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Over the past several months, there was a flurry of debate in Washington over the extension of the payroll tax cut. Many supporters of the tax cut—worth about $1,000 to a family earning the median income of slightly more than $50,000 a year—have cited its importance to the nation’s economic recovery, while opponents claim that it will only add to the national deficit without boosting the economy. Exactly how such a tax cut affects the aggregate economy relies heavily on how U.S. workers use the extra funds in their paychecks. Unfortunately, we know little about how such tax cuts are used by workers. So we decided to ask them and, in this post, report the answers they gave us.
On May 6, 2010, several U.S.-based equity products underwent an extraordinary price decline and recovery, all within less than half an hour. The Dow Jones Industrial Average (DJIA) and other equity indices dropped by more than 5 percent in a matter of minutes, only to rebound as quickly. Individual equity securities experienced similar, if not larger, swings in prices, both up and down. This post describes what happened on that fateful day, and summarizes the findings of the academic literature on this topic.
Pneumatic tubes—a system in which cylinder-shaped containers (that could contain messages, money, small objects, and even food) are propelled through a network of tubes via compressed air or partial vacuum—are a relatively old technology. (Pneumatic tubes were patented in the United States in 1940, with earlier forms existing prior to this date). But when used in innovative ways in the past, they were viewed as futuristic. What may come to mind first is the use of pneumatic tubes in George Orwell’s 1984 (1949) to transport messages and newspapers. The 1954 film of the book depicts the use of the technology (starting three minutes into this clip).
Euro area periphery countries borrowed heavily from abroad in the run-up to the sovereign debt crisis. How were these funds used? In this post, we recap our recent Current Issues study, showing that pre-crisis borrowing by the periphery countries (Greece, Ireland, Portugal, and Spain) went mainly to finance private consumption or housing booms rather than productivity-enhancing investments. Most analysis of the crisis has focused on the need for fiscal adjustment in the periphery. A look at the drivers of the run-up in foreign borrowing, however, suggests that private spending in the periphery will also need to move to a lower plane. The fact that debts were built up without adding to these countries’ productive capacity is likely to make the needed adjustment in spending all the more difficult.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Donald Morgan, all economists in the Bank’s Research Group.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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