Liberty Street Economics
Look for our next post on August 1.
July 18, 2016

Forecasting Interest Rates over the Long Run



LSE_Forecasting Interest Rates over the Long Run

In a previous post, we showed how market rates on U.S. Treasuries violate the expectations hypothesis because of time-varying risk premia. In this post, we provide evidence that term structure models have outperformed direct market-based measures in forecasting interest rates. This suggests that term structure models can play a role in long-run planning for public policy objectives such as assessing the viability of Social Security.

July 15, 2016

Historical Echoes: The Fed’s Cuban Connection



LSE_Historical Echoes: The Fed’s Cuban Connection

Did you know that the Federal Reserve once had not one, but two offices in Cuba?

In the early years of the twentieth century, U.S. currency was in wide circulation in the Caribbean nation, a legacy of the Spanish-American War. But that had become a problem.

Posted by Blog Author at 7:00 AM in Historical Echoes | Permalink | Comments ( 2 )

Implementing Monetary Policy Post-Crisis: What Do We Need to Know?



Columbia University’s School of International and Public Affairs and the New York Fed co-sponsored a recent workshop to discuss important issues related to monetary policy implementation. The May 4 event, held at Columbia, supports the extended effort that the Federal Reserve has undertaken to evaluate potential long-run monetary policy implementation frameworks, which was announced at a Federal Open Market Committee meeting last July.

Posted by Blog Author at 7:00 AM in Monetary Policy | Permalink | Comments ( 0 )

July 13, 2016

Could Liquidity Regulation Revive the Bank Lending Channel?

Dong Beom Choi and Ulysses Velasquez

LSE_Could Liquidity Regulation Revive the Bank Lending Channel?

How does monetary policy affect spending in the economy? The economic literature suggests two main channels of monetary transmission: the money or interest rate channel and the bank lending channel. The first view focuses on changes in real interest rates resulting from a shift in monetary policy and corresponding responses in consumption, saving, and investment. The second view focuses on changes in the supply of bank credit resulting from an altered policy stance and concomitant changes in spending.

Posted by Blog Author at 7:00 AM | Permalink | Comments ( 0 )

July 11, 2016

How Have High Reserves and New Policy Tools Reshaped the Fed Funds Market?



Over the last decade, the federal funds market has evolved to accommodate new policy tools such as interest on reserves and the overnight reverse repo facility. Trading motives have also responded to the expansion in aggregate reserves as the result of large-scale asset purchases. These changes have affected market participants differently since, for instance, not all institutions are required to keep reserves at the Fed and some are not eligible to earn interest on reserves. Differential effects have changed the profile of participants willing to borrow and lend in this market, and this shift provides an opportunity to study how unconventional policy actions shape participant incentives. In today’s post, we take a detailed look at regulatory filings to identify the main players in today’s fed funds market and understand how their roles have evolved.


Posted by Blog Author at 7:00 AM | Permalink | Comments ( 0 )

July 08, 2016

Hey, Economist! Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?



LSE_Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?

Few people know the Treasury market from as many angles as Ken Garbade, a senior vice president in the Money and Payments Studies area of the New York Fed’s Research Group. Ken taught financial markets at NYU’s graduate school of business for many years before heading to Wall Street to assume a position in the research department of the primary dealer division of Bankers Trust Company. At Bankers, Ken conducted relative-value research on the Treasury market, assessing how return varies relative to risk for particular Treasury securities. For a time, he also traded single-payment Treasury obligations known as STRIPS—although not especially successfully, he notes.

June 29, 2016

Monetary Policy Transmission before and after the Crisis



LSE_Monetary Policy Transmission before and after the Crisis

The Federal Open Market Committee implements monetary policy by raising or lowering its target for the federal funds rate, the interest rate banks charge each other for overnight loans. Because the Federal Reserve has no direct control over most interest rates, it relies on arbitrage in money markets for the change in the fed funds rate to be transmitted to other short-term rates, thus causing all short-term rates to move in tandem. This transmission to other rates is an important first step for the Fed’s actions to influence the real economy. In this post, we describe the major developments that have affected monetary policy transmission since the recent financial crisis. We conclude that while arbitrage may have been impeded at the beginning of the crisis, it currently remains effective in transmitting changes in monetary policy via the money markets.

June 27, 2016

Hey, Economist! How Is the Research and Statistics Group Changing?



LSE_Hey, Economist! How Is the Research and Statistics Group Changing?

As Director of Research for the New York Fed for the past seven years, Jamie McAndrews has been responsible for the Bank’s financial and economic policy research, as well as the collection of data and statistics from financial institutions. On the eve of his retirement on June 30, Jamie shared his perspective on how the Research and Statistics Group has changed with Andrew Haughwout, a senior vice president in the Group.

Posted by Blog Author at 7:00 AM in Macroecon , Monetary Policy | Permalink | Comments ( 1 )

June 24, 2016

Just Released: May’s Indexes of Coincident Economic Indicators Show Economic Growth Moderating across the Region



LSE_Just Released: May’s Indexes of Coincident Economic Indicators Show Economic Growth Moderating across the Region

The May Indexes of Coincident Economic Indicators (CEIs) for New Jersey, New York State, and New York City, released today, show some slowing in economic growth across the region—in part reflecting the Verizon strike (which has since been settled), as well as somewhat weaker economic fundamentals. As shown in the chart below, New York City continues to be the strongest engine of growth in the region, by far, though there too, we have seen some deceleration.

Posted by Blog Author at 9:15 AM in Macroecon , Regional Analysis | Permalink | Comments ( 0 )

June 22, 2016

The Rapidly Changing Nature of Japan’s Public Debt



LSE_The Rapidly Changing Nature of Japan’s Public Debt

Japan’s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan’s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance sheets of the government and the Bank, however, shows that the asset purchase program alters the composition of public debt, with reserves in the banking system replacing government bonds, but not the amount of the debt taxpayers must pay interest on.

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