The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
Rajashri Chakrabarti, Nicole Gorton, Michelle Jiang, and Wilbert van der Klaauw
This post seeks to understand how educational characteristics (school type and selectivity, graduation status, major) and family background relate to the incidence of student loan default. Student indebtedness has grown substantially, increasing by 170 percent between 2006 and 2016. In addition, the fraction of students who default on those loans has grown considerably. Of students who left college in 2010 and 2011, 28 percent defaulted on their student loans within five years, compared with 19 percent of those who left school in 2005 and 2006. Since defaulting on student loans can have serious consequences for credit scores and, by extension, the ability to purchase a home and take out other loans, it’s critical to understand how college and family characteristics correspond to default rates.
As stock market volatility hovers near all-time lows, some analysts are questioning whether investors are complacent, drawing an analogy to the lead-up to the financial crisis. But, is this time different? We follow up on our previous post by investigating the persistence of low volatility periods. Historically, realized stock market volatility is persistent and mean-reverting: low volatility today predicts slightly higher, but still low, volatility one month and one year from now. Moreover, as of mid-September, the market is pricing implied volatility of 19 percent in one to two years’ time. This level contrasts with the pre-crisis period when the term structure of implied volatility was relatively flat, which suggests this time may indeed be different, at least as measured by market participants’ pricing of risk.
Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Total household debt increased by $116 billion to reach $12.96 trillion in the third quarter of 2017, according to the latest Quarterly Report on Household Debt and Credit released today by the New York Fed’s Center for Microeconomic Data. Household debt has been growing since mid-2013, boosted in part by steady growth in auto loan balances, which have grown for twenty-six consecutive quarters thanks to record-high levels of newly originated loans. Although new vehicle sales had begun to slump over the summer after several strong years of growth, September and October saw a rebound in sales, ending with over 18 million vehicles sold (seasonally adjusted at an annualized rate), and auto loan originations in the third quarter were commensurate with these numbers. In this post, we revisit the state of auto lending and auto loan performance, using the New York Fed Consumer Credit Panel which is based on Equifax credit data.
In recent months, some analysts and policymakers have raised concerns about the unusually low level of stock market volatility. For example, in the June Federal Open Market Committee (FOMC) minutes “a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.” In this post, we review this concern and find the evidence on investor complacency is mixed. On one hand, we present a view suggesting that historical volatility may have been abnormally high, rather than current volatility being abnormally low. On the other hand, we find that estimates of the volatility risk premium are somewhat low, which is consistent with the view that investor risk tolerance has increased. We extend this analysis in a related post publishing on Wednesday.
Fatih Karahan, Sean Mihaljevich, and Laura Pilossoph
The earnings of 200 million U.S. workers change each year for various reasons. Some of these changes are anticipated while others are more unexpected. Although many of these changes may be due to pleasant surprises—such as receiving salary raises and promotions—others involve disappointments—such as falling into unemployment. Arguably, some of these factors have rather short-lived effects on an individual’s earnings, whereas others may have permanent effects. Many labor economists have been interested in these various shocks to earnings. How big are the more permanent shocks to earnings? How large are they relative to those that are temporary in nature? What are the sources of these shocks? In this blog post, we exploit a novel data set that enables us to explore the properties of earnings shocks: their magnitudes as well as their origins.
Gara Afonso, Adam Biesenbach, and Thomas Eisenbach
Short-term credit markets have evolved significantly over the past ten years in response to unprecedentedly high levels of reserve balances, a host of regulatory changes, and the introduction of new monetary policy tools. Have these and other developments affected the way monetary policy shifts “pass through” to money markets and, ultimately, to households and firms? In this post, we discuss a new measure of pass‑through efficiency, proposed by economists Darrell Duffie and Arvind Krishnamurthy at the Federal Reserve’s 2016 Jackson Hole summit.
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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