Liberty Street Economics
February 05, 2016

Crisis Chronicles: The Long Depression and the Panic of 1873



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It always seemed to come down to railroads in the 1800s. Railroads fueled much of the economic growth in the United States at that time, but they required that a great deal of upfront capital be devoted to risky projects. The panics of 1837 and 1857 can both be pinned on railroad investments that went awry, creating enough doubt about the banking system to cause pervasive bank runs. The fatal spark for the Panic of 1873 was also tied to railroad investments—a major bank financing a railroad venture announced that it would suspend withdrawals. As other banks started failing, consumers and businesses pulled back and America entered what is recorded as the country’s longest depression.

February 04, 2016

How Do Central Bank Balance Sheets Change in Times of Crisis?



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The 2007-09 financial crisis, and the monetary policy response to it, have greatly increased the size of central bank balance sheets around the world. These changes were not always well understood and some were controversial. We discuss these crisis-induced changes, following yesterday’s post on the composition of central bank balance sheets in normal times, and explain the policy intentions behind some of them.


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

February 03, 2016

What Is the Composition of Central Bank Balance Sheets in Normal Times?



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There has been unusually high activity on central banks’ balance sheets in recent years. This activity, which has expanded beyond the core operations and collateral of the central bank, has been called “unconventional,” “nonstandard,” “nontraditional,” and “active.” But what constitutes a normal central bank balance sheet? How does central bank asset and liability composition vary across countries and how did the crisis change this composition? In this post, we focus on the main characteristics of central bank balance sheets before the crisis. In our next piece, we describe how this composition has changed in response to the crisis.


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

February 02, 2016

Counterparties and Collateral Requirements for Implementing Monetary Policy



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What types of counterparties can borrow from or lend to a central bank, and what kind of collateral must they possess in order to receive a loan? These are two key aspects of a central bank’s monetary policy implementation framework. Since at least the nineteenth century, it has been understood that an important role of central banks is to lend to solvent but illiquid institutions, particularly during a crisis, as this provides liquidity insurance to the financial system. They also provide liquidity to markets during normal times as a means to implement monetary policy. Central banks that rely on scarcity of reserves need to adjust the supply of liquidity in the market, as described in our previous post. In this post, we focus on liquidity provision related to the conduct of monetary policy.

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

February 01, 2016

Standard Elements of a Monetary Policy Implementation Framework



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In the minutes of the July 2015 Federal Open Market Committee (FOMC) meeting, the chair indicated that Federal Reserve staff would undertake an extended effort to evaluate potential long-run monetary policy implementation frameworks. But what is a central bank’s monetary policy implementation framework? In a series of four posts, we provide an overview of the key elements that typically constitute such a framework.

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

January 29, 2016

Just Released: New Web Feature Provides Timely Data on the Job Market for Recent College Graduates



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Many newly minted college graduates entering the labor market in the wake of the Great Recession have had a tough time finding good jobs. But just how difficult has it been, and are things getting better? And for which graduates? These questions can be difficult to answer because timely information on the employment prospects of college graduates has been hard to come by. To address this gap, today we are launching a new interactive web feature to provide data on a wide range of job market metrics for recent college graduates, including trends in unemployment rates, underemployment rates, and wages. We also provide data on the demand for college-educated workers, as well as differences in labor market outcomes across college majors. These data will be updated regularly and are available for download.

Posted by Blog Author at 10:00 AM in Education , Labor Economics | Permalink | Comments ( 0 )

January 15, 2016

Crisis Chronicles: The Gold Panic of 1869, America’s First Black Friday



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Wall Street in the late 1860s was a bare-knuckles affair plagued by robber barons, political patronage, and stock manipulation. In perhaps the most scandalous instance of manipulation ever, a cabal led by Jay Gould, a successful but ruthless railroad executive and speculator, and several highly placed political contacts, conspired to corner the gold market. Although ultimately foiled, they succeeded in bankrupting several venerable brokerage houses and crashing the stock market, causing America’s first Black Friday.

January 13, 2016

Fundamental Disagreement: How Much and Why?



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Everyone disagrees, even professional forecasters, especially about big economic questions. Has potential output growth changed since the financial crisis? Are we bound for a period of “secular stagnation”? Will the European economy rebound? When is inflation getting back to mandate-consistent level? In this post, we document to what degree professional forecasters disagree and discuss potential reasons why.

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

January 11, 2016

Working as a Barista After College Is Not as Common as You Might Think



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The image of a newly minted college graduate working behind the counter of a hip coffee shop has become a hallmark of the plight of recent college graduates following the Great Recession. Recurring news stories about young college graduates stuck in low-skilled jobs make it easy to see why many college students may be worried about their futures. However, while there is some truth behind the popular image of the college-educated barista, this portrayal is really more myth than reality. Although many recent college graduates are “underemployed”—working in jobs that typically don’t require a degree—our research indicates that only a small fraction worked in a low-skilled service job in the years following the Great Recession. We find that underemployed recent college graduates held a wide range of jobs and, while most of these positions were clearly not equivalent to jobs that require a college education, some were actually fairly skilled and well paid. Further, our analysis suggests that many of those who started their careers in a low-skilled service job transitioned to a better job after gaining some experience in the labor market.

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

January 06, 2016

Hedging Income Fluctuations with Foreign Currency Assets



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The world has gone through a process of financial globalization over the past decades, with countries increasing their holdings of foreign assets and liabilities. At the same time, countries have started to have a more positive foreign currency exposure by reducing their bias toward holding assets in domestic currency instead of foreign currency. One possible reason for these changes is that nations view demand shocks as more likely than supply shocks. That is, a dip in output will be accompanied by lower inflation rather than higher inflation. Monetary policy responds to demand shocks by cutting interest rates and letting the domestic currency depreciate. As a consequence, shifting the currency composition of assets and liabilities to increase net foreign currency holdings is a hedging strategy to protect the country’s income and wealth during downturns.

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