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3 posts from March 2018

March 09, 2018

The New York Fed DSGE Model Forecast–March 2018

This post presents a quarterly update of the economic forecast generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe our forecast very briefly and highlight its change since November 2017.

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Posted by Blog Author at 7:00 AM in DSGE, Forecasting | Permalink | Comments (0)

March 07, 2018

Do Low Rates Encourage Yield Seeking by Money Market Funds?

LSE_Do Low Rates Encourage Yield Seeking by Money Market Funds?

The term “reach for yield” refers to investors’ tendency to buy riskier assets in hopes of securing higher returns. Do low rates on safe assets encourage such yield-seeking behavior, particularly among U.S. prime money market funds (MMFs)? In a forthcoming paper in the Journal of Financial Economics, I develop a model of MMF competition to understand whether competitive pressure leads these funds to reach for yield in a low-rate environment like the current one. I test the model’s predictions on the 2002-08 period and show that, after controlling for changes in risk premia, declines in risk-free rates actually reduced MMF risk-taking, leading to a “reach for safety.”

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Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (2)

March 05, 2018

Did the Dodd-Frank Act End ‘Too Big to Fail’?

LSE_Did the Dodd-Frank Act End ‘Too Big to Fail’?

One goal of the Dodd-Frank Act of 2010 was to end “too big to fail.” Toward that goal, the Act required systemically important financial institutions to submit detailed plans for an orderly resolution (“living wills”) and authorized the FDIC to create an alternative resolution procedure. In response, the FDIC has developed a “single point of entry” (SPOE) strategy, under which healthy parent companies bear the losses of their failing subsidiaries. Since SPOE makes the parent company responsible for subsidiaries’ losses, we would expect that parents have become riskier, relative to their subsidiaries, since the announcement of the SPOE strategy in December 2013. Do bond raters and investors share this view?

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Posted by Blog Author at 7:00 AM in Banks, Crisis, Dodd-Frank, Regulation | Permalink | Comments (4)

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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.

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