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Why have interest rates stayed low for so long after the financial crisis—and will they remain low for the foreseeable future? One way to answer these questions is to use the accounting identity that global saving must equal physical investment spending and argue that low rates have been necessary to prop up investment spending enough to match saving. From this perspective, the extent of any recovery in interest rates depends on whether weak investment spending is driven primarily by secular demographic trends that are a long-term drag on aggregate demand or by the residual effects of the financial crisis.
Marco Del Negro, Marc Giannoni, Abhi Gupta, Pearl Li, and Erica Moszkowski
This post presents the latest update of the economic forecasts generated by the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model. We introduced this model in a series of blog posts in September 2014 and published forecasts twice a year thereafter. With this post, we move to a quarterly release schedule, and highlight how our forecasts have changed since November 2016.
Andreas Fuster, Eilidh Geddes, Benedict Guttman-Kenney, and Andrew Haughwout
Housing is by far the most important asset for most households, and, not coincidentally, housing debt dwarfs other household liabilities. The relationship between housing debt and housing values figures significantly in financial and macroeconomic stability, as events during the housing bust of 2006-12 clearly demonstrated. This week, Liberty Street Economics presents five posts touching on various aspects of housing, from the changing relationship between mortgage debt and housing equity to the future of homeownership. In today’s post, we provide estimates of housing equity and explore how vulnerable households are to declines in house prices, using methods introduced in our paper “Tracking and Stress Testing U.S. Household Leverage.”
Bianca De Paoli, Luca Dedola, Linda Goldberg, Arnaud Mehl, John Rogers, and Livio Stracca
The New York Fed recently hosted the third biannual Global Research Forum on International Macroeconomics and Finance, an event organized in conjunction with the European Central Bank (ECB) and the Federal Reserve Board. Bringing together a diverse group of academics, policymakers, and market participants, the two-day conference (November 17-18) was aimed at promoting discussion of frontier research on empirical and theoretical issues in international finance, banking, and open-economy macroeconomics. Understanding the drivers and implications of international capital flows was a major area of focus, along with the policy challenges posed by global financial integration.
The latest editions of the New York Fed’s two regional business surveys point to improvement in business conditions and widespread optimism about the near-term outlook. The December Business Leaders Survey of regional service firms, released today, shows service sector activity steadying after declining for a number of months, and the December Empire State Manufacturing Survey, released yesterday, indicates that manufacturing activity increased for the first time since the summer.
Nora Fitzpatrick, Laura Pilossoph, Anika Pratt, and Aysegul Sahin
The Federal Reserve Bank of New York recently hosted “The Evolution of Work,” a conference that brought together thought leaders from academia, government, industry, labor, and the nonprofit sector to explore how the nature of work is evolving, including the expanding role of technology, shifts in employee work arrangements and employer-employee relationships, and the effects of these changes on workforce and community development strategies. The gathering was cosponsored by the Board of Governors of the Federal Reserve System and the Freelancers Union.
Marco Del Negro, Marc Giannoni, Abhi Gupta, Pearl Li, and Erica Moszkowski
This post presents the latest update of the economic forecasts generated by the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model. We introduced this model in a series of blog posts in September 2014 and have since published forecasts twice a year. Here we describe our current forecast and highlight how it has changed since May 2016.
Sushant Acharya, Julien Bengui, Keshav Dogra, and Shu Lin Wee
Economic activity has remained subdued following the Great Recession. One interpretation of the listless recovery is that recessions inflict permanent damage on an economy’s productive capacity. For example, extended periods of high unemployment can lead to skill losses among workers, reducing human capital and lowering future output. This notion that temporary recessions have long-lasting consequences is often termed hysteresis. Another explanation for sluggish growth is the influential secular stagnation hypothesis, which attributes slow growth to long-term changes in the economy’s underlying structure. While these explanations are observationally similar, they have very different policy implications. In particular, if structural factors are responsible for slow growth, then there might be little monetary policy can do to reverse this trend. If instead hysteresis is to blame, then monetary policy may be able to reverse slowdowns in potential output, or even prevent them from occurring in the first place.
Bianca De Paoli, Thomas Klitgaard, and Harry Wheeler
Japan offers a preview of future U.S. demographic trends, having already seen a large increase in the population over 65. So, how has the Japanese economy dealt with this change? A look at the data shows that women of all ages have been pulled into the labor force and that more people are working longer. This transformation of the work force has not been enough to prevent a very tight labor market in a slowly growing economy, and it may help explain why inflation remains minimal. Namely, wages are not responding as much as they might to the tight labor market because women and older workers tend to have lower bargaining power than prime-age males.
Liberty Street Economics features insight and analysis from economists working at the intersection of research and policy. The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Donald Morgan.
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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