21 May 9 Just Released: What Kinds of Jobs Have Been Crisis Chronicles: Central Bank Crisis Created during the Recovery? Management during Wall Street’s First Jaison R. Abel and Richard Deitz Crash (1792) James Narron and David Skeie May 28 Economics

Liberty Street Rising Household Debt: Increasing Demand May 12 or Increasing Supply? Treasury Term Premia: 1961-Present Basit Zafar, Max Livingston, and Tobias Adrian, Richard Crump, Benjamin Mills, Wilbert van der Klaauw and Emanuel Moench June 2 May 13

Staff Do Expected, in addition to Spot,

Reports Just Released: Young Student Loan Borrowers U.S. Treasury Term Premiums Matter? Remained on the Sidelines of the Housing J. Benson Durham Market in 2013 Meta Brown, Sydnee Caldwell, and Sarah Sutherland June 4 The CLASS Model: A Top-Down Assessment May 14 of the U.S. Banking System When Are Equity Investors Paid to Take Risk? Meru Bhanot, Beverly Hirtle, Anna Kovner, J. Benson Durham and James Vickery Outside Journals Journals 13 Introduction

June 5 July 10 What Americans (Don’t) Know about Student At the N.Y. Fed: Conference Highlights Loan Collections Financing Tools for New York’s Food Basit Zafar, Zachary Bleemer, Meta Brown, and Beverage Firms and Wilbert van der Klaauw Richard Deitz and Shira Gans Polic y Review Economic June 6 July 11 Crisis Chronicles: Canal Mania (1793) Crisis Chronicles: The Collapse of the James Narron and David Skeie French Assignat and Its Link to Virtual Currencies Today June 9 James Narron and David Skeie What’s Your WAM? Taking Stock of Dealers’ Funding Durability July 14 Adam Copeland, Isaac Davis, and Ira Selig High Unemployment and Disinflation Current

in the Euro Area Periphery Countries Issues June 23 Thomas Klitgaard and Richard Peck The Capitol Since the Nineteenth Century: Political Polarization and Income Inequality July 15 in the United States Just Released: July Empire State Manufacturing Rajashri Chakrabarti and Matt Mazewski Survey Shows Strength Jason Bram and Richard Deitz Liberty StreetLiberty

June 25 Economics Do Currency Forwards Say Anything about July 16 the Future Value of the U.S. Dollar? Risk Aversion and the Natural Interest Rate J. Benson Durham Bianca De Paoli and Pawel Zabczyk

June 26 July 21 From Our Archive: Student Debt in Perspective Becoming More Alike? Comparing Bank and The Editors Federal Reserve Stress Test Results Beverly Hirtle, Anna Kovner, and Eric McKay

July 7 Reports Why Hasn’t the Yen Depreciation Spurred July 31 Staff Japanese Exports? Just Released: Updated Study of the Mary Amiti, Oleg Itskhoki, and Jozef Konings Competitiveness of Puerto Rico’s Economy Proposes Steps to Address the Island’s July 9 Fiscal Stress Lifting the Veil on the U.S. Bilateral James Orr Repo Market

August 4 Journals Adam Copeland, Isaac Davis, Eric LeSueur, Outside and Antoine Martin Financial Stability Monitoring Tobias Adrian, Daniel Covitz, and Nellie Liang 14

August 6 August 25

Introduction The Slow Recovery in Consumer Spending Turnover in Fedwire Funds Has Dropped Jonathan McCarthy Considerably since the Crisis, but It’s Okay Rodney Garratt, Antoine Martin, and August 8 James McAndrews Crisis Chronicles: The Hamburg Crisis of 1799 and How Extreme Winter Weather Still Disrupts the Economy A Special Series on the Value of a College Degree James Narron, David Skeie, and Don Morgan September 2 Economic

y Review Polic August 11 The Value of a College Degree Inflation in the Great Recession and New Jaison R. Abel and Richard Deitz Keynesian Models September 3 Marco Del Negro, Marc Giannoni, Raiden Hasegawa, Staying in College Longer Than Four Years and Frank Schorfheide Costs More Than You Might Think August 13 Jaison R. Abel and Richard Deitz Issues Current Why Didn’t Inflation Collapse in the September 4 Great Recession? College May Not Pay Off for Everyone Marco Del Negro, Marc Giannoni, Raiden Hasegawa, and Frank Schorfheide Jaison R. Abel and Richard Deitz

August 14 Are the Job Prospects of Recent College Graduates Improving? Just Released: Looking under the Hood of the Subprime Auto Lending Market Jaison R. Abel and Richard Deitz Andrew Haughwout, Donghoon Lee, Joelle W. Scally, Economics

Liberty Street and Wilbert van der Klaauw September 2 From Our Archive: Reading Labor Market Slack August 18 Anna Snider Gates, Fees, and Preemptive Runs Marco Cipriani, Antoine Martin, Patrick McCabe, September 3 and Bruno M. Parigi Just Released: N.Y. Fed’s Emanuel Moench

Staff Just Released: Firms Weigh In on Affordable to Become Head of Research at the Reports Care Act in August Business Surveys Deutsche Bundesbank Jamie McAndrews Jason Bram and Michael Kubiske September 5 August 20 Crisis Chronicles The Declining U.S. Reliance on : The British Export Foreign Investors Bubble of 1810 and Pegged versus Floating Exchange Rates Thomas Klitgaard and Preston Mui James Narron, David Skeie, and Don Morgan Outside Journals Journals 15 Introduction

September 8 September 25 Introducing the SCE Housing Survey An Assessment of the FRBNY DSGE Model’s Basit Zafar, Andreas Fuster, Wilbert van der Klaauw, Real-Time Forecasts, 2010-13 and Matthew Cocci Matthew Cocci, Marco Del Negro, Stefano

Eusepi, Marc Giannoni, M. Henry Linder, and Polic y Review Why Aren’t More Renters Sara Shahanaghi Economic Becoming Homeowners? Andreas Fuster, Basit Zafar, and Matthew Cocci September 26 The FRBNY DSGE Model Forecast September 18 Matthew Cocci, Marco Del Negro, Stefano Eusepi, At the N.Y. Fed: Workshop on the Risks of Marc Giannoni, and Sara Shahanaghi Wholesale Funding Dong Beom Choi, Patrick de Fontnouvelle, Thomas September 25 Eisenbach, and Michael Fleming Current

Connecting “the Dots”: Disagreement in the Issues September 19 Federal Open Market Committee Measuring Settlement Fails Richard Crump, Troy Davig, Stefano Eusepi, and Michael Fleming, Frank Keane, Antoine Martin, Emanuel Moench and Michael McMorrow September 29 What Explains the June Spike in Treasury Direct Purchases of U.S. Treasury Securities Settlement Fails? by Federal Reserve Banks StreetLiberty Economics Michael Fleming, Frank Keane, Antoine Martin, Kenneth D. Garbade and Michael McMorrow September 30 Do Unemployment Benefits Expirations Help A Special Series on the FRBNY Dynamic Explain the Surge in Job Openings? Stochastic General Equilibrium (DSGE) Model Fatih Karahan, Samuel Kapon, and Kaivan K. Sattar September 22 October 1 Forecasting with the FRBNY DSGE Model

Cross-Country Evidence on Transmission Reports

Marco Del Negro, Bianca De Paoli, Stefano of Liquidity Risk through Global Banks Staff Eusepi, Marc Giannoni, Argia Sbordone, Claudia M. Buch, James Chapman, and and Andrea Tambalotti Linda Goldberg September 23 October 3 A Bird’s Eye View of the FRBNY DSGE Model Crisis Chronicles: The Crisis of 1816, the Year Bianca De Paoli, Argia Sbordone, and Andrea Tambalotti without a Summer, and Sunspot Equilibria Jim Narron and Don Morgan Journals September 24 Outside Developing a Narrative: The Great Recession and Its Aftermath Andrea Tambalotti and Argia Sbordone 16 Outside Staff Liberty Street Current Economic Journals Reports Economics Issues Policy Review Introduction Jan Groen It’s Hard! Forecasting Inflation with Fundamentals . November 5 De,Rajlakshmi Hamid Mehran, andMichael Suher Evolution ofS-CorporationBanks November 3 and ValérieRouxel-Laxton Moreno Philip Bertoldi, R.Lane,Paolo Pesenti, in the TransatlanticEconomy At theN.Y. Fed: Macroeconomic Policy Mix October 24 Adam Copeland andIra Selig Settlement of Tri-Party Repo Contracts Don’t Be Late!The ofImportance Timely October 20 Jason Bram New York City’s Not-So-Outer Boroughs October 17 Ricardo Correa, Linda Goldberg, and Tara Rice U.S. Bank Lending? How Do LiquidityConditionsAffect October 15 Thomas Klitgaard and Preston Mui and the United States Demographic Trends andGrowth inJapan October 8 and Carlo Rosa Fernando Juan Duarte, Navarro-Staicos, of Low Volatility? What Can We Learnfrom Prior Periods October 6 A Special Series onLong-Term Unemployment Bhalla ChakrabartiRavi andRajashri Property Wealth? Recession State AidCuts Vary by Did LocalFunding Responses toPost- November 12 Bhalla ChakrabartiRavi andRajashri Funding Cuts? Did SchoolDistricts Offset State Education November 10 Rod Garratt andRosa Hayes Bitcoin: How LikelyIs a51Percent Attack? November 24 Basit Zafar and Wilbert van derKlaauw Introducing theSCECredit Access Survey November 20 Benjamin W. Pugsley, andAyşegülSahin Rob Dent, Samuel Kapon,Fatih Karahan, of New Hires The Long-Term Unemployed andthe Wages November 19 Benjamin W. Pugsley, andAyşegülSahin Rob Dent, Samuel Kapon,Fatih Karahan, Long-Term Unemployed? How Attached totheLaborMarket Are the November 18 Benjamin W. Pugsley, andAyşegülSahin Rob Dent, Samuel Kapon,Fatih Karahan, Long-Term Unemployed Different? Measuring LaborMarket Slack: Are the November 17 17 Introduction

November 25 December 8 Just Released: Household Debt Balances Global Asset Prices and the Taper Increase as Deleveraging Period Concludes Tantrum Revisited Andrew Haughwout, Donghoon Lee, Joelle Scally, Jan Groen and Wilbert van der Klaauw Polic y Review

December 19 Economic Just Released: New Source for Perspective on A Special Series on Banks’ Use of Fracking Regional Household Debt and Credit Industry Deposits Michael Gedal, Stephanie Rosoff, and Joelle Scally December 1 December 22 What Do Banks Do with All That “Fracking” Is There a Future for Credit Default Money? Swap Futures? Matthew Plosser Or Shachar Current Issues December 3 December 29 Why Do Banks Keep All That “Fracking” Data Insight: Which Growth Rate? Money? It’s a Weighty Subject Matthew Plosser Richard Crump, Stefano Eusepi, David Lucca, and Emanuel Moench December 5 Liberty StreetLiberty Crisis Chronicles: The Panic of 1819—America’s Economics First Great Economic Crisis James Narron, David Skeie, and Don Morgan

A Special Series on Interest Rate Derivatives and Monetary Policy

Interest Rate Derivatives and Monetary

Policy Expectations Reports

Richard Crump, Emanuel Moench, William O’Boyle, Staff Matthew Raskin, Carlo Rosa, and Lisa Stowe

Survey Measures of Expectations for the Policy Rate Richard Crump, Emanuel Moench, William O’Boyle, Matthew Raskin, Carlo Rosa, and Lisa Stowe Journals Outside 18 Outside Staff Liberty Street Current Economic Journals Reports Economics Issues Policy Review Introduction .org/research/research_group/index.html. New Yorkof isavailable at www.newyorkfed The Research Group ofthe Federal Bank Reserve publications. the economists’ research interests andrecent current staffofeconomists,andhighlights of ourseven research functions,identifiesour The guidealsodescribesthe responsibilities of theResearch andStatistics Group. describes thedistinctive culture andresources ofourresearchoverview andpolicywork and interested injoiningourteam.It offersan New Yorkof isourannualguideforeconomists The Research Group ofthe Federal Bank Reserve Bank ofNew York of theFederal Reserve The Research Group 19 Introduction

No. 687, August 2014 Staff Reports Shifts in the Beveridge Curve The Staff Reports series features technical Peter A. Diamond and Ayşegül Şahin research papers designed to stimulate discussion Diamond and Şahin examine the behavior of and elicit comments. The papers are intended the Beveridge curve—the relationship between Polic y Review Economic for eventual publication in leading economic unemployment and the job vacancy rate—since and finance journals. 1950. They find that the curve’s outward shift in the present recovery was consistent with its The series is available at www.newyorkfed.org/ behavior in past recoveries and that such shifts research/staff_reports. do not predict the unemployment rate that will Macroeconomics and Growth obtain at the end of the expansion. No. 669, April 2014 No. 690, September 2014 Lights, Camera . . . Income! Estimating Poverty Monetary Policy, Financial Conditions, Current

Using National Accounts, Survey Means, and Financial Stability Issues and Lights Tobias Adrian and Nellie Liang Maxim Pinkovskiy and Xavier Sala-i-Martin Adrian and Liang provide a review of the trans- Pinkovskiy and Sala-i-Martin propose a way to mission channels of monetary policy, focusing assess whether national accounts or survey not just on financial conditions, but also on means perform better in capturing differences financial stability consequences by way of in income across countries and over time, financial vulnerabilities. creating a new measure of income per capita StreetLiberty No. 695, October 2014 Economics that is an optimal combination of national accounts and survey means data. Dynamic Prediction Pools: An Investigation of Financial Frictions and Forecasting No. 672, April 2014 Performance The FRBNY Staff Underlying Inflation Marco Del Negro, Raiden B. Hasegawa, Gauge: UIG and Frank Schorfheide Marlene Amstad, Simon Potter, and Robert Rich The authors provide a novel methodology for The authors present a new measure of under- estimating time-varying weights in linear predic- lying inflation—the FRBNY Staff Underlying tion pools and use it to investigate the relative Reports

Inflation Gauge (UIG). A less noisy series than forecasting performance of DSGE models with Staff CPI inflation or PCE inflation, the UIG is and without financial frictions for output derived from a broad data set that includes asset growth and inflation from 1992 to 2011. prices and real variables (such as unemployment data) and that considers the specific and time- varying persistence of individual subcomponents of an inflation series. Journals Outside 20

No. 701, November 2014 Microeconomics

Introduction When Does a Central Bank’s Balance Sheet No. 682, August 2014 Require Fiscal Support? Educational Assortative Mating and Household Marco Del Negro and Christopher A. Sims Income Inequality Del Negro and Sims argue that a central bank with a large balance sheet composed of long- Lasse Eika, Magne Mogstad, and Basit Zafar duration nominal assets should have access Educational assortative mating is a pattern in to, and be willing to ask for, support for its which individuals choose to mate with one balance sheet by the fiscal authority. Other- another based on similar educational attain-

Economic wise, its ability to control inflation may be ment. Using data from the United States and y Review Polic at risk. Norway over the period 1980-2007, the authors investigate this pattern, its evolution No. 707, December 2014 over time, and its impact on household Grown-Up Business Cycles income inequality. Benjamin Pugsley and Ayşegül Şahin No. 683, August 2014 Pugsley and Şahin document the steady decline University Choice: The Role of Expected in the firm entry rate over the last thirty years Issues Earnings, Non-pecuniary Outcomes, and Current and the gradual shift of employment from Financial Constraints younger to older firms over the same period— developments that hold across industries and Adeline Delavande and Basit Zafar geography. Despite these trends, firms’ lifecycle Delavande and Zafar investigate the determi- dynamics and their business cycle properties nants of students’ university choice, with a have remained virtually unchanged. focus on expected monetary returns, ­non-pecuniary factors enjoyed at school, and International financial constraints, in the Pakistani context.

No. 681, July 2014 No. 685, August 2014

Economics What Determines the Composition of Liberty Street Information Heterogeneity and Intended International Bank Flows? College Enrollment Cornelia Kerl and Friederike Niepmann Zachary Bleemer and Basit Zafar Several recent studies document that the extent This study finds that if individuals were to which shocks are transmitted through banks provided with accurate information about across borders depends on the type of foreign college costs and the returns to a college educa­ activities these banks engage in. Kerl and tion, their estimates of the likelihood of their Staff Niepmann propose a model to explain the

Reports (pre-college age) child attending college would composition of banks’ foreign activities, distin- increase significantly. guishing between international interbank lending, intrabank lending, and cross-border lending to foreign firms. Outside Journals 21 Introduction

No. 686, August 2014 Banking and Finance Africa Is on Time No. 663, February 2014 Maxim Pinkovskiy and Xavier Sala-i-Martin The Capital and Loss Assessment under Stress Pinkovskiy and Sala-i-Martin present evidence

Scenarios (CLASS) Model Polic y Review that the recent African growth renaissance has Economic reached Africa’s poor. Beverly Hirtle, Anna Kovner, James Vickery, and Meru Bhanot No. 689, August 2014 The CLASS model is a top‐down capital stress- Job Search Behavior over the Business Cycle testing framework that projects the effects of Toshihiko Mukoyama, Christina Patterson, different macroeconomic scenarios on and Ayşegül Şahin U.S. banking firms. CLASS model projections suggest that the U.S. banking industry’s vulner- The authors examine how nonemployed ability to undercapitalization in stressed workers’ job search effort varies over the economic conditions has decreased significantly business cycle and consider its implications Current

since the financial crisis of 2007-09, consistent Issues for individual and aggregate labor market with increases in regulatory capital ratios. outcomes. To this end, they construct a measure of search effort by combining informa- No. 664, February 2014 tion from the American Time Use Survey and Financial Stability Policies for the Current Population Survey. Shadow Banking No. 700, November 2014 Tobias Adrian

Debt, Jobs, or Housing: What’s Keeping Adrian illustrates the role of shadow bank StreetLiberty Millennials at Home? policies using three examples: agency mortgage Economics Zachary Bleemer, Meta Brown, Donghoon Lee, real estate investment trusts, leveraged lending, and Wilbert van der Klaauw and captive reinsurance affiliates. He finds that any policy prescription for the shadow banking The authors investigate the residence choices of system is highly specific relative to the the young people surveyed in the New York ­particular activity. Fed’s Consumer Credit Panel, and examine the relationship of these choices to evolving local No. 665, February 2014 house prices, local employment conditions, Arbitrage-free Affine Models of the Forward and the student debt reliance of local

Price of Foreign Currency Reports college students. J. Benson Durham Staff Forward foreign exchange contracts embed not only expected depreciation but also a sizable premium, which complicates inferences about anticipated returns. Durham suggests that the premium is indeed nonzero and variable, but not to the degree implied by previous econo- metric studies. Journals Outside 22

No. 666, March 2014 No. 670, April 2014

Introduction Bank Holding Company Dividends and Gates, Fees, and Preemptive Runs Repurchases during the Financial Crisis Marco Cipriani, Antoine Martin, Patrick McCabe, Beverly Hirtle and Bruno M. Parigi Many large U.S. bank holding companies The authors build a model of a financial inter- (BHCs) continued to pay dividends during the mediary, in the tradition of Diamond and recent financial crisis, even as market condi­ Dybvig (1983), and show that allowing the tions deteriorated. In contrast, share repurchases intermediary to impose redemption fees or by BHCs dropped sharply in the early part of gates in a crisis—a form of suspension of

Economic the crisis. Hirtle documents this divergent convertibility—can lead to preemptive runs. y Review Polic behavior and examines the role that repurchases played in large BHCs’ decisions to reduce or No. 671, April 2014 eliminate dividends. A Primer on the GCF Repo® Service Paul Agueci, Leyla Alkan, Adam Copeland, Isaac No. 667, March 2014 Davis, Antoine Martin, Kate Pingitore, Caroline LIBOR: Origins, Economics, Crisis, Scandal, Prugar, and Tyisha Rivas and Reform This primer provides a detailed description of Issues

Current David Hou and David Skeie the GCF Repo Service, a financial service Hou and Skeie examine the behavior of the provided by the Fixed Income Clearing Corpo­ London Interbank Offered Rate during the ration. Chapter 1 focuses on how GCF Repo financial crisis. trades are cleared and settled, and describes how current reforms to the settlement of repos No. 668, April 2014 relate to this service; Chapter 2 focuses on how Measuring Student Debt and Its Performance dealers use this financial service. Donghoon Lee, Wilbert van der Klaauw, Andrew No. 673, May 2014 Haughwout, Meta Brown, and Joelle Scally Dealer Financial Conditions and Lender-of- Economics Student loans have come to play an increasingly Liberty Street Last-Resort Facilities important role in financing higher education, but they are not well understood. The authors Viral V. Acharya, Michael J. Fleming, bring a new data set to bear on this important Warren B. Hrung, and Asani Sarkar issue and present a brief analysis of historical The authors examine the financial conditions of and current levels of student debt and how that dealers that participated in two of the Federal debt is performing. Reserve’s lender-of-last-resort facilities—the Term Securities Lending Facility (TSLF) and Staff

Reports the Primary Dealer Credit Facility (PDCF)— that provided liquidity against a range of assets during 2008-09. Outside Journals 23 Introduction

No. 674, May 2014 No. 677, June 2014 Understanding Mortgage Spreads A Simple and Reliable Way to Compute Nina Boyarchenko, Andreas Fuster, Option-Based Risk-Neutral Distributions and David O. Lucca Allan M. Malz The authors propose prepayment model risk as Malz describes a method for computing risk- Polic y Review Economic a potential driver of agency mortgage-backed neutral density functions based on the securities (MBS) spreads and present a new option-implied volatility smile; he includes pricing model that uses “stripped” MBS prices examples for equities, foreign exchange, and to identify the contribution of this risk to long-term interest rates. option-adjusted spreads. No. 678, June 2014 No. 675, May 2014 The Revolving Door and Worker Flows International Banking and Liquidity Risk in Banking Regulation Transmission: Lessons from across Countries David Lucca, Amit Seru, and Francesco Trebbi Current Claudia M. Buch and Linda S. Goldberg The authors trace the career transitions of Issues This study summarizes the common method- federal and state U.S. banking regulators from ology and results of empirical studies a large sample of publicly available conducted in eleven countries to explore ­curricula vitae. liquidity risk transmission. Buch and Goldberg find that bank balance sheet characteristics No. 679, June 2014 matter for differentiating lending responses The Effect of State Pension Cut Legislation across banks, mainly in the realm of cross- on Bank Values StreetLiberty Economics border lending. Lee Cohen, Marcia Millon Cornette, Hamid Mehran, and Hassan Tehranian No. 676, June 2014 This study suggests that states’ budget cuts Liquidity Risk and U.S. Bank Lending at affect bank values and credit supply through Home and Abroad their municipal bond holdings. Ricardo Correa, Linda Goldberg, and Tara Rice The recent financial crisis underscored the No. 684, August 2014 importance of clarifying how liquidity condi- Direct Purchases of U.S. Treasury Securities tions influence credit extension to domestic by Federal Reserve Banks Reports

and foreign customers. The authors investigate Kenneth D. Garbade Staff the distinctions between responses to liquidity Garbade addresses three questions: Why did risks across two types of large U.S. banks— Congress 1) prohibit direct purchases in 1935 those that are domestically oriented and those (after they had been utilized without incident that are more global, that is, have affiliates in for eighteen years), 2) provide a limited exemp­ foreign countries. tion in 1942 (instead of simply removing the prohibition), and 3) allow the exemption to expire in 1981? Journals Outside 24

No. 688, August 2014 No. 696, November 2014

Introduction A Leverage-Based Measure of Financial Supervisory Stress Tests Instability Beverly Hirtle and Andreas Lehnert Alexander Tepper and Karol Jan Borowiecki Hirtle and Lehnert describe the background, Tepper and Borowiecki develop a measure of design choices, and particular details of stress financial instability designed to give regula­ tests used as part of an overall supervisory tors and policymakers advance warning of regime. financial crises and apply it to an investigation of the 1998 collapse of Long-Term Capital No. 697, November 2014

Economic Management.­ CDS and Equity Market Reactions to Stock y Review Polic Issuances in the U.S. Financial Industry: No. 692, September 2014 Evidence from the 2002-13 Period How Does Risk Management Influence Marcia Millon Cornette, Hamid Mehran, Kevin Pan, Production Decisions? Evidence from a Field Minh Phan, and Chenyang Wei Experiment The authors study credit default swap (CDS) Shawn Cole, Xavier Giné, and James Vickery and equity market reactions to seasoned equity The authors use a randomized controlled trial issuances that were announced by financial Issues Current involving a sample of Indian farmers to study companies between 2002 and 2013. how an innovative rainfall insurance product affects production decisions. No. 698, November 2014 Costly Information, Planning No. 693, October 2014 Complementarities and the Phillips Curve Bank Heterogeneity and Capital Allocation: Sushant Acharya Evidence from “Fracking” Shocks Unlike the models in the sticky information Matthew C. Plosser literature, the one presented in this paper is Plosser empirically investigates how positive capable of explaining the differential adjust-

Economics funding shocks—arising from innovations in ment of prices in response to monetary and Liberty Street drilling technology that have resulted in the idiosyncratic shocks. development of several new oil and gas fields throughout the United States—translate into No. 702, November 2014 investments by banks. The Sensitivity of Housing Demand to Financing Conditions: Evidence from No. 694, October 2014 a Survey Counterparty Risk in Material Supply

Staff Andreas Fuster and Basit Zafar

Reports Contracts Fuster and Zafar employ an alternative survey- Nina Boyarchenko and Anna M. Costello based approach to gauge the sensitivity of The authors test whether three sources of housing demand to mortgage rates, down counterparty risk—financial exposure, product payment constraints, and an exogenous shock quality risk, and redeployability risk—are in nonhousing wealth. priced in the equity returns of linked firms. Outside Journals 25 Introduction

No. 703, December 2014 Quantitative Methods Asset Pricing with Horizon-Dependent No. 680, July 2014 Risk Aversion Central Bank Macroeconomic Forecasting Marianne Andries, Thomas M. Eisenbach, and Martin C. Schmalz during the Global Financial Crisis: The Polic y Review

European Central Bank and Federal Reserve Economic The authors investigate the implications of Bank of New York Experiences horizon-dependent risk aversion for both the level and the term structure of risk premia. Lucia Alessi, Eric Ghysels, Luca Onorante, Richard Peach, and Simon Potter No. 704, December 2014 The authors document macroeconomic fore- Banks’ Incentives and the Quality of Internal casting during the global financial crisis by the Risk Models European Central Bank and the Federal Matthew C. Plosser and João A. C. Santos Reserve Bank of New York. This paper is the result of a collaborative effort between the two Plosser and Santos investigate the incentives for institutions that allowed the authors to study Current banks to bias internally generated risk estimates. Issues the time-stamped forecasts as they were made No. 705, December 2014 throughout the crisis. Hybrid Intermediaries No. 691, September 2014 Nicola Cetorelli What Predicts U.S. Recessions? Today’s complex bank holding companies are Weiling Liu and Emanuel Moench the best example of hybrid intermediaries, but

Liu and Moench reassess the predictability of StreetLiberty

Cetorelli argues that financial firms from the Economics U.S. recessions at horizons from three months “nonbank” space can just as easily evolve into to two years ahead for a large number of conglomerates with a similar organizational previously proposed leading indicator variables. structure, thus acquiring the capability to engage in financial intermediation. No. 699, November 2014 No. 706, December 2014 Population Aging, Migration Spillovers, and the Decline in Interstate Migration Option-Implied Term Structures Fatih Karahan and Serena Rhee Erik Vogt Interstate migration in the United States has The illiquidity of long-maturity options has declined by 50 percent since the mid-1980s. Reports made it difficult to study the term structures Staff The authors study the effect of the aging of option-spanning portfolios. Vogt proposes ­population on this long-run decline. a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. Journals Outside 26

Outside Journals Jan Groen

Introduction “Discussion on Forecasting Commodity Price Members of the Research and Statistics Group Indexes Using Macroeconomic and Financial publish in a wide range of economic and Predictors.” International Journal of Forecasting 30, finance journals, conference volumes, and no. 3 (July-September): 844-6. scholarly books. Andrea Tambalotti “The Effects of the Saving and Banking Glut on Published in 2014 the U.S. Economy,” with Giorgio Primiceri and Alejandro­ Justiniano. Journal of International­ Economic Economics 92, suppl. 1 (April): S52-S67. Papers y Review Polic Macroeconomics and Growth presented at the Thirty-Sixth Annual NBER Stefania Albanesi ­International Seminar on Macroeconomics.­ “Maternal Health and the Baby Boom,” with ­Claudia Olivetti. Quantitative Economics 5, Microeconomics no. 2 (July): 225-69. Jaison Abel Domenico Giannone

Issues “Skills across the Urban-Rural Hierarchy,” with Current “Short-Term Inflation Projections: A Bayesian Todd M. Gabe and Kevin Stolarick. Growth Vector Autoregressive Approach,” with Michele and Change 45, no. 4 (December): 499-517. Lenza, Daphne Momferatou, and Luca Onorante. International Journal of Forecasting 30, Rajashri Chakrabarti no. 3 ­(July-September): 635-44. “Incentives and Responses under No Child Left Behind: Credible Threats and the Role of Marc Giannoni Competition.” Journal of Public Economics 110, “Optimal Interest Rate Rules and Inflation February: 124-46. Stabilization versus Price-Level Stabilization.” Journal of Economic Dynamics and Control 41, Adam Copeland Economics

Liberty Street April: 110-29. “Intertemporal Substitution and New Car ­Purchases.” RAND Journal of Economics 45, Argia Sbordone no. 3 (Fall): 624-44. “The Macroeconomics of Trend Inflation,” with Guido Ascari. Journal of Economic Giacomo De Giorgi ­Literature 52, no. 3 (September): 679-739. “Understanding Social Interactions: Evidence from the Classroom,” with Michele Pellizzari.

Staff International Economic Journal 124, no. 579 (September): Reports 917-53. Mary Amiti “Importers, Exporters, and Exchange Rate Andreas Fuster ­Disconnect,” with Oleg Itshoki and Josef “The Endowment Effect,” with Keith M. ­Konings. American Economic Review 104, ­Marzilli Ericson. Annual Review of Economics 6, no. 7 (July): 1942-78. August: 555-79. Outside Journals 27 Introduction

Andrew Haughwout and Tobias Adrian, Adam Copeland, Wilbert van der Klaauw and Antoine Martin “Land Use Regulation and Welfare,” with “Repo and Securities Lending,” with Brian ­Matthew A. Turner. Econometrica 82, no. 4 ­Begalle. In Markus K. Brunnermeier and

(July): 1341-1403. Arvind ­Krishnamurthy, eds., Risk Topography: Polic y Review

Systemic Risk and Macro Modeling: 131-48. Economic Maxim Pinkovskiy NBER conference volume. Chicago: University “Africa Is on Time,” with Xavier ­Sala-i-Martin. of Chicago Press. Journal of Economic Growth 19, no. 3 ­(September): 311-38. Dong Beom Choi “Heterogeneity and Stability: Bolster the Benjamin Pugsley Strong, Not the Weak.” Review of Financial “Are Household Surveys Like Tax Forms? Studies 27, no. 6 (April): 1830-67. ­Evidence from Income Underreporting of the Self-­Employed,” with Erik Hurst and Geng Li. Nicola Cetorelli Current

Review of Economics and Statistics 96, no. 1 “Surviving Credit Market Competition.” Issues (March): ­19-33. ­Economic Inquiry 52, no. 1 (January): 320-40.

Ayşegül Şahin and Giorgio Topa Marco Cipriani “Mismatch Unemployment,” with Joseph Song “Estimating a Structural Model of Herd and Giovanni L. Violante. American Economic Behavior in Financial Markets,” with Antonio Review 104, no. 11 (November): 3529-64. Guarino. American Economic Review 104, no. 1

(January): 224-51. StreetLiberty

Basit Zafar Economics “Do We Follow Others When We Should Adam Copeland and Antoine Martin outside the Lab? Evidence from the AP Top “Repo Runs: Evidence from the Tri-Party 25,” with ­Daniel F. Stone. Journal of Risk and Repo Market,” with Michael Walker. Journal of Uncertainty 49, no. 1 (August): 73-102. ­Finance 69, no. 6 (December): 2343-80.

Stefano Eusepi Banking and Finance “When Does Determinacy Imply E-Stability?” with James Bullard. International Economic Tobias Adrian Review 55, no. 1 (February): 1-22.

“Financial Intermediaries and the Cross- Reports Section of Asset Returns,” with Erkko Etula Rodney Garratt Staff and Tyler Muir. Journal of Finance 69, no. 6 “The Role of Counterparty Risk in CHAPS ­(December): 2557-96. ­Following the Collapse of Lehman Brothers,” with ­Evangelos Benos and Peter ­Zimmerman. “Procyclical Leverage and Value-at-Risk,” ­International Journal of Central Banking, with Hyun Song Shin. Review of Financial ­December: 143-71. Studies 27, no. 2 (February): 373-403. “The Great Entanglement: The Contagious Journals ­Capacity of the International Banking Network­ Outside Just before the 2008 Crisis,” with Lavan ­Mahadeva and Katsiaryna Svirydenska. Journal of Banking and Finance 49, December: 367-85. 28

David Lucca Quantitative Methods

Introduction “Inconsistent Regulators: Evidence from ­Banking,” with Sumit Agarwal, Amit Seru, Richard Crump and Francesco Trebbi. Quarterly Journal of “Bootstrapping Density-Weighted ­Average ­Economics 129, no. 2 (May): 889-938. ­Derivatives,” with Matias Cattaneo and ­Michael ­Jansson. Econometric Theory 30, no. 6 “The Revolving Door and Worker Flows (December): ­1135-64. in Banking Regulation,” with Amit Seru and Francesco Trebbi. Journal of Monetary “Small Bandwidth Asymptotics for Density- ­Economics 65, July: 17-32. Proceedings of Weighted Average Derivatives,” with Matias

Economic ­ A Century of Money, Banking, and Financial Cattaneo and Michael Jansson. Econometric y Review Polic ­Instability, Carnegie–Rochester–NYU Theory 30, no. 1 (February): 176-200. ­Conference Series on Public Policy. Marco Del Negro Donald Morgan and Stavros Peristiani “Rare Shocks, Great Recessions,” with Vasco “The Information Value of the Stress Test and Cúrdia and Daniel Greenwald. Journal of Bank Opacity,” with Vanessa Savino. ­Journal Applied ­Econometrics 29, no. 7 (November- of Money, Credit, and Banking 46, no. 7 December): 1031-52. Issues

Current ­(October): ­1479-1500.

João A. C. Santos Forthcoming “Banks’ Liquidity and the Cost of Liquidity to Corporations,” with Vitaly Bord. Journal Macroeconomics and Growth of Money, Credit, and Banking 46, suppl. 1 ­(February): 13-45. Rajashri Chakrabarti, Donghoon Lee, Wilbert van der Klaauw, and Basit Zafar “Do Banks Propagate Debt Market Shocks?” “Household Debt and Saving during the 2007 with Galina Hale. Journal of Financial and

Economics ­Recession.” In Michael Palumbo Hulten and ­Economic Policy Liberty Street 6, no. 3 (April): 270-310. Marshall Reinsdorf, eds., Measuring Wealth and “The Introduction of Market-Based Pricing Financial Intermediation and Their Links to the in Corporate Lending,” with Ivan Ivanov and Real Economy. NBER conference volume. Thu Vo. Journal of Financial Perspectives 2, Jonathan McCarthy no. 1 (March): 155-9. “Has the Response of Investment to ­Financial Ernst Schaumburg Market Signals Changed?” In Per Gunnar Staff Berglund and Leanne J. Ussher, eds., Recent

Reports “A Closer Look at the Short-Term Return ­Reversal,” with Zhi Da and Qianqiu Liu. Developments in Macroeconomics. Eastern ­Management Science 60, no. 3 (March): ­Economic Association conference volume. ­658-74. Oxford, United Kingdom: Routledge.

“A Robust Neighborhood Truncation ­Approach Ayşegül Şahin to Estimation of Integrated Quarticity,” with “The Labor Market in the Great ­Recession: Torben Andersen and Dobrislav Dobrev. An ­Update,” with Michael Elsby, Bart ­Hobijn, Econometric Theory 30, no. 1 (February): 3-59. and Rob Valletta. Brookings Papers on ­Economic ­Activity. Outside Journals 29 Introduction

“A Rising Natural Rate of Unemployment: “The Price Is Right: Updating of Inflation Transitory or Permanent?” with Mary Daly, Expectations in a Randomized Price Informa- Bart Hobijn, and Rob Valletta. Journal of tion Experiment,” with Scott Nelson. Review of ­Economic ­Perspectives. Economics and ­Statistics. Polic y Review

Andrea Tambalotti Meta Brown and Giorgio Topa Economic “Has U.S. Monetary Policy Tracked the “Do Informal Referrals Lead to Better Matches?­ ­Efficient Interest Rate?” with Vasco Cúrdia, Evidence from a Firm’s Employee Referral Andrea Ferrero, and Ging Cee Ng. Journal of ­System,” with Elizabeth Setren. Journal of Monetary Economics. ­Labor Economics.

“Household Leveraging and ­Deleveraging,” Meta Brown and Basit Zafar with Alejandro Justiniano and Giorgio “The Impact of Housing Markets onConsumer ­ ­Primiceri. Review of Economic Dynamics. Debt: Credit Report Evidence from 1999 to 2012,” with Sarah Stein. Journal of Money, Current Microeconomics Credit, and ­Banking. Issues Jaison Abel and Richard Deitz Rajashri Chakrabarti “Agglomeration and Job Matching among “Did Cuts in State Aid during the Great ­College Graduates.” Regional Science and Urban ­Recession Lead to Changes in Local Property Economics. Taxes?” with Joydeep Roy. Education Finance and Policy. Olivier Armantier Liberty StreetLiberty

“Eliciting Beliefs: Proper Scoring Rules, “Housing Markets and Residential ­Segregation: Economics ­Incentives, Stakes, and Hedging,” with Nicolas ­Impacts of the Michigan School Finance Treich. European Economic Review. Reform on Inter- and Intra-District Sorting.” Journal of Public Economics. “On the Effects of Incentive Framing on B­ribery: Evidence from an Experiment Giacomo De Giorgi in Burkina Faso,” with Amadou Boly. In “Gender Complementarities in the Labor Danila Serra and Leonard Wantchekon, eds., ­Market.” Research in Labor Economics. ­Econometrics of Governance. Andrew Haughwout and Joseph Tracy

“Relative Performance of Liability Rules: “Second Chances: Subprime Mortgage Reports Staff Experimental Evidence,” with Vera ­Angelova, ­Modification and Re-Default,” with Ebiere ­Giuseppe Attanasi, and Yolande Hiriart. Okah. Journal of Money, Credit, and Banking. ­International Economic­ Review. “How Mortgage Finance Affects theUrban ­ Olivier Armantier, Giorgio Topa, Landscape,” with Sewin Chan. In Giles Wilbert ­van ­der ­Klaauw, and Basit Zafar ­Duranton, J. Vernon Herderson, and “Inflation Expectations and Behavior: Do ­William C. Strange, eds., Handbook of Regional Survey Respondents Act on their Beliefs?” and Urban Economics. Journals with Wändi Bruine de Bruin. International Outside ­Economic Review. 30

Maxim Pinkovskiy Tobias Adrian and Richard Crump “Regression-Based Estimation of Dynamic Introduction “Voter Learning in State Primary Elections,” with Shigeo Hirano, Gabriel Lenz, and James Asset Pricing Models,” with Emanuel Moench. Snyder. American Journal of Political Science. Journal of Financial Economics.

Joseph Tracy Nicola Cetorelli “Is the FHA Creating Sustainable Comment on “Inflation and Financial ­Market ­Homeownership?” with Andrew Caplin and ­Performance: What Have We Learned in the Anna ­Cororaton. Real Estate Economics. Last Ten Years?” by John Boyd and Bruce Champ. ­Journal of Money, Credit, and Banking. Economic Wilbert van der Klaauw y Review Polic “Unintended Consequences of Welfare Andreas Fuster and James Vickery ­Reform: The Case of Divorced Parents,” with “Securitization and the Fixed-Rate Mortgage.” Marco ­Francesconi and Helmut Rainer. Review Review of Financial Studies. of ­Economics of the Household. Rodney Garratt Basit Zafar “Mapping Change in the Overnight Money “Determinants of College Major Choice: ­Market,” with Morten L. Bech, Carl T.

Issues ­Bergstrom, and ­Martin Rosvall. Physica A:

Current ­Identification using an Information Experiment,” ­Statistical Mechanics and Its ­Applications. with Matthew Wiswall. Review of ­Economic Studies. David Lucca “The Pre-FOMC Announcement Drift,” with “Heterogeneous Inflation Expectations, Emanuel Moench. Journal of Finance. ­Learning, and Market Outcomes,” with ­Carlos Madeira. ­Journal of Money, Credit, Antoine Martin and ­Banking. “The Fragility of Short-Term Secured Funding Markets,” with David Skeie and Ernst-Ludwig Banking and Finance Von ­Thadden. Journal of Economic Theory. Economics Liberty Street Tobias Adrian “Repos, Fire Sales, and Bankruptcy Policy,” with “Shadow Banking: A Review of the ­Literature,” Gaetano Antinolfi, Francesca Carapella, Charles with Adam B. Ashcraft. The New Palgrave Kahn, David Mills, and Ed Nosal. Review of ­Dictionary of Economics. ­Economic Dynamics. “Which Financial Frictions? Parsing the “Repo Runs,” with Ernst-Ludwig Von Thadden. ­Evidence from the Financial Crisis of Review of Financial Studies. Staff

Reports 2007-09,” with Paolo Colla and Hyun Song Shin. NBER International Seminar on Hamid Mehran ­Macroeconomics. “Executive Compensation and Risk Taking,” with Patrick Bolton and Joel Shapiro. Review Discussion of “An Integrated Framework for of Finance. ­Multiple Financial Regulations,” by Charles ­Goodhart, Anil Kashyap, Dimitrios Tsomocos, and Alex Vardoulakis. International Journal of ­Central ­Banking. Outside Journals 31 Introduction

Donald Morgan Quantitative Methods “Payday Holiday: How Households Fare after Payday Credit Bans.” Journal of Money, Credit, Domenico Giannone and Banking. “Conditional Forecasts and Scenario Analysis with Vector Autoregressions for Large Cross- João A. C. Santos Polic y Review Sections,” with Marta Banbura and Michele Economic “Does Securitization of Corporate Loans Lead Lenza. ­International Journal of Forecasting. to Riskier Lending?” with Vitaly Bord. Journal of Money, Banking, and Finance. “Prior Selection for Vector Autoregressions,” with Michele Lenza and Giorgio Primiceri. Review of Economics and Statistics.

Robert Rich and Joseph Tracy “The Measurement and Behavior of Uncertainty: Evidence from the ECB Survey of Professional Current

Forecasters,” with Joshua Abel and Joseph Song. Issues Journal of Applied Econometrics. Liberty StreetLiberty Economics Reports Staff Journals Outside 32

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