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Meta Brown, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert
van der Klaauw
This morning, New York Fed director of research Jamie McAndrews joined Bank
economists to brief
the press on economic developments.
With this morning’s release of the Quarterly
Report on Household Debt and Credit for 2012:Q4, the briefing focused
specifically on recent developments in household debt and credit.
Fiscal stimulus, in the form of large discretionary
increases in federal spending and tax reductions, is often triggered by a strong
and persistent rise in the national unemployment rate. The most recent example was
the $860 billion (6 percent of GDP) stimulus contained in the 2009 American
Recovery and Reinvestment Act (ARRA), adopted in the context of rising
unemployment rates. The spending components of the program were varied, including
federal transfers to state governments to support education and social
services, assistance to unemployed and disadvantaged individuals, and funds for
capital construction projects. The majority of the stimulus funds were
allocated to state governments and, since the program was motivated by high and
rising aggregate unemployment, a reasonable expectation would have been that
states with high unemployment rates would receive large allocations. Our analysis of the distribution of ARRA funds across states shows that the expanded
assistance to unemployed workers was indeed highly correlated with state
unemployment rates. It turned out, however, that most other state allocations
had little association—positive or negative—with state unemployment rates. The ultimate
distribution instead seemed to reflect a number of practical considerations
involved in implementing such a vast spending program. In this post, we outline
what in our view were the key considerations that governed the distribution of
the stimulus spending across states, and we use the example of one component of
that spending—highway infrastructure investment—to illustrate how the stimulus
funds got to the states.
Marco Del Negro, Marc Giannoni, and Christina Patterson
In this post, we quantify the macroeconomic effects of central bank announcements about future federal funds rates, or forward guidance. We estimate that a commitment to lowering future rates below market expectations can have fairly strong effects on real economic activity with only small effects on inflation.
Imagine yourself a Roman citizen in the 1st Century
B.C. You’ve gone shopping with your partner, who’s trying to convince you to
buy a particular item. The thing’s pretty expensive, and you demur because you’re
short of cash. You may think that back then such an excuse would get you off scot-free.
What else can you possibly do: Write a check? Well, yes, writes the poet Ovid
in his “Ars
Amatoria, Book I.” And since your partner knows it,
you have no way out (the example below shows some gender bias on Ovid’s part.
Fortunately, a few things have changed over the past 2,000 years):
But when she has her purchase in her
She hugs thee close, and kisses thee
“Tis what I want, and ‘tis a pen’orth
In many years I will not trouble
If you complain you have no ready
No matter, ‘tis but writing of a
A little bill, not to be paid at
(Now curse the time when thou wert
taught to write.)
On December 12, 2012, primary government securities dealers bought just 33 percent of the new ten-year Treasury notes sold at auction. This was one of the lowest shares on record and far below the 68 percent average for ten-year notes reported in this 2007 study by Fleming. In this post, we examine recent data on the buyers of Treasury securities at auction to understand whether the December 12 results are part of a trend and, if so, what explains it.
How do bankers do calculations? Currently, on the computer
(or calculator). What about before computers and calculators? If they couldn’t
figure things out using pencil, paper, and pre-prepared tables, they used slide
rules (and pre-prepared tables; see p. 188 of this 1887 book
Since the onset of the subprime crisis, many places across the United States have been affected by high levels of negative equity (meaning that borrowers owe more on their mortgages than their homes are worth), an associated flood of foreclosures, and loss of local wealth. In mid-2012, a community advisory firm, Mortgage Resolution Partners (MRP) approached the government of San Bernardino County, California (a region with particularly high levels of negative equity) and pitched the idea of using eminent domain to seize privately securitized mortgage loans in order to restructure or refinance them. The MRP proposal was largely based on a plan by Cornell University law professor Robert Hockett. In late January, this controversial plan
was abandoned by San Bernardino County, yet it remains under consideration in other counties. While a lot of the debate surrounding the plan has centered
on value judgments and legal issues, in this post we look at available data in
order to get an idea of the landscape of loans that could have been affected by
such a program in San Bernardino County.
Why do large
movements in exchange rates have small effects on international goods prices? This
empirical regularity is a central puzzle in international macroeconomics. In a
new study, we show that the key to understanding this exchange rate disconnect is to take into account that the largest
exporters are also the largest importers. This is important because when exporters
import their intermediate inputs, they face offsetting exchange rate effects on
their marginal costs. For example, a depreciation of the euro relative to the U.S.
dollar makes exports in U.S. dollars cheaper—but it also makes imports in euros
more expensive. Using Belgian firm-level data, we show that exporters that
import a large share of their inputs pass on a much smaller share of the
exchange rate shock to export prices. Interestingly, import-intensive firms typically
have high export market shares and hence set high markups and actively move
them in response to changes in marginal cost, thus providing a second channel
that limits the effect of exchange rate shocks on export prices. Our results
show that a small exporter with no imported inputs has a nearly complete pass-through
of more than 90 percent, while a firm at the 95th percentile of both import
intensity and market share distributions has a pass-through of 56 percent, with
the two mechanisms playing roughly equal roles. These findings have important implications for
aggregate macroeconomic variables.
The Federal Reserve in secret conclave ponders
Means to cure the nation’s cloudy state o’ercast
By stormy speculation. To-morrow morning’s news proclaims
The fury of their warning. Such dismal stuff will shake
The Wall Street world to marrow of its gambling bones;
These lines come from a 1929 play, Shakespeare on Wall Street, a mash-up of famous Shakespearean characters from various plays set to the story of the stock market crisis just then in motion. Written by a Harvard Law professor, Edward Henry Warren, the play features Shakespeare as a New York investor and his three sons—Hamlet, the bond salesman; Macbeth, a timid investor; and Falstaff, an anti-prohibitionist. The opening act parallels Shakespeare’s Macbeth, but with a twist: the three witches meet up in New Jersey. When Macbeth encounters the witches, he is willing to offer them as much as a golden
eagle for their investment tips. A few scenes later, Polonius mentions
that Macbeth has asked him to contact the Fed for assistance.
In the state of New Jersey, any child between the ages of five and eighteen has the constitutional right to a thorough and efficient education. The state also has one of the country’s most rigid policies regarding a balanced budget. When state and local revenues took a big hit in the most recent recession, officials had to make tough decisions about education spending. In this post, we analyze education financing and spending in two groups of high-poverty districts during the Great Recession and the ARRA (American Recovery and Reinvestment Act of 2009) federal stimulus period—the Abbott and Bacon districts. Analysis in our recent New York Fed staff report shows that the Abbott districts exhibited the sharpest declines—relative to trend—in both total funding and total spending per pupil during the post-recession era. Additionally, the Abbott districts were the only group of districts in New Jersey to present statistically significant negative shifts in instructional spending, even with the federal stimulus.
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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