Publications and Other Research
2013
Federal Reserve Bank of New York Research and Statistics Group www.newyorkfed.org/research Contents 1 Introduction 2 Economic Policy Review 5 EPR Executive Summaries 6 Current Issues in Economics and Finance 8 Liberty Street Economics Blog 14 Research Update 14 The esearchR Group of the Federal Reserve Bank of New York 15 Staff Reports 39 Outside Journals
Federal Reserve Bank of New York Research and Statistics Group www.newyorkfed.org/research
February 2014 Follow us on Twitter: @NYFedResearch 1 Economic Current Liberty Street Sta Outside Introduction Policy Review Issues Economics Reports Journals EPR Executive Summaries EPR Executive selected Economic of abridged versions articles Policy Review Update Research summaries a quarterly newsletter providing publications of recent of studies and listings series in our research Reserve of the Federal Group e Research York of New Bank in join- A guide for economists interested as an overview of our as well ing the Group, and functions. sta , structure, I I I Members of the Group also publish in many of the Group Members economic and nance journals, conference these and scholarly books. A list of volumes, publications begins on page 39. We also o er other series of interest to readers: of interest also o er other series We
Sta Reports Sta technical papers intended for publication in leading economic and nance journals. Liberty Street Economics Street Liberty to engage a blog that enables our economists and issues quickly 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 nancial issues Economic Policy Review Policy Economic on a policy-oriented journal focusing issues economic and nancial market I I I I I is catalogue lists 2013 issues and blog posts is catalogue lists 2013 issues and series: in our research e Federal Reserve Bank of New York’s York’s of New Reserve Bank e Federal a wide produces Group and Statistics Research blog posts, and discus- of publications, variety to business and banking sion papers of interest academics, and the policymakers, professionals, general public. Introduction 2
Unintended Consequences of School Economic Policy Accountability Policies: Evidence from Introduction Review Florida and Implications for New York Rajashri Chakrabarti and Noah Schwartz The Economic Policy Review is a policy-oriented Over the past two decades, state and federal research journal that focuses on macroeconomic, education policies have tried to hold schools banking, and financial market topics. more accountable for educating students by EPR articles are available at www.newyorkfed tying rewards and sanctions to test scores and .org/research/epr. other measurable outcomes. A common criti-
Economic cism of these policies is that they may induce
y Review Polic schools to “game the system” along with—or Volume 19 instead of—making genuine educational improvements. One such strategic response No. 1, May 2013 may be to classify low-performing students into TBA Trading and Liquidity in the Agency categories that are excluded from grade compu- MBS Market* tation in an effort to artificially inflate scores. This article analyzes school responses to an James Vickery and Joshua Wright Issues influential accountability-tied voucher program Current Mortgage-backed securities in the United States in Florida. The authors find evidence of are generally traded on a “to-be-announced,” or increased classification into “excluded” catego- TBA, basis. The key feature of a TBA trade is ries in failing schools following the program’s that the identity of the securities to be delivered inception. Their findings have important impli- to the buyer is not specified exactly at the time cations for New York City’s Progress Reports of the trade, facilitating a liquid forward program and New York’s implementation of market. This article describes the main features the federal No Child Left Behind Act. While of the TBA market. It also presents evidence on these policies were modeled after the Florida the liquidity of this market during the financial program, they contain important design differ- Economics crisis period. Using variation in TBA eligibility ences that are likely to discourage this type of Liberty Street rules, the authors’ estimates suggest that the gaming, although they may encourage other liquidity benefits associated with the TBA strategic classifications. market are of the order of 10 to 25 basis points EPR Executive Summary available during 2009 and 2010, and magnified during periods of market stress. The estimates further Trading Activity and Price Transparency suggest that the presence of a government in the Inflation Swap Market credit guarantee alone does not appear to be Michael J. Fleming and John R. Sporn Staff
Reports sufficient explanation for the liquidity of The issues of liquidity and price transparency agency MBS. in derivatives markets have taken on greater EPR Executive Summary available import given regulatory efforts under way to improve their transparency. To date, the lack of transaction data has impeded the under- standing of how the inflation swap and other derivatives markets operate. This article broadens that understanding by using a novel transaction data set to examine trading activity Outside Journals Journals
*A top download in 2013. 3 Economic Current Liberty Street Sta Outside Introduction Policy Review Issues Economics Reports Journals Andreas Fuster, Laurie Goodman, David Lucca, Lucca, David Laurie Goodman, Fuster, Andreas Willen and Paul Molloy, Linsey Madar, Laurel lows historic While mortgage rates reached primary between during 2012, the spread and secondary to very is rates rose high levels. a number of factors that poten- re ected trend tially a ected mortgage costs and originator from the pass-through and restrained pro ts funding secondarylower rates to borrowers’ costs. is article mortgage describes the origi- the way and nation and securitization process e determined. are in which originator pro ts authors calculate a series of originator pro ts costs (OPUCs) for the period and unmeasured that these OPUCs 1994 to 2012, and show 2008 and 2012. signi cantly between increased the extent to which some ey also evaluate commonly cited factors, such as changes in loan putback risk, mortgage servicing rights and pipeline hedging costs contributed values, to the rise in OPUCs. Although some costs of mortgage risen in recent origination may have a large component of the rise in OPUCs years, unexplained, pointing to increased remains of originations. e authors pro tability of the discussing possible drivers conclude by such as capacity constraints rise in pro tability, from resulting pricing power and originators’ switching costs. borrowers’ cial system interlinkages. ey observecial system interlinkages. that e orts reform future and while many current of the the excesses focused on remediating are and capital bubble, increased credit recent for depositoryliquidity standards institutions likely to heighten are and insurance companies us, activity. banking to shadow the returns to be a signi cant banking is expected shadow part system, although very of the nancial form, for the foreseeable likely in a di erent future. Summary available EPR Executive and Primary between e Rising Gap Rates Secondary Mortgage 2, December 2013 2, December e rapid growth of the market-based nancial of the market-based e rapid growth system since the mid-1980s has changed the the Within of nancial intermediation. nature served have a critical banks” system, “shadow especially in the run-uprole, to the recent nancial banks are nancial crisis. Shadow credit, intermediaries that conduct maturity, and liquidity transformation without explicit access to central bank liquidity or public sector guarantees. is article documents the credit banks, discusses of shadow institutional features their and analyzes economic roles, the banks’ to the traditional banking system. e relation authors argue that an understanding of the banking system is an of the shadow “plumbing” important underpinning for any study of nan- Shadow Banking Shadow and Ashcraft, Adam Adrian, Tobias Pozsar, Zoltan Boesky Hayley No. and price transparency in the quickly growing in the quickly growing and price transparency e authors nd market. U.S. in ation swap liquid and reasonably appears that the market nature over-the-counter despite its transparent, Speci cally, trading activity. of and modest level typically prices are they nd that transaction end-of-day available quite close to widely bid-ask spreads that realized quoted prices and reasonably though the modest, even are 2010 contains just data set from comprehensive e authors two trades per day on average. over in also identify concentrations of activity ($25 certain sizes and trade tenors (ten years) million) and among certain partici- market attributes that help as various pants, as well eir and price deviations. explain trade sizes for policymakers study can serve as a resource regula- and other considering public reporting toryparticipants and for market and initiatives the in observers generally interested more of the in ation swap market. workings Summary available EPR Executive 4
Precarious Slopes? The Great Recession, Federal The Financial Market Effect of FOMC Minutes Stimulus, and New Jersey Schools Introduction Carlo Rosa Rajashri Chakrabarti and Sarah Sutherland The influence of the Federal Reserve’s unantici- While only a sparse literature investigates the pated target rate decisions on U.S. asset prices impact of the Great Recession on various has been the subject of numerous studies. More sectors of the economy, there is virtually no recently, researchers have looked at the asset research on the effect on schools. This article price response to statements issued by the starts to fill the void. The authors make use of Federal Open Market Committee (FOMC). rich panel data and a trend-shift analysis to Yet despite a vast and growing body of evidence
Economic study how New Jersey school finances were on the financial market effect of monetary
y Review Polic affected by the onset of the recession and the news released on FOMC meeting days, little is federal stimulus that followed. Their results known about the real-time response of U.S. show strong evidence of downward shifts in asset prices to the information contained in total school funding and expenditures, relative central bank minutes. This article fills the gap to trend, following the recession. Support of by using a novel, high-frequency data set to more than $2 billion in American Recovery examine the effect of the FOMC minutes and Reinvestment Act funding seems to release on U.S. asset prices—Treasury rates,
Issues provide a cushion in 2010: While funding and stock prices, and U.S. dollar exchange rates. Current expenditures still fall relative to pre-recession The author shows that the release significantly levels, they decline less than in 2009. The affects the volatility of U.S. asset prices and infusion of federal funding coincides with their trading volume. The magnitude of the significant cuts in state and local support, and effects is economically and statistically signifi- the authors mark sharp changes in New Jersey’s cant, and it is similar in magnitude to the relative reliance on the three sources of aid. An Institute for Supply Management manufac- examination of the compositional shift in turing index release, although smaller than that expenditures suggests that the stimulus may of the FOMC statement and nonfarm payrolls have prevented declines in categories linked releases. The asset price response to the
Economics most closely to instruction. Still, budgetary minutes, however, has declined in recent years, Liberty Street stress seems to have led to sizable layoffs of suggesting that the FOMC has become more nontenured teachers, resulting in an increase in transparent by releasing information in a median teacher salary and median experience timelier manner. level. Furthermore, high-poverty and urban school districts were found to sustain larger resource declines than more affluent and less
Staff populated districts did in the post-recession
Reports era. The study’s findings offer valuable insight into school finances during recessions and can serve as a guide to aid future policy decisions. EPR Executive Summary available Outside Journals Journals 5 Economic Current Liberty Street Sta Outside Introduction Policy Review Issues Economics Reports Journals EPR Executive Summaries EPR Executive rg/research/epr/executive_summary.html rg/research/epr/executive_summary.html www.newyorkfed.o Economic Policy Review articles. Review Policy summaries of Economic for concise isit our website Summaries are available for many articles available since 2002. published are Summaries e summaries make the technical research of New York Fed economists more accessible to policy- accessible to economists more Fed York of New the technical research e summaries make understanding series is designed to foster a fuller business leaders, and others. e makers, educators, to put our ideas and ndings to work. in a position among those who are of our research V . of the articles condenses many Review published in the Summaries series EPR Executive Our easy to absorb. write-ups that are policy-oriented nd timely, Readers will 6
Current Issues No. 2, 2013
Introduction The Financial Crisis at the Kitchen Table: in Economics Trends in Household Debt and Credit* and Finance Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw Current Issues in Economics and Finance offers Since the onset of the financial crisis, house- concise studies of topical economic and finan- holds have reduced their outstanding debt by cial issues. about $1.3 trillion. While part of this reduc- tion stemmed from a historic increase in
Economic Second District Highlights—a regional supple- consumer defaults and lender charge-offs, y Review Polic ment to Current Issues—covers important particularly on mortgage debt, other factors financial and economic developments in the were also at play. An analysis of the New York Federal Reserve System’s Second District. Fed’s Consumer Credit Panel—a rich new data Both series are available at www.newyorkfed set on individual credit accounts—reveals that .org/research/current_issues. households actively reduced their obligations during this period by paying down their current debts and reducing new borrowing. Issues
Current Volume 19 These household choices, along with banks’ stricter lending standards, helped drive this No. 1, 2013 deleveraging process. Do Industrialized Countries Hold the Right No. 3, 2013 Foreign Exchange Reserves? Securities Loans Collateralized by Cash: Linda Goldberg, Cindy E. Hull, and Sarah Stein Reinvestment Risk, Run Risk, and Incentive Issues* That central banks should hold foreign Frank Keane currency reserves is a key tenet of the post– Securities loans collateralized by cash are by far Bretton Woods international financial order.
Economics the most popular form of securities-lending But recent growth in the reserve balances of Liberty Street transaction. But when the cash collateral associ- industrialized countries raises questions about ated with these transactions is actively what level and composition of reserves are reinvested by a lender’s agent, potential risks “right” for these countries. A look at the ratio- emerge. This study argues that the standard nale for reserves and the reserve practices of compensation scheme for securities-lending select countries suggests that large balances may agents, which typically provides for agents to not be needed to maintain an effective share in gains but not losses, creates incentives
Staff exchange rate policy over the medium and long for them to take excessive risk. It also highlights Reports term. Moreover, countries may incur an oppor- the need for greater scrutiny and understanding tunity cost by holding funds in currency and of cash reinvestment practices—especially in asset portfolios that, while highly liquid, light of the AIG experience, which showed that produce relatively low rates of return. risks related to cash reinvestment, by even a single participant, could have destabilizing effects. Outside Journals Journals
*A top download in 2013. 7 Introduction
No. 4, 2013 No. 6, 2013 New Jersey’s Abbott Districts: Education Understanding the New York Fed’s Survey Finances during the Great Recession of Primary Dealers Rajashri Chakrabarti and Sarah Sutherland Ellen Correia Golay, Steven Friedman, Funding for New Jersey’s low-income school and Michael McMorrow Policy Review districts tumbled in the most recent recession, e New York Fed’s Survey of Primary Dealers Economic and the Abbott districts—a group of poor plays a key role in the Federal Reserve’s under- urban districts that for almost two decades standing of market expectations for monetary received special appropriations from the state— policy and the economy, providing timely and were hit especially hard. A comparison with the comprehensive dealer insight into a range of state’s other low-income districts reveals that topics. In recent years, the survey has evolved the Abbott districts faced markedly sharper to re ect the changing macroeconomic envi- declines in aid, relative to trend. Consequently, ronment brought about by the nancial crisis while all of the low-income districts responded and by the Fed’s move into new policy tools Current
to the drop in state aid by scaling back aimed at adjusting the size and composition of Issues spending on support services and utilities, only its balance sheet and giving more explicit the Abbott group also made signi cant cuts in forward guidance on the path of short-term instructional spending. Moreover, the scal interest rates. is study o ers an in-depth look strains of recession appear to have led to layo s at the survey and discusses its structure and of untenured teachers in the Abbott districts, evolution. but not in the state’s other low-income districts. Second District Highlights No. 7, 2013 Liberty StreetLiberty
e Parts Are More an the Whole: Economics No. 5, 2013 Separating Goods and Services to Predict Paying Paul and Robbing No One: Core In ation An Eminent Domain Solution Richard Peach, Robert Rich, and M. Henry Linder for Underwater Mortgage Debt Economists have not been altogether successful Robert Hockett in their e orts to forecast “core” in ation—an In the view of many analysts, the best way to in ation measure that typically excludes assist “underwater” homeowners—those who volatile food and energy prices. One possible owe more on their mortgages than their houses explanation is that the models used to make are worth—is to reduce the principal on their these forecasts fail to distinguish the forces Reports home loans. Yet in the case of privately securi- in uencing price changes in core services from Sta tized mortgages, such write-downs are almost those a ecting price changes in core goods. impossible to carry out, since loan modi ca- While core services in ation depends on tions on the scale necessitated by the housing long-run in ation expectations and the degree market crash would require collective action by of slack in the labor market, core goods in a- a multitude of geographically dispersed security tion depends on short-run in ation holders. e solution, this study suggests, is for expectations and import prices. By using a state and municipal governments to use their composite model that combines these di erent Journals eminent domain powers to buy up and restruc- sets of explanatory variables, the authors of this Outside ture underwater mortgages, thereby study are able to improve upon the in ation sidestepping the need to coordinate action forecasts produced by a standard model. across large numbers of security holders. 8
Liberty Street January 16
Introduction How Severe Was the Credit Cycle in the Economics New York–Northern New Jersey Region? Jaison R. Abel and Richard Deitz Our Liberty Street Economics blog, launched in 2011, provides a way for our economists to January 30 engage with the public on diverse issues quickly Just Released: NY Fed’s Erica Groshen Becomes and frequently. The blog typically publishes Commissioner of Labor Statistics new economic posts on Mondays and Wednes- days. It publishes reader comments and author Jamie McAndrews Economic
y Review Polic responses in the hope of generating dialogue with the public. February 4 Did Securitization Lead to Riskier Corporate Visit the blog at libertystreeteconomics Lending? .newyorkfed.org/ . João Santos Economic Posts in 2013 February 6
Issues How Did Education Financing in New Jersey’s Current January 2 Abbott Districts Fare during the Great Recession? A “Reference Price Auction” to Buy or Sell Rajashri Chakrabarti and Sarah Sutherland Different Assets Simultaneously February 11 Olivier Armantier The Exchange Rate Disconnect January 7 Mary Amiti, Oleg Itskhoki, and Jozef Konings Making a Statement: How Did Professional February 13 Forecasters React to the August 2011 Underwater and Drowning? Some Facts about Economics FOMC Statement? Liberty Street Mortgages that Could Be Targeted by Eminent Richard Crump, Stefano Eusepi, Domain and Emanuel Moench Andreas Fuster, Caitlin Gorback, and Paul Willen January 9 February 20 Ring-Fencing and “Financial Protectionism” in International Banking Primary Dealers’ Waning Role in Treasury Auctions Staff Linda Goldberg and Arun Gupta Reports Michael Fleming and Sean Myers January 14 February 25 China’s Impact on U.S. Inflation The Macroeconomic Effects of Forward Mary Amiti and Mark Choi Guidance Marco Del Negro, Marc Giannoni, and Christina Patterson Outside Journals Journals 9 Introduction
February 27 April 1 State Unemployment and the Allocation of How Liquid Is the In ation Swap Market? Federal Stimulus Spending Michael Fleming and John Sporn James Orr and John Sporn
April 3 Policy Review February 28 I Want My Money Now: e Highs and Lows Economic Just Released: Press Brie ng on Household Debt of Payments in Real Time and Credit Parinitha Sastry and David Skeie Meta Brown, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw Just Released: February Report Points to Moderate Regional Economic Growth March 4 Jason Bram and James Orr How the Nation Resolved Its First Debt Ceiling Crisis April 8 Current Kenneth Garbade Does Import Competition Improve the Quality Issues of Domestic Goods? March 6 Mary Amiti and Amit Khandelwal Pick Your Poison: How Money Market Funds Reacted to Financial Stress in 2011 April 10 Neel Krishnan, Antoine Martin, and Asani Sarkar Foreclosures Loom Large in the Region Jaison R. Abel and Richard Deitz Liberty StreetLiberty
March 11 Economics e Region’s Job Rebound from April 15 Superstorm Sandy Do Treasury Term Premia Rise around Jaison R. Abel, Jason Bram, Richard Deitz, Monetary Tightenings? and James Orr Tobias Adrian, Richard Crump, and Emanuel Moench March 25 A New Approach for Identifying Demand and Just Released: April Empire State Supply Shocks in the Oil Market Manufacturing Survey
Jan Groen, Kevin McNeil, and Menno Middeldorp Jason Bram and Richard Deitz Reports Sta March 26 April 17 First Impressions Can Be Misleading: Revisions Young Student Loan Borrowers Retreat from to House Price Changes Housing and Auto Markets Joseph Tracy, Richard Peach, and Joshua Abel Meta Brown and Sydnee Caldwell
March 27 April 22
e E ect of Superstorm Sandy on Journals Is Job Polarization Holding Back the Labor Outside Market? the Macroeconomy Stefania Albanesi, Victoria Gregory, M. Henry Linder, Richard W. Peach, Christina Patterson, and Ayşegül Şahin and Sarah K. Stein 10
Japanese Inflation Expectations, Revisited May 29 Introduction Benjamin R. Mandel and Geoffrey Barnes Piggy Banks Donald P. Morgan and Katherine Samolyk May 6 Uncertainty, Liquidity Hoarding, and June 3 Financial Crises Data Link Helps Shed Light on Banks and Tanju Yorulmazer Public Equity Anna Kovner, Phoebe White, and Lily Zhou May 8 Economic
y Review Polic Are Stocks Cheap? A Review of the Evidence June 5 Fernando Duarte and Carlo Rosa Drilling Down into Core Inflation: Goods versus Services May 13 M. Henry Linder, Richard Peach, and Robert Rich Capital Controls, Currency Wars, and International Cooperation Just Released: New York’s Latest Beige Book Report Bianca De Paoli and Anna Lipińska Points to Sustained Growth Issues
Current Jaison R. Abel and Jason Bram May 14 Just Released: The Geography of Student Debt June 24 Andrew Haughwout, Donghoon Lee, Crisis Chronicles: 300 Years of Financial Crises Wilbert van der Klaauw, and Joelle Scally (1620–1920) James Narron and David Skeie May 15 My Two (Per)cents: How Are American Workers June 26 Dealing with the Payroll Tax Hike? States Are Recovering Lost Jobs at Surprisingly
Economics Basit Zafar, Max Livingston, and Wilbert van der Klaauw Similar Rates Liberty Street Jason Bram and James Orr May 20 Do Big Cities Help College Graduates Find June 27 Better Jobs? Just Released: Are Recent College Graduates Finding Jaison R. Abel and Richard Deitz Good Jobs? Jaison R. Abel and Richard Deitz
Staff May 22 Reports Foreign Borrowing in the Euro Area Periphery: July 8 The End Is Near Do Bank Shocks Affect Aggregate Investment? Matthew Higgins and Thomas Klitgaard Mary Amiti and David Weinstein
May 23 July 10 Just Released: The New York Fed Staff Forecast— Common Stock Repurchases during May 2013 the Financial Crisis Jonathan McCarthy and Richard Peach Beverly Hirtle Outside Journals Journals 11 Introduction
July 15 August 14 Improving Access to Re nancing Opportunities What If ? A Counterfactual SOMA Portfolio for Underwater Mortgages Michael Fleming, Deborah Leonard, Grant Long, and Joshua Abel and Joseph Tracy Julie Remache Policy Review
July 17 August 15 Economic Magnifying the Risk of Fire Sales in the More an Meets the Eye: Some Fiscal Tri-Party Repo Market Implications of Monetary Policy Leyla Alkan, Vic Chakrian, Adam Copeland, Marco Del Negro, Jamie McAndrews, and Isaac Davis, and Antoine Martin Julie Remache
July 22 August 16 Distressed Residential Real Estate: Dimensions, Transparency and Sources of Information on Impacts, and Remedies the Federal Reserve’s Operations, Income, and Current Diego Aragon, Richard Peach, and Joseph Tracy Balance Sheet Issues Michael Fleming and Deborah Leonard Just Released: Mapping Changes in School Finances Rajashri Chakrabarti and Max Livingston August 14 August 5 Just Released: Who Is Driving the Auto e Recent Bond Market Sello Lending Recovery? Liberty StreetLiberty
in Historical Perspective Andrew Haughwout, Donghoon Lee, Joelle Scally, and Economics Tobias Adrian and Michael Fleming Wilbert van der Klaauw
August 7 August 19 Could Superstorm Sandy Stimulate Are Higher Haircuts Better? A Paradox the Region’s Economy? Brian Begalle, Adam Copeland, Antoine Martin, Jaison R. Abel, Jason Bram, Richard Deitz, James Orr, Jamie McAndrews, and Susan McLaughlin Kaivan K. Sattar, and Eric Stern August 21
Creating a History of U.S. In ation Expectations Reports A Special Series on the System Open Market Account Jan Groen and Menno Middeldorp Sta August 12 August 26 e SOMA Portfolio through Time Information on Dealer Activity in Speci c Meryam Bukhari, Alyssa Cambron, Michael Fleming, Treasury Issues Now Available Jonathan McCarthy, and Julie Remache Michael Fleming August 13 August 28 Journals A History of SOMA Income Outside U.S. Leveraged Buyouts: e Importance of Meryam Bukhari, Alyssa Cambron, Marco Del Negro, Financial Visibility and Julie Remache Hamid Mehran and Stavros Peristiani 12
September 4 October 16
Introduction Consumer Confidence: A Useful Indicator of A Look at Bank Loan Performance . . . the Labor Market? Tara Sullivan and James Vickery Jason Bram, Robert Rich, and Joshua Abel Dealer Balance Sheet Capacity and September 6 Market Liquidity during the 2013 Selloff in Crisis Chronicles: Tulip Mania, 1633-37 Fixed-Income Markets James Narron and David Skeie Tobias Adrian, Michael Fleming, Jonathan Goldberg, Morgan Lewis, Fabio Natalucci, and Jason Wu September 9 Economic
y Review Polic Preparing for Takeoff? Professional Forecasters October 21 and the June 2013 FOMC Meeting Long Island’s Economy Back on Track after Sandy Richard Crump, Stefano Eusepi, and Emanuel Moench Jason Bram and Rachel Keller September 23 November 4 Waiting for Recovery: New York Schools and the Aftermath of the Great Recession Japan’s Missing Wall of Money
Issues Thomas Klitgaard
Current Rajashri Chakrabarti and Max Livingston
September 25 November 6 Catching Up or Falling Behind? New Jersey (Unmet) Credit Demand of American Households Schools in the Aftermath of the Great Recession Basit Zafar, Max Livingston, and Wilbert van der Klaauw Rajashri Chakrabarti and Max Livingston November 8 September 30 Crisis Chronicles: The South Sea Bubble of Crisis Chronicles: The “Not So Great” 1720—Repackaging Debt and the Current Re-Coinage of 1696 Reach for Yield Economics
Liberty Street James Narron and David Skeie James Narron and David Skeie October 2 November 13 Capital Flight inside the Euro Area: On the Design of Monetary and Cooling Off a Fire Sale Macroprudential Policies Matthew Higgins and Thomas Klitgaard Bianca De Paoli October 7 Staff November 14 Reports What’s News? Just Released: Deleveraging Decelerates and Linda Goldberg Household Balances Increase October 9 Andrew Haughwout, Donghoon Lee, Joelle Scally, and Twenty-Eight Money Market Funds That Wilbert van der Klaauw Could Have Broken the Buck: New Data on Losses during the 2008 Crisis Marco Cipriani, Michael Holscher, Antoine Martin, and Patrick McCabe Outside Journals Journals 13 Introduction
November 15 A Special Series on the FRBNY Survey of A Long Road to Economic Recovery for Consumer Expectations the U.S. Virgin Islands Jason Bram and Jonathan Hastings December 4 Introducing the FRBNY Survey of Consumer Policy Review Economic Just Released: November Empire State Expectations: Survey Goals, Design, and Manufacturing Survey Shows a Decline Content in Activity Olivier Armantier, Giorgio Topa, Jason Bram and Richard Deitz Wilbert van der Klaauw, and Basit Zafar
November 18 Introducing the FRBNY Survey of Consumer Yen and Yang: e Response of the Nikkei to Expectations: Measuring Price In ation the Yen Expectations Andrew Howland and Benjamin Mandel Olivier Armantier, Giorgio Topa, Current Wilbert van der Klaauw, and Basit Zafar Issues November 20 Intermediary Leverage Cycles and December 5 Financial Stability Introducing the FRBNY Survey of Consumer Tobias Adrian and Nina Boyarchenko Expectations: Labor Market Expectations Olivier Armantier, Giorgio Topa, Just Released: Lifting the Veil—For-Pro ts in Wilbert van der Klaauw, and Basit Zafar the Higher Education Landscape StreetLiberty Economics Rajashri Chakrabarti and John Grigsby December 6 Introducing the FRBNY Survey of Consumer November 22 Expectations: Household Finance Expectations At the N.Y. Fed: Managing the Risk Olivier Armantier, Giorgio Topa, of Catastrophes—Protecting Critical Wilbert van der Klaauw, and Basit Zafar Infrastructure in Urban Areas James Orr, Rae Rosen, Max Livingston, Kaivan K. Sattar, and Eric Stern December 9
Who’s Borrowing in the Fed Funds Market? Reports
November 25 Gara Afonso, Alex Entz, and Eric LeSueur Sta A Way with Words: e Economics of the Fed’s Press Conference December 23 Fernando Duarte and Carlo Rosa e Fragility of an MMF-Intermediated Financial System November 27 Marco Cipriani, Antoine Martin, and Bruno Parigi Has the Fed Stabilized the Price Level? December 30
Marc P. Giannoni and Hannah Herman Journals Outside Fair eld County Economy Kicks into December 2 Higher Gear Who’s Lending in the Fed Funds Market? Jason Bram Gara Afonso, Alex Entz, and Eric LeSueur 14
Research Update Th e Research Group Introduction Research Update is a quarterly newsletter of the Federal Reserve designed to keep you informed about Bank of New York the Research Group’s current work. The newsletter—which complements this The Research Group of the Federal Reserve Bank catalogue—offers summaries of selected studies of New York is our annual guide for economists and listings of recent articles and papers in our interested in joining our team. It offers an research series. overview of our research and policy work and
Economic describes the distinctive culture and resources
y Review Polic Research Update also reports on other news of the Research and Statistics Group. within the Group, including: The guide also describes the responsibilities ■■ staff publication in outside journals, of our seven research functions, identifies our ■■ information on our most popular papers and current staff of economists, and highlights blog posts, the economists’ research interests and recent ■■ presentations by economists at academic publications.
Issues conferences and industry gatherings, Current The Research Group of the Federal Reserve Bank ■■ upcoming conferences at the Federal Reserve of New York is available at www.newyork Bank of New York, and fed.org/research/research_group/index.html. ■■ new publications and services.
The publication is available at www.newyorkfed .org/research/research_update. Economics Liberty Street Staff Reports Outside Journals Journals 152 Introduction
No. 595, January 2013 Sta Reports Estimating the Impacts of U.S. LSAPs on e Sta Reports series features technical Emerging Market Economies’ Local Currency research papers designed to stimulate discussion Bond Markets
and elicit comments. e papers are intended Alexander Tepper, Je rey Moore, Myeongguk Suh, and Policy Review for eventual publication in leading economic Sunwoo Nam Economic and nance journals. is paper examines whether large-scale asset purchases (LSAPs) by the Federal Reserve in u- e series is available at www.newyorkfed.org/ enced capital ows out of the United States and research/sta _reports. into emerging market economies (EMEs) and Macroeconomics and Growth also analyzes the degree of pass-through from long-term U.S. government bond yields to No. 592, January 2013 long-term EME bond yields. Using panel data A Boost in the Paycheck: Survey Evidence on from a broad array of EMEs, the study’s empir- Current
Workers’ Response to the 2011 Payroll Tax Cuts ical estimates suggest that a 10-basis-point Issues Grant Graziani, Wilbert van der Klaauw, reduction in long-term U.S. Treasury yields and Basit Zafar results in a 0.4-percentage-point increase in the is paper presents new survey evidence on foreign ownership share of emerging market workers’ response to the 2011 payroll tax cuts. debt. is in turn is estimated to reduce While workers intended to spend 10 to 18 percent government bond yields in EMEs by approxi- of their tax-cut income, they reported actually mately 1.7 basis points. Federal Reserve LSAPs, spending 28 to 43 percent of the funds. is is which most previous studies have found StreetLiberty Economics higher than estimates from studies of recent tax reduced ten-year U.S. Treasury yields between cuts, and arguably a consequence of the design 60 and 110 basis points during the authors’ of the 2011 tax cuts. e shift to greater sample period, therefore likely contributed to consumption than intended is largely unex- U.S. out ows into EMEs and marginal reduc- plained by present-bias or unanticipated tions in longer-term EME government bond shocks, and is likely a consequence of mental yields. ese e ects are qualitatively similar to accounting. e authors also use data from a conventional U.S. monetary policy easing. To complementary survey to understand the assess the robustness of these estimates, the heterogeneous tax-cut response. authors also employ event study and vector autoregression methodologies, nding broadly Reports
similar results using these methods. While these Sta results hold in the aggregate, marginal e ects vary notably across emerging market countries. Journals Outside 16
No. 602, March 2013 output. This leads them to revisit the trade-off between inflation and output and to show how Introduction Household Leveraging and Deleveraging Alejandro Justiniano, Giorgio Primiceri, radically it changes in the face of demand and Andrea Tambalotti shocks large enough to bring the economy into a liquidity trap. Instead of vanishing once infla- U.S. households’ debt skyrocketed between tion becomes anticipated, the trade-off between 2000 and 2007, but has since been falling. This inflation and output increases substantially and leveraging and deleveraging cycle cannot be may become arbitrarily large. In such cases, accounted for by the liberalization and subse- raising the inflation target in a liquidity trap quent tightening of mortgage credit standards can be very stimulative. Economic that occurred during the period. The authors y Review Polic base their conclusion on a quantitative dynamic No. 613, April 2013 general equilibrium model calibrated using The Gender Unemployment Gap macroeconomic aggregates and microeconomic Stefania Albanesi and Ayşegül Şahin data from the Survey of Consumer Finances. From the perspective of the model, the credit The unemployment gender gap, defined as the cycle is more likely due to factors that impacted difference between female and male unemploy- house prices more directly, thus affecting the ment rates, was positive until 1980. This gap
Issues virtually disappeared after 1980—except
Current availability of credit through a collateral channel. In either case, the macroeconomic during recessions, when men’s unemployment consequences of leveraging and deleveraging are rates always exceed women’s. Albanesi and relatively minor because the responses of Şahin study the evolution of these gender borrowers and lenders roughly wash out in the differences in unemployment from a long-run aggregate. perspective and over the business cycle. Using a calibrated three-state search model of the labor No. 608, March 2013 market, the authors show that the rise in female The Inflation-Output Trade-Off Revisited labor force attachment and the decline in male Gauti Eggertsson and Marc P. Giannoni attachment can mostly account for the closing Economics of the gender unemployment gap. Evidence Liberty Street A rich literature from the 1970s shows that as from nineteen OECD (Organisation for inflation expectations become more and more Economic Co-operation and Development) ingrained, monetary policy loses its stimulative countries also supports the notion that conver- effect. In the extreme, with perfectly antici- gence in attachment is associated with a decline pated inflation, there is no trade-off between in the gender unemployment gap. At the inflation and output. A recent literature on the cyclical frequency, the study finds that gender interest-rate zero lower bound, however, differences in industry composition are impor- Staff suggests there may be some benefits from antici- Reports tant in recessions, especially the most recent, pated inflation when he economy is in a but they do not explain gender differences in liquidity trap. Eggertsson and Giannoni recon- employment growth during recoveries. cile these two views by showing that while it is true, at positive interest rates, that inflation loses its stimulative effects as it becomes better anticipated, the opposite holds true at the zero bound. Indeed, at the zero bound, the more accurately the public anticipates inflation, the
Outside greater is the expansionary effect of inflation on Journals Journals 172 Introduction
No. 615, May 2013 contraction in economic activity along with a Dynamic E ects of Credit Shocks in modest and more protracted decline in in a- a Data-Rich Environment tion. e model does so even though in ation Jean Boivin, Marc P. Giannoni, remains very dependent on the evolution of and Dalibor Stevanovic both economic activity and monetary policy. Policy Review
e study concludes that while the model Economic e authors examine the dynamic e ects of considered does not capture all short-term uc- credit shocks using a large data set of U.S. tuations in key macroeconomic variables, it has economic and nancial indicators in a struc- proven surprisingly accurate during the recent tural factor model. e identi ed credit shocks, crisis and the subsequent recovery. interpreted as unexpected deteriorations of credit market conditions, immediately increase No. 621, May 2013 credit spreads, decrease rates on Treasury securi- In ation Risk and the Cross Section ties, and cause large and persistent downturns of Stock Returns in the activity of many economic sectors. Such Fernando M. Duarte Current
shocks are found to have important e ects on Issues real activity measures, aggregate prices, leading Duarte establishes that in ation risk is priced indicators, and credit spreads. Boivin, in the cross section of stock returns: Stocks that Giannoni, and Stevanovic’s identi cation have low returns during in ationary times procedure does not require any timing restric- command a risk premium. He estimates a tions between the nancial and macroeconomic market price of in ation risk that is comparable factors and yields interpretable estimated factors. in magnitude to the price of risk for the aggre- gate market. In ation is therefore a key Liberty StreetLiberty
No. 618, May 2013 determinant of risk in the cross section of Economics In ation in the Great Recession and stocks. e in ation premium cannot be New Keynesian Models* explained by either the Fama-French factors or industry e ects. Instead, the author argues the Marco Del Negro, Marc P. Giannoni, premium arises because high in ation lowers and Frank Schorfheide expectations of future real consumption It has been argued that existing DSGE models growth. To formalize and test this hypothesis, cannot properly account for the evolution of Duarte develops a consumption-based general key macroeconomic variables during and equilibrium model. e model generates a following the recent Great Recession, and that price of in ation risk consistent with the models in which in ation depends on authors empirical estimates, while simultane- Reports Sta economic slack cannot explain the recent ously matching the joint dynamics of muted behavior of in ation, given the sharp consumption and in ation, the aggregate drop in output that occurred in 2008-09. e equity premium, and the level and slope of the authors use a standard DSGE model available yield curve. e model suggests that the costs prior to the recent crisis and estimated with of in ation are signi cant: A representative data up to the third quarter of 2008 to explain agent would be willing to give up 1.5 percent the behavior of key macroeconomic variables of lifetime consumption to eliminate all in a- since the crisis. ey show that as soon as the tion risk. Journals nancial stress jumped in the fourth quarter of Outside 2008, the model successfully predicts a sharp
*A top download in 2013. 18
No. 628, August 2013 the Industrial Revolution, well before the beginning of modern levels of income growth. Introduction The Macroeconomics of Trend Inflation Guido Ascari and Argia M. Sbordone The main contributions to the British breakout were technological improvements and struc- Most macroeconomic models for monetary tural change away from agricultural policy analysis are approximated around a production, while coal, capital, and trade zero-inflation steady state, but most central played a minor role. banks target inflation at a rate of about 2 percent. Many economists have recently No. 642, September 2013 proposed even higher inflation targets to Federal Reserve Tools for Managing Rates Economic reduce the incidence of the zero lower bound and Reserves y Review Polic (ZLB) constraint on monetary policy. In this Antoine Martin, James McAndrews, Ali Palida, and survey, Ascari and Sbordone show the impor- David Skeie tance of appropriately accounting for a low, positive trend inflation rate for the conduct of Monetary policy measures taken by the Federal monetary policy. They first review empirical Reserve as a response to the 2007-09 financial research on the evolution and dynamics of crisis and subsequent economic conditions led U.S. trend inflation, as well as some proposed to a large increase in the level of outstanding
Issues reserves. The Federal Open Market Committee
Current new measures to assess the volatility and persis- tence of trend-based inflation gaps. Then they (FOMC) has a range of tools to control short- construct a generalized New Keynesian model term market rates in this situation. The authors that accounts for a positive trend inflation rate. study several of these tools, namely, interest on The authors find that, in this model, higher excess reserves (IOER), reverse repurchase trend inflation is associated with a more agreements (RRPs), and the term deposit volatile and unstable economy and tends to facility (TDF). They find that overnight RRPs destabilize inflation expectations. This analysis (ON RRPs) may provide a better floor on rates offers a note of caution in evaluating recent than term RRPs because they are available to proposals to address the existing ZLB situation absorb daily liquidity shocks. Whether the Economics TDF or RRPs best support equilibrium rates
Liberty Street by raising the underlying rate of inflation. depends on the intensity of interbank moni- No. 639, September 2013 toring costs versus balance sheet costs, Accounting for Breakout in Britain: respectively, that banks face. In the authors’ The Industrial Revolution through model, using the RRP and TDF concurrently a Malthusian Lens may most effectively stabilize short-term rates Alexander Tepper and Karol Jan Borowiecki close to the IOER rate when such costs are rapidly increasing. Staff This paper develops a simple dynamic model Reports to examine the breakout from a Malthusian No. 644, October 2013 economy to a modern growth regime. It iden- The Capital Structure and Governance of tifies several factors that determine the fastest a Mortgage Securitization Utility rate at which the population can grow without Patricia C. Mosser, Joseph Tracy, and Joshua Wright engendering declining living standards; this is termed maximum sustainable population The authors explore the capital structure and growth. The authors then apply the framework governance of a mortgage-insuring securitiza- to Britain and find a dramatic increase in tion utility operating with government reinsurance for systemic or “tail” risk. The
Outside sustainable population growth at the time of Journals 192 Introduction
structure they propose for the replacement of No. 647, October 2013 the GSEs focuses on aligning incentives for e FRBNY DSGE Model appropriate pricing and transfer of mortgage Marco Del Negro, Stefano Eusepi, Marc Giannoni, risks across the private sector and between the Argia Sbordone, Andrea Tambalotti, Matthew Cocci, private sector and the government. Mosser, Raiden Hasegawa, and M. Henry Linder Policy Review
Tracy, and Wright present the justi cation and Economic mechanics of a vintage-based capital structure, is paper presents the dynamic stochastic and assess the components of the mortgage general equilibrium (DSGE) model developed guarantee fee, whose size they nd is most by and used at the Federal Reserve Bank of sensitive to the required capital ratio and the New York. e paper describes how the model expected return on that capital. e authors works; how it is estimated; how it rationalizes discuss the implications of selling o some of past history, including the Great Recession; and the utility’s mortgage credit risk to the capital how it is used for forecasting and policy markets and how the informational value of analysis. such transactions may vary with the level of risk No. 649, October 2013 Current transfer. Finally, they explore how mutualiza- Issues Fiscal Foundations of In ation: tion could address incentive misalignments Imperfect Knowledge arising out of securitization and government insurance, as well as how the governance struc- Stefano Eusepi and Bruce Preston ture for such a nancial market utility could be is paper proposes a theory of the scal foun- designed. dations of in ation based on imperfect knowledge and learning. e theory is similar No. 646, October 2013 in spirit to, but distinct from, unpleasant StreetLiberty Unemployment Bene ts and Unemployment monetarist arithmetic and the scal theory of Economics in the Great Recession: e Role of Macro E ects the price level. Because the assumption of Marcus Hagedorn, Fatih Karahan, Iourii Manovskii, imperfect knowledge breaks Ricardian equiva- and Kurt Mitman lence, details of scal policy, such as the average e authors exploit a policy discontinuity at scale and composition of the public debt, U.S. state borders to identify the e ects of matter for in ation. As a result, scal policy unemployment insurance policies on unem- constrains the ecacy of monetary policy. ployment. eir estimates imply that most of Heavily indebted economies with debt the persistent increase in unemployment during maturity structures observed in many countries the Great Recession can be accounted for by require aggressive monetary policy to anchor Reports Sta the unprecedented extensions of unemploy- in ation expectations. e model predicts that ment bene t eligibility. In contrast to the the Great Moderation period would not have existing recent literature that mainly focused on been so moderate had scal policy been charac- estimating the e ects of bene t duration on job terized by a scale and composition of public search and acceptance strategies of the unem- debt now witnessed in some advanced econo- ployed—the micro e ect—this paper focuses mies in the aftermath of the 2007-09 global on measuring the general equilibrium macro recession. e ect that operates primarily through the Journals Outside response of job creation to unemployment bene t extensions. e authors nd that it is the latter e ect that is very important quantitatively. 20
No. 652, November 2013 a depressed long-run mean, which in turn implies an implausibly low expected short- Introduction The Effects of Policy Guidance on Perceptions of the Fed’s Reaction Function rate path. Strong caveats aside, an implication Katherine Femia, Steven Friedman, and Brian Sack for central bankers is that unconventional monetary policy measures may have worked In the past few years, the Federal Open Market in more conventional ways, and an inference Committee (FOMC) has been using forward for investors is that longer-dated yields embed guidance about the federal funds rate in a more meaningful compensation for bearing duration risk. explicit way than ever before. This paper explores the market reaction to the forward International
Economic guidance, with particular focus on the use of y Review Polic calendar dates and economic thresholds in the No. 600, February 2013 FOMC statement. The results show that Capital Controls: A Normative Analysis market participants interpreted the FOMC’s Bianca De Paoli and Anna Lipińska policy guidance as conveying important infor- Countries’ concerns about the value of their mation about the Committee’s policy reaction currency have been studied and documented function. In particular, market participants extensively in the literature. Capital controls came to expect the FOMC to wait for lower can be—and often are—used as a tool to Issues
Current levels of unemployment for a given level of manage exchange rate fluctuations. This paper inflation before beginning to raise the target investigates whether countries can benefit from federal funds rate, thereby shifting to a more using such a tool. De Paoli and Lipińska accommodative policy approach aimed at develop a welfare-based analysis of whether (or, supporting the economic recovery. in fact, how) countries should tax international No. 658, November 2013 borrowing. Their results suggest that restricting international capital flows through the use of Another View on U.S. Treasury Term Premiums these taxes can be beneficial for individual J. Benson Durham countries, although it would limit cross-border The consensus suggests that subdued nominal pooling of risk. The reason is because, while Economics
Liberty Street U.S. Treasury yields on balance since the onset consumption risk-pooling is important, indi- of the global financial crisis primarily reflect vidual countries also care about domestic exceptionally low, if not occasionally negative, output fluctuations. Moreover, the results show term premiums as opposed to low anticipated that countries decide to restrict the interna- short rates. Depressed term premiums plausibly tional flow of capital exactly when this flow is owe to unconventional Federal Reserve policy crucial to ensure cross-border risk sharing. The as well as to net flight-to-quality flows after authors’ findings point to the possibility of Staff 2007. However, two strands of evidence raise costly “capital control wars” and thus to signifi- Reports questions about this story. First, a purely cant gains from international policy coordination. survey-based expected forward term premium measure, as opposed to an approximate spot estimate, has increased rather than decreased in recent years. Second, with respect to the time- series dynamics of factors underlying affine term structure models, simple econometrics of recent data produce not only a more
Outside persistent level of the term structure but also Journals 212 Introduction
No. 609, April 2013 authors show the range of price and invoicing Banking across Borders with outcomes that arise under alternative market Heterogeneous Banks structures. Such structures matter not only for Friederike Niepmann the outcome of speci c exporter-importer
transactions, but also for aggregate variables Policy Review Individual banks di er substantially in their
such as the average price, the average choice of Economic foreign operations. is paper introduces invoicing currency, and the correlation between heterogeneous banks into a general equilibrium invoicing currency and the size of trade transac- framework of banking across borders to explain tions. the documented variation. While the model matches existing micro and macro evidence, No. 614, May 2013 novel and unexplored predictions of the theory Going Global: Markups and Product Quality are also strongly supported by the data: e in the Chinese Art Market eciency of the least ecient bank active in a Jennie Bai, Jia Guo, and Benjamin Mandel host country increases the greater the impedi-
e authors analyze two reasons for export Current ments to banking across borders and the Issues eciency of the banking sector in the host prices to be di erent across markets—namely, country. ere is also evidence of a trade-o quality di erentiation and variable markups— between proximity and xed costs in banking. and attempt to parse their relative importance Banks hold more assets and liabilities in foreign and some of their underlying drivers. To aliates relative to cross-border positions if the overcome the substantial measurement issues in target country is further away and the cost of this task, they consider a particular industry as a special case: Chinese ne art. e simplicity
foreign direct investment is low. ese results StreetLiberty suggest that xed costs play a crucial role in the of the supply-side of art vis-à-vis marginal cost Economics foreign activities of banks. and the wealth of data on its quality character- istics make it possible to separately identify the No. 611, April 2013 markup and quality components of interna- A Bargaining eory of Trade Invoicing tional relative prices for Chinese artwork. and Pricing rough this lens, Bai, Guo, and Mandel trace Linda Goldberg and Cédric Tille the process of growth and internationalization of Chinese art since the year 2000 and uncover Goldberg and Tille develop a theoretical model a rich set of facts. ey nd strong support for of international trade pricing in which indi- quality sorting into international markets at vidual exporters and importers bargain over the both the level of artist and artwork, as well as Reports Sta transaction price and exposure to exchange rate substantial markup di erences across destina- uctuations. ey nd that the choice of price tions. Using a structural model of endogenous and invoicing currency re ects the full market quality choice by Feenstra and Romalis (2012), structure, including the extent of fragmentation the authors argue that much of the interna- and the degree of heterogeneity across tional quality premium is driven by speci c importers and across exporters. e study distribution costs (whether physical or informa- shows that a party has a higher e ective tional), rather than destination-speci c bargaining weight when it is large or more risk preferences for quality. Journals tolerant. A higher e ective bargaining weight of Outside importers relative to exporters in turn translates into lower import prices and greater exchange rate pass-through into import prices. e 22
No. 633, September 2013 Microeconomics
Introduction Banks in International Trade Finance: No. 605, March 2013 Evidence from the U.S. Geographical Reallocation and Unemployment Friederike Niepmann and Tim Schmidt-Eisenlohr during the Great Recession: The Role of the Banks play a critical role in facilitating interna- Housing Bust tional trade by guaranteeing international payments and thereby reducing the risk of Fatih Karahan and Serena Rhee trade transactions. This paper uses banking data This paper quantitatively evaluates the hypoth- from the United States to document new esis that the housing bust in 2007 decreased
Economic empirical patterns regarding the use of letters of geographical reallocation and increased the y Review Polic credit and similar bank guarantees. The analysis dispersion and level of unemployment during shows that the volume of banks’ trade finance the Great Recession. Karahan and Rhee claims differs substantially across destination construct an equilibrium model of multiple countries. Controlling for exports, claims are locations with frictional housing and labor hump-shaped in country credit risk and markets. When house prices fall, the amount of increase with the time to import of a destina- home equity declines, making it harder for tion market. They also vary systematically with homeowners to afford the down payment on a
Issues new house after moving. Consequently, the Current global conditions, expanding when aggregate risk is higher and funding is cheaper. The decline in house prices reduces migration and response to changes in these macro factors is causes unemployment to rise differently in not uniform. Trade finance claims adjust the different locations. The model accounts for 90 least in countries with intermediate levels of percent of the increase in geographical disper- risk, which rely the most on letters of credit to sion of unemployment and the entire decline in settle payments. The authors show that a modi- net migration. However, despite large effects on fication of the standard model of payment migration and geographical dispersion of contract choice in international trade is needed unemployment, the effect on aggregate unem- to rationalize these empirical findings. ployment is moderate: The study’s findings Economics suggest that, absent the housing bust, aggregate Liberty Street No. 648, October 2013 unemployment would have been 0.5 per- The Effects of the Saving and Banking Glut centage point lower. on the U.S. Economy No. 610, April 2013 Alejandro Justiniano, Giorgio E. Primiceri, and Andrea Tambalotti Up Close It Feels Dangerous: “Anxiety” in the Face of Risk The authors use a quantitative equilibrium Staff model with houses, collateralized debt, and Thomas M. Eisenbach and Martin C. Schmalz Reports foreign borrowing to study the impact of global Motivated by individuals’ emotional response imbalances on the U.S. economy in the 2000s. to risk at different time horizons, the authors Their results suggest that the dynamics of model an “anxious” agent—one who is more foreign capital flows account for between one- risk averse with respect to imminent risks than fourth and one-third of the increase in U.S. distant risks. Such preferences describe well- house prices and household debt that preceded documented features of 1) individual behavior, the financial crisis. The key to these findings is 2) equilibrium prices, and 3) institutions. In that the model generates the sustained low level particular, they derive implications for financial markets, such as overtrading and price anoma-
Outside of interest rates observed over that period. Journals Economic Current Liberty Street Sta Outside 23 Introduction Policy Review Issues Economics Reports Journals Ernesto Reuben, Matthew Wiswall, and Basit Zafar and Basit Wiswall, Matthew Reuben, Ernesto observed characteristics explain only Standard men and between part of the di erences women in education choices and labor market an experiment to derive trajectories. Using and prefer- of overcon dence, levels students’ and risk, this paper ences for competitiveness No. 627, August 2013 627, August No. Choices in Educational and Biases Preferences the Shrinking Expectations: and Labor Market of Gender Box Black No. 617, May 2013 617, May No. on Consumer Markets of Housing e Impact 1999 to 2012 from Evidence Report Credit Debt: Zafar and Basit Stein, Sarah Brown, Meta the impact of large e authors investigate on nonmortgage market swings in the housing house geographic using CoreLogic borrowing, FRBNY and Equifax-sourced price variation data for 1999 to 2012. Panel Consumer Credit instrumental variables First-di erenced (FD-IV)that all homeowner estimates indicate both housing and nonhousing types increased to the housing boom. debt in response homeowners older and prime However, reallo- to house price changes by responded and home equity cating obligations between debt, with little change in total card credit stable debt, during both the comparatively downturn. 1999-2001 period and the 2007-12 home- creditworthy and marginally Younger with house nonmortgage debts moved owners’ downturns. prices during both expansions and e ects suggest meaningful wealth ese results only on consumption of the housing market e ects for the boom period, but collateral estima- A di erence-in-di erences throughout. Finally, yields similar results. tion approach speculation, the authors nd despite broad little substitution out of home equity debt into house price to recent student loans in response declines. is paper provides an empirical analysis of the an empirical analysis of the is paper provides occupations extent to which people in di erent or coagglomerate. e locate near one another, authors construct pairwise Ellison-Glaeser occupations coagglomeration indices for U.S. the factors to investigate and use these measures of in uencing the geographic concentration sepa- occupations. e analysis is conducted and state levels area rately at the metropolitan that reveal results Empirical of geography. require- occupations with similar knowledge that the ments tend to coagglomerate and is larger knowledge importance of this shared than in states. ese areas in metropolitan to instrumental robust variables ndings are on an instrument set estimation that relies which people typi- characterizing the means by An extension to the knowledge. cally acquire main analysis nds that, when the authors the largest e ects areas, focus on metropolitan knowl- due to shared on coagglomeration are edge about the subjects of engineering and arts and humanities, manufac- technology, and mathematics turing and production, and science. Shared Knowledge and the Coagglomeration Knowledge Shared of Occupations R. Abel and Jaison M. Gabe Todd No. 612, April 2013 612, April No. lies around announcement dates, as well as a dates, as well announcement lies around of risk term structure downward-sloping Since found empirically. which are premia, dynamic inconsis- can lead to such preferences risk trade-o s, to tencies with respect that costly dele- show and Schmalz Eisenbach decisions is a strategy used gation of investment to cope with “anxiety.” 24
investigates whether these behavioral biases and federal aid. Breaking up expenditure into its preferences explain gender differences in college primary categories, the authors see that instruc- Introduction major choices and expected future earnings. In tional spending was preserved with the help of a sample of high-ability undergraduates, the the stimulus money in 2010, but by 2012 authors find that competitiveness and overcon- instructional expenditure experienced a statisti- fidence, but not risk aversion, are systematically cally and economically significant downward related with expectations about future earnings: shift. They also examine heterogeneities in the Individuals who are overconfident and overly effects by metropolitan area, looking at the competitive have significantly higher earnings major MSAs of New York. The study finds that expectations. Moreover, gender differences in Nassau sustained the largest cuts, while Buffalo Economic overconfidence and competitiveness explain sustained the smallest. These findings are y Review Polic about 18 percent of the gender gap in earnings instructive in that they shed light on how reces- expectations. These experimental measures sions and fiscal policy can affect school finance explain as much of the gender gap in earnings dynamics, and provide important lessons/ expectations as a rich set of control variables, insight for future policy and experiences of including test scores and family background, schools in financial distress. and they are poorly proxied by these same control variables, underscoring that they repre- No. 632, September 2013 Issues Current sent independent variation. While expected Still Not Out of the Woods? New Jersey earnings are related to college major choices, Schools during the Recession and Beyond the experimental measures are not related with Rajashri Chakrabarti and Max Livingston college major choice. Schools are essential in forming human capital No. 631, September 2013 and in improving the long-term health of the economy. They are also heavily reliant on state The Long Road to Recovery: New York Schools and local funds, which were severely depleted in the Aftermath of the Great Recession during the Great Recession. To alleviate some Rajashri Chakrabarti and Max Livingston of the strain on local budgets, the federal
Economics Schools play a crucial role in human capital government passed and implemented a large Liberty Street development, and were one of the many stimulus package, which included funds for elements of government adversely affected by school districts. However, the stimulus funds the Great Recession. Using a rich panel data set were drawn down beginning in 2011, at a time of New York State school districts and a trend- when state and local revenues were still under shift analysis, Chakrabarti and Livingston pressure. This paper uses a detailed panel data examine how the funding and expenditure set of all school districts in New Jersey for the dynamics of districts have changed in the four period 1999 through 2012 and analyzes the Staff
Reports years since the recession hit. They find that impact of this series of events on New Jersey although the stimulus prevented major cuts to school finances using a trend-shift analysis. expenditures while it was in place, once the Chakrabarti and Livingston find that the reces- stimulus funding was used up districts faced sion led to cuts in funding and expenditure. strong budget constraints and made deep cuts While the stimulus served as an effective to their expenditures. While state and local stopgap against major cuts, the picture was very funding continue to be below trend, the role of different once the stimulus funds were funding schools has shifted more to local depleted, with significantly deeper cuts in both governments because of a cutback in state and funding and spending. With cutbacks in state Outside Journals Economic Current Liberty Street Sta Outside 25 Introduction Policy Review Issues Economics Reports Journals No. 635, September 2013 635, September No. Reserve the Federal by Implemented Auctions Recession during the Great York of New Bank Sporn and John Armantier Olivier the Federal Recession, the Great During to programs novel Reserve implemented several conditions in nancial markets. adverse address of these temporary on an ree relied programs Facility, Auction Term auction mechanism: the and the Lending Facility, Securities Term the Lane II portfolio. disposition of the Maiden one another in from ese auctions di ered rules, dimensions: their objectives, and several the nancial asset being traded. e object of and this paper is to document, compare, a rationale for the mechanics of the provide the Federal auctions implemented by di erent Recession. Reserve during the Great sizable impact on the propensity of youth of youth the propensity sizable impact on on having a Conditional report. having a credit margin, math on the intensive report, credit education exposure and nancial literacy outcomes— adverse the incidence of reduces in collections and delinquent such as accounts both the likelihood of accounts—and reduces carryingyouth debt debt and their average e ect of both math and balances. e net in nancial literacy education is an increase as measured creditworthiness, average youths’ the other hand, On risk score. the Equifax by of the likelihood economic education increases individuals carrying leads to signi - balances, in debt balances—in particular, cant increases debt used to support at the consumption—and, the likelihood of adverse same time, increases youths’ outcomes, leading to a decline in credit e e ects of these nancial risk scores. average the course education policies accumulate over suggest of early adulthood. e authors results increasingly that nancial education programs, likely to have policymakers, are by promoted decision- signi cant impacts on the nancial on the but the e ects depend making of youth, content of these programs. More than three-quarters of U.S. households than three-quarters More the public has little bear consumer debt, yet between understanding of the relationship nancial education and the debt behavior of Wen, der Klaauw, van U.S. consumers. Brown, to nan- study the e ects of exposure and Zafar cial training on debt outcomes in early variation comes from adulthood. Identi cation economics, and mathe- in nancial literacy, matics course o erings and graduation the 1990s and mandated over requirements high-school curricula. e state-level 2000s by debt provides Panel FRBNY Consumer Credit outcomes based on quarterly credit Equifax 1999 to 2012. e analysis, based from reports reveals approach, on a exible event-study signi cant e ects of nancial education on the exten- On outcomes of youth. debt-related margin, nancial literacy education has a sive Meta Brown, Wilbert van der Klaauw, Jaya Wen, and Wen, Jaya der Klaauw, van Wilbert Brown, Meta Zafar Basit No. 634, September 2013 634, September No. of Behavior and the Debt Education Financial the Young aid and the withdrawal of the stimulus funding, aid and the withdrawal despite the a larger role, local funding played was also decreasing fact that local funding of the components Examining to trend. relative nd that instructional the authors expenditure, noninstruc- over prioritized categories were only tional, so instructional expenditure after in the initial years sustained small cuts dried up and when the stimulus But recession. instructionalthe economy was still stagnating, cuts. ey analyze severe received expenditure and nd that area, metropolitan by variations while Camden experienced the largest cuts the smallest (although the experienced Wayne still were declines in funding and expenditure an important signi cant). eir ndings are and scal recessions step in understanding how future policy a ect school nances and inform to school nances policy decisions relating during scal crises. 26
No. 636, September 2013 colleges attended more selective ones. Georgia freshmen attending out-of-state colleges were Introduction Negative Equity and Housing Investment Andrew Haughwout, Sarah Sutherland, also more likely to attend more selective and Joseph Tracy colleges, most likely due to an increase in the reservation price to go to out-of-state colleges Housing is a depreciating asset. The rate of following HOPE. The authors’ results are depreciation depends on the degree to which robust to a variety of sensitivity checks and households engage in housing investments. have important policy implications. In partic- Housing investment expenditures economy- ular, Peltzman had observed in his classic 1973 wide are sizable, averaging 45 percent of the paper that in-kind subsidies can induce indi- Economic value of new home construction over the past viduals to invest in less quality-adjusted human y Review Polic twenty years. The housing bust and recession capital than they might otherwise. The fact that coincided with a significant decline in housing Georgia freshmen attended relatively more investment. Using Consumer Expenditure selective colleges in the post-HOPE period Survey data from 2007 to 2012, the authors allays, to some extent, the concern that state find that negative equity households reduce merit aid programs can adversely affect long- their housing investments by roughly 75 percent. term outcomes and human capital formation. The large increase in negative equity due to Issues
Current declining housing prices during the housing No. 643, October 2013 bust resulted in a cumulative decline of housing Did Cuts in State Aid during the Great investment expenditures from 2006 to 2010 of Recession Lead to Changes in Local Property Taxes? $51.2 billion. Rajashri Chakrabarti, Max Livingston, and Joydeep Roy No. 641, September 2013 During the Great Recession and its aftermath, Merit Aid, Student Mobility, and the Role state and local governments’ revenue streams of College Selectivity dried up due to diminished taxes. Budget cuts Rajashri Chakrabarti and Joydeep Roy affected many aspects of government. In this paper, the authors investigate whether (and Chakrabarti and Roy investigate the role of Economics how) local school districts modified their Liberty Street college selectivity in mobility decisions (both funding and taxing decisions in response to in-state and out-of-state) of freshmen students changes in state aid in the post-recession following Georgia’s HOPE scholarship period. Using detailed district-level panel data program. How did HOPE affect the selectivity from New York and a fixed effects as well as an of colleges attended by Georgia’s freshmen instrumental variables strategy, they find strong students? Did it induce Georgia’s freshmen evidence that school districts did indeed students who would have otherwise attended respond to state aid cuts in the post-recession Staff more selective out-of-state colleges to instead Reports period by countering the cuts. In comparison attend less selective in-state ones? Or was there with the pre-recession period, a unit decrease in movement to more selective ones, both in-state state aid was associated with a relative increase and out-of-state? Using student residency and in local funding per pupil. To further probe the enrollment data from IPEDS and selectivity school district role, Chakrabarti, Livingston, data from Barron’s and Peterson’s, the authors and Roy explore whether the property tax rate, find that in the aftermath of HOPE, Georgia which districts set each year in response to freshmen attended relatively more selective budgetary needs, also responded to state aid colleges overall. Disaggregating further, they cuts. Indeed, they find that relative to the pre-
Outside find that Georgia freshmen attending in-state Journals Economic Current Liberty Street Sta Outside 27 Introduction Policy Review Issues Economics Reports Journals No. 596, February 2013 596, February No. Transactions- to Approach A Sampling-Window Libor Fixing Based Vickery Due, and James Darrell Skeie, David e authors examine the properties of a method on transac- for xing Libor rates that is based windows. tions data and multi-day sampling may mitigate e use of a sampling window in thin transaction volumes caused by problems wholesale term funding markets. unsecured two partial data sets of loan transactions, Using the use Vickery estimate how and Due, Skeie, could a ect the sampling windows of di erent statistical properties of Libor xings at various which is based maturities. eir methodology, estimate of sampling noise on a multiplicative rate data, uses the need for interest that avoids of transactions. Limi- only the timing and sizes are approach tations of this sampling-window also discussed. supply. eir analysis compares the agency and the eir analysis compares supply. nonagency mortgage-backed-securities (MBS) in nonagency freeze exploiting the markets, quarter of 2007. the third MBS liquidity in in access to the variation exogenous Using Vickery nd and Fuster agency MBS market, liquid they segments are that when both market perform in terms of supporting similarly FRM after the nonagency market However, supply. of FRMs is sharply higher the share freezes, among mortgages securitized eligible to be market. the still-liquid agency MBS through is is that securitization eir interpretation particularly important FRMs because of the for in rate risk embedded and interest prepayment policy impli- these loans. e authors highlight of the U.S. cations for ongoing reform mortgage nance system. derives sharp derives Is Rising: Estimation Using Rising: Estimation Using Is 662, December 2013 662, December o. Andreas Fuster and James Vickery and James Fuster Andreas mortgages (FRMs) dominate the Fixed-rate U.S. mortgage with important market, conse- quences for household risk management, authors and systemic risk. e monetary policy, of FRM that securitization is a key driver show No. 594, January 2013 594, January No. Mortgage and the Fixed-Rate Securitization Banking and Finance Banking Nonparametric Bounds on Welfare Measures Welfare Bounds on Nonparametric takes a new to measuring approach Pinkovskiy time by over world inequality and welfare constructing series bounds for these robust to instead of imposing parametric assumptions compute point estimates. He that inequality index bounds on the Atkinson for any underlying distribution of valid are and shares fractile income conditional on given too While the bounds are coecient. the Gini the hypothesis that world wide to reject that risen, the study shows inequality may have unambiguously between rose world welfare for valid 1970 and 2006. is conclusion is methods of dealing with countries alternative with missing surveys,and years alternative and alterna- survey harmonization procedures, GDP series, or if the inequality surveystive the income of used systematically underreport bias. the very nonresponse rich or su er from World Welfare Welfare World L. Pinkovskiy Maxim N recession period, the post-recession period was period, the post-recession recession relationship negative a strong by characterized the property tax rate and state aid per between a unit recession after the other words, pupil. In associated with a in state aid was decrease in the property tax rate in the increase relative comparison with the period (in post-recession period). pre-recession 28
No. 597, February 2013 No. 601, February 2013
Introduction Rollover Risk as Market Discipline: Financial Stability Monitoring* A Two-Sided Inefficiency Tobias Adrian, Daniel Covitz, and Nellie J. Liang Thomas M. Eisenbach Adrian, Covitz, and Liang present a forward- Why does the market discipline that banks face looking monitoring program to identify sources seem too weak during good times and too of systemic risk and to develop preemptive strong during bad times? This paper shows that policies to promote financial stability. The using rollover risk as a disciplining device is program reflects that private incentives can lead effective only if all banks face purely idiosyn- market participants to react to changes in
Economic cratic risk. However, if banks’ assets are financial regulations and economic conditions y Review Polic correlated, a two-sided inefficiency arises: Good in ways that would increase systemic risk, and aggregate states have banks taking excessive that the Dodd-Frank Act raised the standards risks, while bad aggregate states suffer from fire for ex-post government intervention in a crisis. sales. The driving force behind this inefficiency To guide such a program, the authors develop a is an amplifying feedback loop between asset framework that distinguishes between shocks, liquidation values and market discipline. This which are difficult to prevent, and vulnerabili- feedback loop operates in both good and bad ties that amplify shocks, but can be reduced by Issues
Current aggregate states, but with opposite effects. preemptive actions. Building on substantial research, they focus on leverage, maturity trans- No. 599, February 2013 formation, interconnectedness, complexity, and Money Market Funds Intermediation the pricing of risk as the primary vulnerabilities and Bank Instability in the financial system. These vulnerabilities are Marco Cipriani, Antoine Martin, tracked in four areas: systemically important and Bruno M. Parigi financial institutions (SIFIs), shadow banking, In recent years, U.S. banks have increasingly asset markets, and the nonfinancial sector. The relied on deposits from financial intermediaries, framework also highlights the policy trade-off between reducing systemic risk and raising the
Economics especially money market funds (MMFs), which
Liberty Street collect funds from large institutional investors cost of financial intermediation by taking and lend them to banks. Intermediation preemptive actions. through MMFs allows investors to limit their No. 603, March 2013 exposure to a given bank. However, since Identifying Term Interbank Loans from MMFs are themselves subject to runs from Fedwire Payments Data their own investors, a banking system interme- diated through MMFs is more unstable than Dennis Kuo, David Skeie, James Vickery, and Staff one in which investors interact directly with Thomas Youle Reports banks. The mechanism through which insta- Interbank markets for term maturities experi- bility arises in an MMF intermediated enced great stress during the 2007-09 financial financial system is the release of private infor- crisis, as illustrated by the behavior of one- and mation on bank assets, which is aggregated by three-month Libor. Despite widespread interest MMFs and can lead them to withdraw en masse in these markets, little data are available on from a bank. dollar interbank lending for maturities beyond overnight. The authors develop a methodology to infer individual term dollar interbank loans
Outside (for maturities between two days and one year) Journals
*A top download in 2013. Economic Current Liberty Street Sta Outside 29 Introduction Policy Review Issues Economics Reports Journals No. 607, March 2013 607, March No. Risk Indicators Systemic Risk-Neutral M. Malz Allan is paper describes a set of indicators of market current systemic risk computed from prices of equity and equity index options. It version, a prototype from displays results 2006 to January January computed daily from a systemic risk 2013. e indicators represent loss on a of an extreme as the realization event portfolio of large-intermediary equities. e technique for computing them combines risk- distributions with implied return neutral return option prices, tying drawn from correlations distributions via together the single- rm return a copula to simulate the joint distribution and distri- thus the nancial-sector portfolio return No. 606, March 2013 606, March No. of Aggregate e Impact Activity: Buyout Rates Discount Loualiche, Erik Haddad, Valentin and Matthew Plosser argue that Loualiche, and Plosser Haddad, to uctuations form in response waves buyout their model, discount rates. In in aggregate of cash value discount rates alter the present and the illiquidity premium improvements ow e authors investors. buyout demanded by Overall empirically. con rm their predictions with the risk positively deal activity varies rate, with the risk-free and negatively premium rms. e ects across exhibiting heterogeneous of with high levels rms Cross-sectionally, less are systematic risk or idiosyncratic risk in likely targets. ey decompose variation activity structurally in the changes between and the illiquidity premium. of cash ow value the of the two explains correlation e positive behavior of activity. wave and investment. e authors show that these authors show e and investment. of aggre- explain 40 percent bank supply shocks uctuations. gate loan and investment Mary Amiti and David E. Weinstein E. and David Mary Amiti that supply-side nancial e authors show invest- a large impact on rms’ shocks have a new developing ment. ey do this by shocks methodology to separate rm-borrowing sample of bank supply shocks using a vast from matched bank- rm lending data. Amiti and in Japan decompose loan movements Weinstein for the period 1990 to 2010 into bank, rm, high degree and common shocks. e industry, of nancial institution concentration means to the large relative that individual banks are for a role which creates of the economy, size (2011). As a granular shocks as in Gabaix bank supply shocks—that is, movements result, in the supply of bank loans net of borrower conditions— characteristics and general credit loan supply large impacts on aggregate can have No. 604, March 2013 604, March No. A ect Shocks Bank Do Much How Bank- Matched from Evidence Investment? Loan Data Firm by applying a set of lters to payments settled applying a set of by Service, the large-value Funds on the Fedwire the Federal operated by bank payment system introduces eir approach Reserve Banks. to relative and re nements innovations several (1999) and others Fur ne by research previous lending. interbank overnight that measures et al.’s suggest Kuo tests to date Diagnostic of and useful source a novel provides approach market, information about the term interbank applications. for a number of research allowing on its caveats Limitations of the algorithm and discussed in detail. ey also present use are results, facts based on the algorithm’s stylized crisis the focusing on the 2007-09 period. At of Lehman Brothers the failure peak following 2008, the authors observe a sharp in September term inter- in the dispersion of inferred increase rates, a shorteningloan of bank interest maturities, and a decline in term lending volume. 30
bution. The indicators can be computed daily No. 620, May 2013 using only current market prices; no historical Introduction Trading Partners in the Interbank data are involved. They are therefore forward- Lending Market looking and can exploit all the information Gara Afonso, Anna Kovner, and Antoinette Schoar impounded in current prices. However, the indicators blend both market expectations and There is substantial heterogeneity in the struc- the market’s desire to protect itself against vola- ture of trading relationships in the U.S. tility and tail risk, so they cannot be readily overnight interbank lending market: Some decomposed into these two elements. The banks rely on spot transactions, while most paper presents evidence that the indicators have form stable, concentrated borrowing relation- Economic some predictive power for systemic risk events ships to hedge liquidity needs. As a result, y Review Polic and that they can serve as a meaningful market- borrowers pay lower prices and borrow more adjusted point of comparison for from their concentrated lenders. Exogenous fundamentals-based systemic risk indicators. shocks to liquidity supply (days with low GSE lending) lead to marketwide drops in liquidity No. 616, May 2013 and a rise in interest rates. However, borrowers The Risk of Fire Sales in the Tri-Party with concentrated lenders are almost Repo Market completely insulated from the shocks, while Issues
Current liquidity transmission affects the rest of the Brian Begalle, Antoine Martin, James McAndrews, market via higher interest rates and reduced and Susan McLaughlin borrowing volumes. This paper studies the risk of “fire sales” in the tri-party repo market, a large and important No. 622, May 2013 market where securities dealers find short-term The Microstructure of China’s Government funding for a substantial portion of their own Bond Market and their clients’ assets. The authors distinguish Jennie Bai, Michael Fleming, and Casidhe Horan between fire sales of assets by a dealer who, facing a run that could lead to default, sells Although China now has one of the largest
Economics securities to generate liquidity, and fire sales of government bond markets in the world, the Liberty Street assets by repo investors after a dealer’s default market has received relatively little attention has occurred. While fire sales do cause damage and analysis. The authors describe the history no matter how they arise, the tools available to and structure of the market and assess its func- lessen the harm from the two types of fire sales tioning. They find that trading in individual are different. The study finds that limited tools bonds was historically sparse but has increased are available to mitigate the risk of pre-default markedly in recent years. Bai, Fleming, and fire sales and that no established tools currently Horan find also that certain announcements of Staff macroeconomic news, such as China’s producer Reports exist to mitigate the risk of post-default sales. price index (PPI) and manufacturing purchasing managers’ index (PMI), have signif- icant effects on yields, even when such yields are measured at a daily level. Despite the increased activity in the market, the authors are able to reject the null hypothesis of market efficiency under two different tests for four of the most actively traded bonds. Outside Journals 312 Introduction
No. 623, August 2013 tion role becomes relatively less important at How Do Global Banks Scramble for Liquidity? those times compared to that of pre-workup Evidence from the Asset-Backed Commercial trades. Higher usage of workups is also associ- Paper Freeze of 2007 ated with higher market depth, lower bid-ask
spreads, and higher trading intensity. Collec- Policy Review Viral V. Acharya, Gara Afonso, and Anna Kovner
tively, the evidence suggests that workups tend Economic In August of 2007, banks faced a freeze in to be used more as a channel for liquidity funding liquidity from the asset-backed providers to guard against adverse price move- commercial paper (ABCP) market. e authors ments than as a channel to hide private investigate how banks scrambled for liquidity in information. response to this freeze and its implications for corporate borrowing. Commercial banks in the No. 625, August 2013 United States raised deposits and took advances Leverage Asset Pricing from Federal Home Loan Banks (FHLBs). In Tobias Adrian, Emanuel Moench, and Hyun Song Shin contrast, foreign banks—with limited access to
Adrian, Moench, and Shin investigate interme- Current the deposit market and FHLB advances—lent Issues less in the overnight interbank market and diary asset pricing theories empirically and nd borrowed more from the Federal Reserve’s Term strong support for intermediary book leverage Auction Facility (TAF) auctions. Relative to as the relevant state variable. A parsimonious before the ABCP freeze and relative to their dynamic pricing model that uses detrended non-U.S. dollar lending, foreign banks with broker-dealer leverage as a price of risk variable, ABCP exposure charged higher interest rates to and innovations to broker-dealer leverage as pricing factor is shown to perform well in time
corporations for syndicated loan packages StreetLiberty denominated in dollars. e results point to a series and cross sectional tests of a wide variety Economics funding risk in global banking, manifesting as of equity and bond portfolios. e model currency shortages for banks engaged in outperforms alternative intermediary pricing maturity transformation in foreign countries. speci cations that use intermediary net worth as state variables, and performs well in compar- No. 624, August 2013 ison to benchmark asset pricing models. e Order Flow Segmentation and the Role authors draw implications for macroeconomic of Dark Trading in the Price Discovery theories. of U.S. Treasury Securities No. 626, August 2013
Michael Fleming and Giang Nguyen Time Variation in Asset Price Responses Reports is paper studies the workup protocol, a to Macro Announcements Sta unique trading feature in the U.S. Treasury Linda S. Goldberg and Christian Grisse securities market that resembles a mechanism for discovering dark liquidity. Fleming and Although the e ects of economic news Nguyen quantify its role in the price formation announcements on asset prices are well estab- process in a model of the dynamics of price and lished, these relationships are unlikely to be segmented order ow induced by the protocol. stable. is paper documents the time variation ey nd that the dark liquidity pool generally in the responses of yield curves and exchange Journals contains less information than its transparent rates using high-frequency data from January Outside counterpart, but that its role is not trivial. ey 2000 through August 2011. Signi cant time also show that workups are used more often variation in news e ects is present for those around volatile times, but that their informa- announcements that have the largest e ects on 32
asset prices. The time variation in effects is No. 637, September 2013 explained by economic conditions, including Introduction Heterogeneity and Stability: Bolster the Strong, the level of policy rates at the time of the news Not the Weak release, and risk conditions: Government bond Dong Beom Choi yields increase in response to “good news,” but less so when risk is elevated. Risk conditions Choi provides a model of systemic panic matter since they can capture the effects of among financial institutions with heteroge- uncertainty on the information content of news neous fragilities. Concerns about potential announcements, the interaction of monetary spillovers from each other generate strategic policy and financial stability objectives of interaction among institutions, triggering a Economic central banks, and the effect of news announce- preemption game in which one tries to exit the y Review Polic ments on the risk premium. market before the others to avoid spillovers. Although financial contagion originates in No. 630, September 2013 weaker institutions, systemic risk depends criti- The Fragility of Short-Term Secured cally on the financial health of stronger Funding Markets institutions in the contagion chain. This analysis suggests that when concerns about Antoine Martin, David Skeie, spillovers prevail, then 1) increasing heteroge-
Issues and Ernst-Ludwig von Thadden
Current neity of institutions promotes systemic stability This paper develops a model of financial insti- and 2) bolstering the strong institutions in the tutions that borrow short term and invest in contagion chain, rather than the weak, more long-term assets that can be traded in friction- effectively enhances systemic stability. less markets. Because these financial intermediaries perform maturity transforma- No. 638, September 2013 tion, they are subject to potential runs. The Shadow Bank Monitoring authors derive distinct liquidity, collateral, and Tobias Adrian, Adam B. Ashcraft, and Nicola Cetorelli asset liquidation constraints, which determine whether a run can occur as a result of changing The authors provide a framework for moni- toring the shadow banking system. The shadow Economics market expectations. They show that the extent Liberty Street to which borrowers can ward off an individual banking system consists of a web of specialized run depends on whether it has sufficient financial institutions that conduct credit, liquidity, collateral, and asset liquidation maturity, and liquidity transformation without capacity. These determinants are endogenous direct, explicit access to public backstops. The and depend on the borrower’s balance sheet, in lack of such access to sources of government terms of asset market exposure and leverage, liquidity and credit backstops makes shadow and on fundamentals, such as productivity and banks inherently fragile. Shadow banking activ- Staff ities are often intertwined with core regulated Reports size. Moreover, systemic runs are possible if shocks to the valuation of collateral held by institutions such as bank holding companies, outside investors are sufficiently strong and security brokers and dealers, and insurance uniform, and if the system as a whole is companies. These interconnections of shadow exposed to high short-term funding risk. banks with other financial institutions create sources of systemic risk for the broader finan- cial system. The authors describe elements of monitoring risks in the shadow banking system, including recent efforts by the Financial
Outside Stability Board. Journals Economic Current Liberty Street Sta Outside 33 Introduction Policy Review Issues Economics Reports Journals No. 650, October 2013 650, October No. Become Liquidity Providers Did Liquidity Seekers? Shachar Choi and Or Jaewon corporate bond and e misalignment between (that is, default swap (CDS) spreads credit CDS-bond basis) during the 2007-09 nancial crisis is often attributed to corporate bond when right dealers shedding o their inventory, is study documents liquidity was scarce. In perception. evidence against this widespread collapse, Lehman’s the months following dealers, including proprietary trading desks in liquidity in banks, provided investment clients. Corpo- to the large selling by response rate bond inventory sharply as a of dealers rose limits to liquidity, Although providing result. arbitrage, possibly in the form of limited No. 645, October 2013 645, October No. Risk and Systemic Spillovers Fire-Sale Duarteand omas Eisenbach Fernando construct and Eisenbach a newDuarte systemic vulnerability to that quanti es risk measure using detailed regulatory spillovers re-sale banks for U.S. commercial balance sheet data Even broker-dealers. data for market and repo re-sale for moderate shocks in normal times, commercial externalities can be substantial. For in shock to assets exogenous banks, a 1 percent externalities equal re-sale 2013:Q1 produces broker- of system capital. For to 21 percent in August shock to assets dealers, a 0.1 percent to losses equivalent 2013 generates spillover of system capital. Externalities almost 6 percent two between during the last nancial crisis are systemic e authors’ times larger. and three a peak in the fall of 2007 reaches risk measure starting in 2004, a notable increase but shows indicators. ahead of many other systemic risk dealers Although the largest banks and broker victims of—most of the are produce—and nancial and linkages of externalities, leverage institutions also play important roles. principle, if global banks with aliates in principle, if global banks with aliates No. 640, September 2013 640, September No. International nancial linkages, particularly nancial linkages, International generate important ows, global bank through consequences for economic questions about the the ability of including and nancial stability, monetarycountries to conduct autonomous the monetary addresses Goldberg policy. interna- autonomy issue in the context of the seek three tional policy trilemma: Countries typically desirable but jointly unattainable interna- rates, free exchange objectives—stable and monetary policy tional capital mobility, at, and e ective autonomy oriented toward, argues achieving domestic goals. e author that that global banking entails some features issues of capital the broad distinct from are in existing studies. openness captured market In frictions in interna- can reduce markets foreign then the macroeconomic tional capital ows, and interest policy trilemma could bind tighter across co-movement rates will exhibit more the information content if countries. However, and stickiness of the claims and services to a benchmark enhanced relative are provided the then global banks can weaken alternative, is a trilemma rather than enhance it. e result e ects on of heterogeneous prediction tied to the business monetary autonomy, models of the global banks and whether coun- or funding locations for investment tries are tests of the trilemma those banks. Empirical support this view that global bank e ects are and that the primaryheterogeneous of drivers rate regimes. monetary exchange autonomy are Linda S. Goldberg Linda Banking Globalization, Transmission, and Transmission, Globalization, Banking Autonomy Policy Monetary 34
capital, obstructed the convergence of the basis. No. 653, November 2013 The authors further show that the unwinding Introduction Coordinating Monetary and Macroprudential Policies of precrisis “basis trades” by hedge funds is the Bianca De Paoli and Matthias Paustian main driver of the large negative basis. Price drops following Lehman’s collapse were The financial crisis has prompted macroecono- concentrated among bonds with available CDS mists to think of new policy instruments that contracts and high activity in basis trades. could help ensure financial stability. Policy- Overall, their results indicate that hedge funds makers are interested in understanding how that serve as alternative liquidity providers at these should be set in conjunction with times, not dealers, caused the disruption in the monetary policy. The authors contribute to this Economic credit market. debate by analyzing how monetary and macro- y Review Polic prudential policy should be conducted to No. 651, November 2013 reduce the costs of macroeconomic fluctua- Intermediary Balance Sheets tions. They do so in a model in which such costs are driven by nominal rigidities and credit Tobias Adrian and Nina Boyarchenko constraints. De Paoli and Paustian find that, if The authors document the cyclical properties of faced with cost-push shocks, policy authorities the balance sheets of different types of interme- should cooperate and commit to a given course
Issues diaries. While the leverage of the bank sector is
Current of action. In a world in which monetary and highly procyclical, the leverage of the nonbank macroprudential tools are set independently financial sector is acyclical. They propose a and under discretion, the authors’ findings theory of a two-agent financial intermediary suggest that assigning conservative mandates sector within a dynamic model of the macro- (à la Rogoff [1985]) and having one of the economy. Banks are financed by issuing risky authorities act as a leader can mitigate coordi- debt to households and face risk-based capital nation problems. At the same time, choosing constraints, which leads to procyclical leverage. monetary and macroprudential tools that work Households can also participate in financial in a similar fashion can increase such problems. markets by investing in a nonbank “fund”
Economics sector where fund managers face skin-in-the- No. 654, November 2013 Liberty Street game constraints, leading to acyclical leverage ECB Monetary Operations and the Interbank in equilibrium. The model also reproduces the Repo Market empirical feature that the banking sector’s Peter G. Dunne, Michael J. Fleming, leverage growth leads the financial sector’s asset and Andrey Zholos growth, while leverage in the fund sector does not precede growth in financial-sector assets. The authors examine the relationship between The procyclicality of the banking sector is due monetary policy operations and interbank Staff borrowing and lending of funds using sovereign Reports to its risk-based funding constraints, which give a central role to the time variation of endoge- bonds as collateral. They first establish that, in nous uncertainty. the precrisis period, there are important but rather weak relations between these funding sources and that this relationship varies within maintenance periods and at the end of the year. Official funding conditions did not meaning- fully constrain repo market activity in the 2003-05 period but, in the immediate precrisis
Outside period, rate increases led to a sharp contraction Journals 352 Introduction
in repo activity. Focusing on the crisis period, No. 657, November 2013 the authors identify potentially benign substi- Momentum and the Term Structure tution e ects between ocial auctions and of Interest Rates repo market activity but their empirical analysis J. Benson Durham
shows that positive innovations in the cost of Policy Review A vast literature reports excess returns to ocial funding, due to aggressive bidding, and Economic a limited allotment response, encouraged momentum strategies across many nancial increased use of the interbank repo market. e asset classes. However, no study examines analysis informs a discussion of the merits of trading rules based on price history along indi- returning to variable rate operations. vidual government-bond term structures—that is, with respect to duration buckets across the No. 656, November 2013 curve—as opposed to across sovereign markets Arbitrage-Free Models of Stocks and Bonds or individual term structures as a whole over time. Under duration-neutral and long-only J. Benson Durham constraints as well as low trading costs, this
A small but ambitious literature uses ane Current
paper reports excess annualized returns of up to Issues arbitrage-free models to estimate jointly U.S. 120 basis points and information ratios as high Treasury term premiums and the term structure as 0.79 using U.S. Treasury total return data of equity risk premiums. Within this approach, from December 1996 through July 2013. Given this paper identi es the parameter restrictions a corresponding long-short strategy with no that are consistent with a simple dividend absolute duration risk, excess returns and infor- discount model, extends the cross-section to mation ratios are up to 207 basis points and Germany and France, averages across multiple
1.01, respectively. Unlike momentum strategies StreetLiberty observable-factor and market prices of risk in some other asset classes, the excess return Economics speci cations, and considers alternative samples distributions are positively skewed, and for parameter estimation. e results produce momentum loads, if in any way, favorably on intuitive trajectories for both sets of premiums broad risk factors. Returns correlate to a degree given standard samples starting from July 1993. with portfolios based on instantaneous forward However, the decomposition of nominal U.S. term premium estimates, in turn derived from a Treasury yields, but not long-run equity risk set of Gaussian arbitrage-free ane term struc- premiums, is sensitive to data beyond 2008, ture models. However, substantial variance which raises some questions about the net remains unexplained, the betas are less than e ects of unconventional monetary policy one, and the alphas are meaningfully positive. measures. Nonetheless, the rotation from sharp Reports A caveat is that underlying behavioral explana- Sta inversion during the nancial crisis to an tions for momentum are lacking in the context upward-sloping term structure of equity risk of the U.S. Treasury market. premiums more recently, with modest readings at the front end, is not inconsistent with some net moderation in required compensation for equity risk in the United States. Journals Outside 36
No. 659, November 2013 No. 661, December 2013
Introduction No Guarantees, No Trade: How Banks Affect Liquidity Policies and Systemic Risk Export Patterns Tobias Adrian and Nina Boyarchenko Friederike Niepmann and Tim Schmidt-Eisenlohr The growth of wholesale-funded credit inter- This study provides evidence that shocks to the mediation has motivated liquidity regulations. supply of trade finance have a causal effect on The authors analyze a dynamic stochastic U.S. exports. The identification strategy general equilibrium model in which liquidity exploits variation in the importance of banks as and capital regulations interact with the supply providers of letters of credit across countries. of risk-free assets. In the model, the endog-
Economic The larger a U.S. bank’s share of the trade enously time-varying tightness of liquidity and y Review Polic finance market in a country is, the larger capital constraints generates intermediaries’ should be the effect on exports to that country leverage cycle, influencing the pricing of risk if the bank reduces its supply of letters of and the level of risk in the economy. Their credit. The authors find that supply shocks have analysis focuses on liquidity policies’ implica- quantitatively significant effects on export tions for household welfare. Within the context growth. A shock of one standard deviation to a of the authors’ model, liquidity requirements country’s supply of trade finance decreases are preferable to capital requirements, as tight- Issues
Current exports, on average, by 2 percentage points. ening liquidity requirements lowers the The effect is much larger for exports to small likelihood of systemic distress without impairing and risky destinations and in times when aggre- consumption growth. In addition, Adrian and gate uncertainty is high. Their results imply Boyarchenko find that intermediate ranges of that global banks affect export patterns and risk-free asset supply achieve higher welfare. suggest that trade finance played a role in the Great Trade Collapse. Quantitative Methods
No. 660, December 2013 No. 591, January 2013 The Over-the-Counter Theory of the Fed Chinese Exports and U.S. Import Prices* Economics Funds Market: A Primer Benjamin R. Mandel Liberty Street Gara Afonso and Ricardo Lagos Mandel develops a technique to decompose Afonso and Lagos present a dynamic over-the- price distributions into contributions from counter model of the fed funds market, and use markups and marginal cost. The estimators are it to study the determination of the fed funds then used as a laboratory to measure the rela- rate, the volume of loans traded, and the tionship between increasing Chinese intraday evolution of the distribution of reserve competition and the components of U.S. Staff balances across banks. They also investigate the import prices. The estimates suggest that the Reports implications of changes in the market structure, intensification of Chinese exports in the 2000s as well as the effects of central bank policy corresponded to substantial changes in the instruments such as open market operations, distributions of both the markups and marginal the Discount Window lending rate, and the cost of U.S. imports. The entry of a Chinese interest rate on bank reserves. exporter in an industry corresponded to rest-of- world exporters shrinking their markup (lowering prices by up to 30 percent) and increasing their marginal cost (raising prices by up to 50 percent). The fact that marginal cost Outside Journals
*A top download in 2011. 372 Introduction
increased as competition sti ened strongly empowering women need to account for the suggests that the composition of non-Chinese intersectionality of gender with social identity. exports shifted toward higher-quality varieties. e estimates also imply a pattern in the acqui- No. 598, February 2013 sition of market share by Chinese exporters: e High-Frequency Response of Energy Policy Review
ey enter at relatively low cost/quality and Prices to Monetary Policy: Understanding Economic then subsequently undertake quality improve- the Empirical Evidence ments and markup reductions. ese results Carlo Rosa provide some of the rst measures of the dual Rosa examines the impact of conventional and nature of trade’s procompetitive e ects; unconventional monetary policy on energy exporters respond to tougher competition by prices, using an event study with intraday data. simultaneously adjusting both markups and ree measures for monetary policy surprises quality. are used: 1) the surprise change to the current No. 593, January 2013 federal funds target rate, 2) the surprise compo-
nent to the future path of policy, and 3) the Current Gender Discrimination and Social Identity: Issues unanticipated announcements of future large- Experimental Evidence from Urban Pakistan scale asset purchases (LSAPs). Estimation Adeline Delavande and Basit Zafar results show that monetary policy news has Gender discrimination in South Asia is a well- economically important and highly signi cant documented fact. However, gender is only one e ects on the level and volatility of energy of an individual’s many identities. is paper futures prices and their trading volumes. e investigates how gender discrimination depends author nds that, on average, a hypothetical Liberty StreetLiberty
on the social identities of interacting parties. unanticipated 100 basis point hike in the Economics e authors use an experimental approach to federal funds target rate is associated with identify gender discrimination by randomly roughly a 3 percent decrease in West Texas matching 2,836 male and female students Intermediate oil prices. He also documents pursuing bachelor’s-equivalent degrees in three that, in a narrow window around the Federal di erent types of institutions—Madrassas (reli- Open Market Committee meeting, the Federal gious seminaries), Islamic universities, and Reserve’s LSAP1 and LSAP2 programs have a liberal universities—that represent distinct cumulative nancial market impact on crude identities within the Pakistani society. Delavande oil equivalent to an unanticipated cut in the and Zafar’s main nding is that gender discrim- federal funds target rate of 155 basis points. ination is not uniform in intensity and nature Monetary policy a ects oil prices mostly by Reports Sta across the educated Pakistani society and varies a ecting the value of the U.S. dollar exchange as a function of the social identity of both indi- rate. Intraday energy prices also respond to viduals who interact. While they nd no news announcements about the U.S. macro- evidence of higher-socioeconomic-status men economy and inventories. e daily responses discriminating against women, men of lower are never signi cant, except in the case of socioeconomic status and higher religiosity tend inventory news. to discriminate against women—but only women of lower socioeconomic status who are Journals closest to them in social distance. Moreover, Outside this discrimination is largely taste-based. eir ndings suggest that social policies aimed at 38
No. 619, May 2013 No. 655, November 2013
Introduction Time-Varying Structural Vector Autoregressions Noisy Information and Fundamental and Monetary Policy: A Corrigendum Disagreement Marco Del Negro and Giorgio Primiceri Philippe Andrade, Richard K. Crump, Stefano Eusepi, This note corrects a mistake in the estimation and Emanuel Moench algorithm of the time-varying structural vector The authors study the term structure of autoregression model of Primiceri (2005) and disagreement of professional forecasters for key proposes a new algorithm that correctly applies macroeconomic variables. They document a the procedure proposed by Kim, Shephard, and novel set of facts: 1) forecasters disagree at all
Economic Chib (1998) to the estimation of VAR or horizons, including the very long run; 2) the y Review Polic DSGE models with stochastic volatility. shape of the term structure of disagreement Relative to Primiceri (2005), the correct algo- differs markedly across variables: the term rithm involves a different ordering of the structure is downward-sloping for real output various Markov Chain Monte Carlo steps. growth, relatively flat for CPI inflation, and upward-sloping for the federal funds rate; No. 629, September 2013 3) disagreement is time varying at all horizons, Evaluating the Quality of Fed Funds Lending including the very long run. The authors Issues
Current Estimates Produced from Fedwire Payments Data suggest a model with noisy information and Anna Kovner and David Skeie shifting long-run beliefs that is consistent with A number of empirical analyses of interbank these stylized facts. Notably, their model does lending rely on indirect inferences from indi- not rely on the heterogeneity of prior beliefs, vidual interbank transactions extracted from bounded rationality, or differences in the preci- payments data using algorithms. Kovner and sion of signals across agents. Skeie conduct an evaluation to assess the ability of identifying overnight U.S. fed funds activity from Fedwire payments data. They find
Economics evidence that the estimates extracted from the
Liberty Street data are statistically significantly correlated with banks’ fed funds borrowing as reported on the FRY-9C. The authors find similar associations for fed funds lending, although the correlations are lower. To be conservative, they believe that the estimates are best interpreted as measures of overnight interbank activity rather than fed Staff funds activity specifically. They also compare Reports the estimates provided by Armantier and Copeland (2012) to the Y-9C fed funds amounts. Outside Journals 392 Introduction
Ayşegül Şahin Outside Journals “Firms and Flexibility,” with Bart Hobijn. Economic Inquiry 51, no. 1 (January): 922-40. Members of the Research and Statistics Group publish in a wide range of economic and “Unemployment Dynamics in the OECD,” with
nance journals, conference volumes, and Michael Elsby and Bart Hobijn. Review of Policy Review scholarly books. Economics and Statistics 95, no. 2 (May): 530-48. Economic Andrea Tambalotti Published in 2013 “Is ere a Trade-O between In ation and Output Stabilization?” with Alejandro Justiniano and Giorgio Primiceri. American Economic Journal: Macroeconomics and Growth Macroeconomics 5, no. 2 (April): 1-31. Bianca De Paoli “Cyclical Risk Aversion, Precautionary Savings, and International Monetary Policy,” with Pawel Zabczyk. Journal of Mary Amiti Current Money, Credit, and Banking 45, no. 1 (February): Issues “Import Competition and Quality Upgrading,” 1-36. with Amit Khandelwal. Review of Economics and “Policy Design in a Model with Swings in Risk Statistics 95, no. 2 (May): 476-90. Appetite,” with Pawel Zabczy. Oxford Economic Benjamin Mandel Papers 65, suppl. 1 (April): 146-69. “E ects of Terms of Trade Gains and Tari Changes omas Eisenbach on the Measurement of U.S. Productivity Growth,”
“Macroeconomics with Financial Frictions: A with Robert Feenstra, Marshall Reinsdorf, and StreetLiberty Survey,” with Markus Brunnermeier and Yuliy Matthew Slaughter. American Economic Journal: Economics Sannikov. In Daron Acemoglu, Manuel Arellano, Economic Policy 5, no. 1 (February): 59-93. and Eddie Dekel, eds., Advances in Economics and Paolo Pesenti Econometrics. Tenth World Congress of the Econo- “ eoretical Notes on Commodity Prices and metric Society. Vol. 2. Cambridge, U.K.: Monetary Policy.” Proceedings of Globalization and Cambridge University Press. Ination Dynamics in Asia and the Pacic, a research Marc Giannoni workshop organized by the Bank for International “Some Unpleasant General Equilibrium Implica- Settlements. BIS Papers, no. 70, February: 79-90. tions of Executive Incentive Compensation “Varieties and the Transfer Problem,” with
Contracts.” Journal of Economic eory 148, no. 1 Reports Giancarlo Corsetti and Philippe Martin. Journal of (January): 31-63. Sta International Economics 89, no. 1 (January): 1-12. Fatih Karahan Ernst Schaumburg “On the Persistence of Income Shocks over the “Causes of the Great Recession of 2007-2009: Life-Cycle: Evidence, eory, and Implications”, e Financial Crisis Was the Symptom Not the Serdar Ozkan. Review of Economic Dynamics 16, no. Disease!” with Ravi Jagannathan and Mudit 3 (July): 452-76. Kapoor. Journal of Financial Intermediation 22, Robert Rich and Joseph Tracy no. 1 (January): 4-29. Journals “Early Contract Renegotiation: An Analysis of U.S. Outside Labor Contracts from 1970 to 1995.” Journal of Labor Economics 34, no. 4 (October): 825-42. Outside Staff Liberty Street Current Economic 40 Journals Reports Economics Issues Policy Review Introduction 176-95. Journal ofPublic Economics 97,no. 1(January): Nonparametric Bounds on Welfare Measures.” “World Welfare Maxim Pinkovskiy Association. Annual Meeting oftheAmericanEconomic (May): 570-4.Papers andProceedings ofthe125th Madrian. American Economic Review 103,no. 3 Beshears, James Choi,David Laibson,andBrigitte Evidence onIntuitive Forecasting,” withJohn Goes Up“What Must ComeDown? Experimental Andreas Fuster June: 100-11. Journal ofEconomic Behavior andOrganization 90, Children,” withPaola Giuliano andOlivier Jeanne. on the Transmission of Values from Parents to “Like Mother LikeSon? Experimental Evidence Marco Cipriani Inquiry Incentives: Evidence from Florida.” Economic “Vouchers, Public SchoolResponse, andtheRole of 349-94. Economic Analysis andPolicy 13,no. 2(October): Milwaukee VoucherPrograms.” Performance: Evidence from Florida and “Impact of Voucher Design onPublic School Education Review 34,June: 191-218. Milwaukee VoucherProgram.” Private SchoolSelection? Evidence from the “Do Vouchers LeadtoSorting underRandom Finance andPolicy 8,no. 2(S Discontinuity Evidence from Florida.” Education and the Test-Taking Population: Regression “Accountability with Voucher Threats, Responses, Rajashri Chakrabarti of Economics 5,January: 273-301. Bruine deBruin andSimon Potter. Annual Review “Measuring Inflation Expectations,” with Wändi Wilbert van derKlaauw, andBasit Zafar Olivier Armantier, Giorgio Topa, Microeconomics 51, no. 1 (January): 500 51,no. 1(January): I s Rising:EstimationUsing pring): 121-67. Economics of ‑ B.E. Journal of 26. 545-95. Journal ofHuman Resources 48,no. 6(S “College Major ChoiceandtheGender Gap.” Basit Zafar Applied Economics 104-35. 5,no. 1(January): Robert Townsend. Giné, Jeremy Tobacman, Petia Topalova, and Evidence from India,” withShawn Cole,Xavier “Barriers toHousehold RiskManagement: James Vickery Blau. Determines Family“What Structure?” withDavid Wilbert van derKlaauw spring: 211-78. McCabe. Brookings Papers onEconomic Activity, Market Funds,” withMichael Holscher andPatrick Mitigate theSystemic RisksPosed by Money “The Minimum Balance atRisk:A Proposal to Marco CiprianiandAntoineMartin and Finance 37no. 11 (November): 4310-26. Gardinal andAntonioGuarino. Journal ofBanking Market Rebalancing Channel,” withGloria “Financial The Cross- ContagionintheLaboratory: Marco Cipriani Banking and Finance 37,no. 5(May): 1543-51. of International Financial Centers.” Journal of “Prestigious Stock Exchanges: ANetwork Analysis Nicola Cetorelli andStavros Peristiani (October): 110-38. sions.” Journal ofFinancial Economics 110,no. 1 “Pricing the Term Structure withLinearRegres- Tobias Adrian, Richard Crump, and Emanuel Moench Banking andFinance Economic Inquiry 579-604. 51,no. 1(January): American Economic Journal: ummer): 412 Introduction
Antoine Martin Quantitative Methods “Bank Capital Regulation and Structured Finance,” with Bruno Parigi. Journal of Money, Credit, and Jennie Bai Banking 45, no. 1 (February): 87-119. “State Space Models and MIDAS Regressions,” with Eric Ghysels and Jonathan Wright. “Liquidity-Saving Mechanisms in Collateral-Based Econometric Reviews 32, no. 7 (June): 779-813. Policy Review RTGS Payment Systems,” with Marius Jurgilas. Economic Annals of Finance 9, no. 1 (February): 29-60. Adam Copeland “ e Production Impact of ‘Cash-for-Clunkers’: “Rediscounting under Aggregate Risk with Moral Implications for Stabilization Policy,” with James Hazard,” with James Chapman. Journal of Money, Kahn. Economic Inquiry 51, no. 1 (January): Credit, and Banking 45, no. 4 (June): 651-74. 288-303.
Friederike Niepmann Jan Groen “Bank Bailouts, International Linkages, and Coop- “Model Selection Criteria for Factor-Augmented eration,” with Tim Schmidt-Eisenlohr. American Regressions,” with George Kapetanios. Oxford Economic Journal: Economic Policy 5, no. 4 Bulletin of Economics and Statistics 75, no. 1 Current (November): 270-305. (February): 37-63. Issues Or Shachar “Multivariate Methods for Monitoring Structural “Why Do Closed-End Bond Funds Exist? An Addi- Change,” with George Kapetanios and Simon Price. tional Explanation for the Growth in Domestic Journal of Applied Econometrics 28, no. 2 (March): Closed-End Bond Funds,” with Christopher R. 250-74. Blake, Edwin J. Elton, and Martin J. Gruber. Journal of Financial and Quantitative Analysis 48, “Real-Time In ation Forecasting in a Changing no. 2 (April): 405-25. World,” with Richard Paap and Francesco StreetLiberty Ravazzolo. Journal of Business and Economic Economics Tanju Yorulmazer Statistics 31, no. 1 (January): 29-44. “Liquidity Hoarding,” with Douglas Gale. eoretical Economics 8, no. 2 (May): 291-324. “A eory of Arbitrage Capital,” with Viral Acharya and Hyun Song Shin. Review of Corporate Finance Studies 2, no. 1 (January): 62-97. Reports Sta Journals Outside 42
Forthcoming Stefano Eusepi “Stabilizing Expectations under Monetary and Introduction Fiscal Policy Coordination,” with Bruce Preston. Macroeconomics and Growth Journal of the European Economic Association.
Tobias Adrian Marc Giannoni “Financial Intermediaries and the Cross-Section of “Optimal Interest Rate Rules and Inflation Stabili- Asset Returns,” with Erkko Etula and Muir Tyler. zation versus Price-Level Stabilization.” Journal of Journal of Finance. Economic Dynamics and Control.
“Which Financial Frictions? Parsing the Evidence Benjamin Mandel Economic from the Financial Crisis of 2007-09,” with Paolo “Missing Import Price Changes and Low Exchange y Review Polic Colla and Hyun Song Shin. NBER International Rate Pass-Through,” with Etienne Gagnon and Seminar on Macroeconomics. Robert Vigfusson. American Economic Journal.
Discussion of “An Integrated Framework for Jonathan McCarthy Multiple Financial Regulations,” by Charles “Has the Response of Investment to Financial Goodhart, Anil Kashyap, Dimitrios Tsomocos, and Market Signals Changed?” In Per Gunnar Berglund Alex Vardoulakis. International Journal of Central and Leanne J. Ussher, eds., Recent Developments in Banking. Macroeconomics. Eastern Economic Association Issues
Current conference volume. Oxford, U.K.: Routledge. Stefania Albanesi “Maternal Health and the Baby Boom,” with Ayşegül Şahin Claudia Olivetti. Quantitative Economics. “The Decline of the U.S. Labor Share,” with Michael Elsby and Bart Hobijn. Brookings Papers Rajashri Chakrabarti, Donghoon Lee, on Economic Activity. Wilbert van der Klaauw, and Basit Zafar “Household Debt and Saving during the 2007 “The Labor Market in the Great Recession: An Recession.” In Michael Palumbo Hulten and Update,” with Michael Elsby, Bart Hobijn, and Rob Marshall Reinsdorf, eds., Measuring Wealth and Valletta. Brookings Papers on Economic Activity. Financial Intermediation and Their Links to the Real
Economics Economy. NBER conference volume. “A Rising Natural Rate of Unemployment: Transi- Liberty Street tory or Permanent?” with Mary Daly, Bart Hobijn, Gauti Eggertsson and Rob Valletta. Journal of Economic Perspectives. “Deficits, Public Debt Dynamics, and Tax and Spending Multipliers,” with Matthew Denes and “Subsidizing Job Creation in the Great Recession,” Sophia Gilbukh. Economic Journal. with Sagiri Kitao and Joseph Song. Economics Letters. “Fiscal Multipliers and Policy Coordination.” In Jordi Galí, ed., Fiscal Policy and Macroeconomic Staff International Reports Performance. Proceedings of the Fourteenth Annual Conference of the Central Bank of Chile. Mary Amiti “Importers, Exporters, and Exchange Rate Disconnect,” Discussion of “How Flexible Can Inflation with Oleg Itshoki and Josef Konings. American Targeting Be and Still Work?” by Kenneth N. Economic Review. Kuttner and Adam S. Posen. International Journal of Central Banking. Jan Groen “Forecasting Commodity Price Indexes Using Macro economic and Financial Predictors: Discussion.” International Journal of Forecasting. Outside Journals 432 Introduction
Andrea Tambalotti Adam Copeland “ e E ects of the Saving and Banking Glut on “Intertemporal Substitution and New Car the U.S. Economy,” with Giorgio Primiceri and Purchases.” RAND Journal of Economics. Alejandro Justiniano. Journal of International Economics. Adam Copeland and Antoine Martin
“Repo Runs: Evidence from the Tri-Party Repo Policy Review
Market,” with Michael Walker. Journal of Finance. Economic Microeconomics Andrew Haughwout, Richard Peach, Jaison Abel and Joseph Tracy “Skills across the Urban-Rural Hierarchy,” with “ e Supply Side of the Housing Boom and Bust of Todd M. Gabe and Kevin Stolarick. Growth and the 2000s,” with John Sporn. In Edward Glaeser and Change. Todd Sinai, eds., Housing and the Financial Crisis. Tobias Adrian Chicago: University of Chicago Press. “Procyclical Leverage and Value-at-Risk,” with Andrew Haughwout and Joseph Tracy Hyun Song Shin. Review of Financial Studies.
“Second Chances: Subprime Mortgage Modi cation Current Issues Tobias Adrian, Adam Copeland, and Antoine Martin and Re-Default,” with Ebiere Okah. Journal of “Repo and Securities Lending,” with Brian Begalle. Money, Credit, and Banking. In Markus K. Brunnermeier and Arvind Andrew Haughwout and Wilbert van der Klaauw Krishnamurthy, eds., Systemic Risk Measurement. “Land Use Regulation and Welfare,” with Matthew NBER conference volume. A. Turner. Econometrica.
Olivier Armantier Anna Kovner “Eliciting Beliefs: Proper Scoring Rule, Incentives, “Doing Well by Doing Good? Community Develop- StreetLiberty Economics Stakes, and Hedging,” with Nicolas Treich. ment Venture Capital,” with Josh Lerner. Journal of European Economic Review. Economics and Management Strategy. “On the E ects of Incentive Framing on Bribery: Benjamin Pugsley Evidence from an Experiment in Burkina Faso,” “Are Household Surveys Like Tax Forms? Evidence with Amadou Boly. In Danila Serra and Leonard from Income Underreporting of the Self-Employed.” Wantchekon, eds., Econometrics of Governance. Review of Economics and Statistics. “On the External Validity of Laboratory Experi- Ayşegül Şahin ments on Corruption,” with Amadou Boly. In “Beveridge Curve Shifts across Countries since the Danila Serra and Leonard Wantchekon, eds., New
Great Recession,” with Bart Hobijn. IMF Economic Reports Advances in Experimental Research on Corruption. Review. Sta Research in Experimental Economics, vol. 15. Bingley, U.K.: Emerald Group Publishing. Wilbert van der Klaauw “Relative Performance of Liability Rules: Experi- “Unintended Consequences of Welfare Reform: e mental Evidence,” with Vera Angelova, Giuseppe Case of Divorced Parents,” with Marco Francesconi Attanasi, and Yolande Hiriart. International Economic and Helmut Rainer. Review of Economics of the Review. Household.
Rajashri Chakrabarti Basit Zafar Journals “Incentives and Responses under No-Child-Left- “Bayesian Social Learning, Conformity, and Stub- Outside Behind: Credible reats and the Role of bornness: Evidence from the AP Top 25,” with Competition.” Journal of Public Economics. Daniel Stone. Journal of Risk and Uncertainty. 44
Banking and Finance Donald Morgan and Stavros Peristiani “The Information Value of the Stress Test and Bank Introduction Tobias Adrian Opacity,” with Vanessa Savino. Journal of Money, “Shadow Banking: A Review of the Literature,” with Credit, and Banking. Adam B. Ashcraft. Palgrave Dictionary of Economics. João Santos Nicola Cetorelli “Banks’ Liquidity and the Cost of Liquidity to “Surviving Credit Market Competition.” Economic Corporations,” with Vitaly Bord. Journal of Money, Inquiry. Credit, and Banking.
Comment on “Inflation and Financial Market Ernst Schaumburg Economic Performance: What Have We Learned in the Last “Decomposing Short-Term Return Reversal,” with y Review Polic Ten Years?” by John Boyd and Bruce Champ. Zhi Da and Qianqiu Liu. Management Science. Journal of Money, Credit, and Banking.
Dong Beom Choi Quantitative Methods “Heterogeneity and Stability: Bolster the Strong, Not the Weak.” Review of Financial Studies. Richard Crump “Bootstrapping Density-Weighted Average Deriva- Marco Cipriani tives,” with Matias Cattaneo and Michael Jansson.
Issues “Estimating a Structural Model of Herd Behavior Econometric Theory. Current in Financial Markets,” with Antonio Garino. “Generalized Jackknife Estimators of Weighted American Economic Review. Average Derivatives,” with Matias Cattaneo and Stefano Eusepi Michael Jansson. Journal of the American Statistical “When Does Determinacy Imply E-Stability?” with Association. James Bullard. International Economic Review. “Small Bandwidth Asymptotics for Density- David Lucca Weighted Average Derivatives,” with Matias “Inconsistent Regulators: Evidence from Banking,” Cattaneo and Michael Jansson. Econometric Theory. with Francesco Trebbi, Amit Seru, and Sumit Marco Del Negro Economics Agarwal. Quarterly Journal of Economics.
Liberty Street “Rare Shocks, Great Recessions,” with Vasco Cúrdia David Lucca and Emanuel Moench and Daniel Greenwald. Journal of Applied Econometrics. “The Pre-FOMC Announcement Drift.” Journal of Emanuel Moench Finance. “Dynamic Hierarchical Factor Models,” with Antoine Martin and David Skeie Serena Ng and Simon Potter. Review of Economics “The Fragility of Short-Term Secured Funding and Statistics. Markets,” with Ludwig Von Thadden. Journal of Staff Ernst Schaumburg
Reports Economic Theory. “Integrated Quarticity Estimation: Theory and “Repo Runs,” with Ernst-Ludwig Von Thadden. Practical Implementation,” with Torben Andersen Review of Financial Studies. and Dobrev Dobrislav. Econometric Theory.
Donald Morgan “Payday Holiday: How Households Fare after Payday Credit Bans.” Journal of Money, Credit, and Banking. Outside Journals 2
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