Historical Echoes: Using Art and Artifacts to Understand the Impact of the Great Depression

Amy Farber, New York Fed Research Library

The widespread distress caused by an economic downturn, such as the recent Great Recession, lingers long after economic indicators begin to recover, but it can also be the impetus for key structural reforms. As economists analyze data and write papers to document the impact of an economic downturn and advance their solutions, artists use visual, musical, and literary approaches to the same end. An example of this genre is the powerful art produced in the United States during the Great Depression.

Labor Force Exits Are Complicating Unemployment Rate Forecasts

Richard Peach, Josiah Bethards,* and Joseph Song**

What will the unemployment rate be in 2013? Even if you were certain how much the U.S. economy (gross domestic product, or GDP) would grow over the next year or two, it would still be difficult to forecast the unemployment rate over that period. The link between GDP growth and unemployment is complex in part because it depends on how many people decide to work or look for work—that is, the labor force participation rate. In this post, we discuss the recent steep decline in the labor force participation rate and explain how uncertainty regarding the future path of that variable contributes to conflicting views about the future path of the unemployment rate.

Historical Echoes: Winning Essay on Central Banking Gets $100 (in 1910)

Amy Farber, New York Fed Research Library

In 1910, Bankers Magazine announced that the American Institute of Banking would give prizes of $100 and $50 for the two best essays on central banking. (See “Prizes to Be Offered at Chattanooga Convention,” page 132.)

Central Bank Imbalances in the Euro Area

Matthew Higgins* and Thomas Klitgaard

The euro area sovereign debt crisis sparked an outflow of bank deposits from countries in the periphery to commercial banks in Germany and other core countries. The outflow highlighted a key aspect of the payments system linking national central banks in euro area countries. In particular, net outflows from private commercial banks in a given country are matched by credits to that county’s central bank, with those credits extended by central banks elsewhere in the euro area. In this post, we explain how the credits affected the adjustment pressures faced by countries in the euro area during the ongoing debt crisis.

When Do Trading Frictions Increase Liquidity?

Gara Afonso

Economists tend to assume that frictions that limit trading in financial markets reduce liquidity and lower investor welfare. In this blog I discuss a recent staff study of mine that challenges that conventional wisdom. I explain how introducing trading frictions—such as circuit breakers—that slow or halt trading in an over-the-counter market experiencing a fire sale might, paradoxically, lead to higher liquidity and investor welfare.

“Flip This House”: Investor Speculation and the Housing Bubble

Andrew Haughwout, Donghoon Lee, Joseph Tracy, and Wilbert van der Klaauw

The recent financial crisis—the worst in eighty years—had its origins in the enormous increase and subsequent collapse in housing prices during the 2000s. While the housing bubble has been the subject of intense public debate and research, no single answer has emerged to explain why prices rose so fast and fell so precipitously. In this post, we present new findings from our recent New York Fed study that uses unique data to suggest that real estate “investors”—borrowers who use financial leverage in the form of mortgage credit to purchase multiple residential properties—played a previously unrecognized, but very important, role. These investors likely helped push prices up during 2004-06; but when prices turned down in early 2006, they defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle’s downward leg.

Historical Echoes: Old-Timey Films on the 1940 Censuses

Amy Farber, New York Fed Research Library

In 1940, the Census Bureau produced two short films trumpeting the general census that year and the first-ever census of housing. In the film on the general census, “Know Your U.S.A.“ (3 min.), the narrator exhorts citizens to cooperate with the census: “You cannot know your country unless your country knows you.” The film tells us that there were 130 million free people and 7 million farms in 1940. (Now there are 312 million people and 2.1 million farms.) The narrator practically gushes over the “mechanical marvels of accuracy” tabulating the received data.