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In recent years, regulators in the United States and abroad have begun to strengthen regulations governing over-the-counter (OTC) derivatives trading, driven by concerns over the decentralized and opaque nature of current trading practices. For example, the Dodd-Frank Act will require U.S.-based market participants to publicly report details of their interest rate derivatives (IRD) trades shortly after those transactions have been executed. Based on an analysis of new and detailed data on the trading activity of major dealers, this post discusses the possible costs and benefits of reporting requirements on the IRD market. In a previous post, we examined the same question for the credit default swap (CDS) market.
Dynamic stochastic general equilibrium (DSGE) models have been trashed, bashed, and abused during the Great Recession and after. One of the many reasons for the bashing was the models’ alleged inability to forecast the recession itself. Oddly enough, there’s little evidence on the forecasting performance of DSGE models during this turbulent period. In the paper “DSGE Model-Based Forecasting,” prepared for Elsevier’s Handbook of Economic Forecasting, two of us (Del Negro and Schorfheide), with the help of the third (Herbst), provide some of this evidence. This post shares some of our results.
The Federal Reserve in the 21st Century (Fed 21) symposium on monetary policy and financial stability recently brought together over 225 college professors from around the region and the world. The annual two-day event gives professors who teach economics, finance, or business the opportunity to hear presentations from top Federal Reserve Bank of New York economists and senior staff and ask them questions. Fed 21 is part of the Bank’s broader efforts to increase public understanding of the Federal Reserve System’s role in conducting monetary policy and ensuring financial stability.
One might dispute the biblical assertion that “the poor always ye have with you” (John 12:8, King James Version), but it is indisputable that we will always have the top 1 percent of the income distribution among us. The recent focus on the top 1 percent by the Occupy Wall Street movement has drawn attention to the distribution of income in the United States and the trend toward increased inequality of income in the last three decades (see, for example, this January 2012 speech by the Chairman of the President's Council of Economic Advisers, Alan Krueger).
Resentment over the sometimes extravagant lifestyle of the wealthiest 1 percent has been acute at times, perhaps especially in New York, where we find this historical echo of the slogans heard today in Zuccotti Park. Edwin G. Burrows and Mike Wallace, in their Pulitzer Prize–winning account of the city’s past, Gotham: A History of New York City to 1898, remind us of a time in colonial New York when many complained about the lifestyles of the rich.
In the early 1760s, an economic downturn caused a great deal of hardship for most of the residents of New York, including many merchants, recent immigrants, and debtors (many of whom wound up in jail). In the midst of this downturn, the wealthiest merchants, officials, and naval officers did not seem to suffer. One particularly obvious show of distinction and wealth was possession of a carriage. The city's 85 carriages were owned by only 62 people in New York, whose population was approximately 18,000 in 1760. The modern equivalent (although not as visible, perhaps) might be traveling by private jet rather than by commercial airlines.
Disapproval of the extreme wealth of the few during an economic downturn was made clear in a 1765 letter to the editor of the New–York Gazette. The letter is primarily about the worsening relations with the "Mother Country," England. However, the writer also expresses dissatisfaction with affairs in New York in a fashion that presages the “We are the 99 percent” theme of Occupy Wall Street:
Some Individuals of our Countrymen, by the Smiles of Providence or some other Means, are enabled to roll in their four–wheel'd Carriages, and can support the Expence of good Houses, rich Furniture, and Luxurious Living. But, is it equitable that 99, or rather 999 should suffer for the Extravagance or Grandeur of one? Especially when it is consider’d, that Men frequently owe their Wealth to the Impoverishment of their Neighbours.
As Europe continued to struggle with its sovereign debt crisis during the past two years, significant concerns about the growth outlook for European Union members began to emerge in late 2011. In response, the European Central Bank (ECB) and European authorities carried out a series of important policy initiatives. In this post, we use growth forecasts from an ECB survey to document the deterioration in the growth outlook and note parallels to late 2008—when Europe was in a deep recession. We also discuss how the next survey scheduled for release in May can be used to gauge whether recent policy actions have improved the growth outlook and reduced the uncertainty surrounding it.
On January 31, 2012, the Treasury Borrowing Advisory Committee advised the Secretary of the Treasury that it unanimously supported the issuance of floating-rate notes by the U.S. Treasury. Sovereign issuers are not known as hotbeds of financial innovation, and the introduction of a new sovereign debt instrument is a significant event. This post provides some perspective on the possible issuance of floating-rate notes by reviewing the history of earlier innovations in Treasury debt instruments, including Treasury bills, STRIPS, and TIPS. It concludes that the Treasury has been an infrequent, but nevertheless astute, innovator.
Arthur Burns, Federal Reserve chairman between 1970 and 1978, made the October 21, 1976, issue of Rolling Stone magazine, but not the cover—sorry, Dr. Hook! This bicentennial issue had a special feature, “The Family,” comprised of, according to the introductory material, seventy-three photographic portraits of “a broad group of men and women—some of whom we had never heard of before—who constitute the political leadership of America,” taken by renowned photographer Richard Avedon. If you’re old enough to remember these important people, a look through this issue is an exciting “trip” back in time.
As part of its prudent planning for future developments, the Federal Open Market Committee (FOMC) has discussed strategies for normalizing the conduct of monetary policy, when appropriate, as the economy strengthens. One issue, raised in April 2011, is whether the longer-run framework for implementing monetary policy will be a corridor-type system or a floor-type system. What do these terms mean, and how do they relate to monetary policy? In this post, I describe the key differences between these two approaches to implementing monetary policy and some of the advantages offered by each.
A major theme of the posts in our labor market series has been that the outflows from unemployment, either into employment or out of the labor force, have been the primary determinant of unemployment rate dynamics in long expansions. The key to the importance of outflows is that within long expansions there have not been adverse shocks that lead to a burst of job losses. To illustrate the power of this mechanism, we presented simulations in a previous post that were based on the movements in the outflow and inflow rates in the previous three expansions. These simulated paths show the unemployment rate declining to a level well below current consensus predictions over the medium term.
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