Young Student Loan Borrowers Retreat from Housing and Auto Markets

Meta Brown and Sydnee Caldwell

Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012. Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances—making student loans the second largest debt of U.S. households, following mortgages. Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree. Nevertheless, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.

Just Released: April Empire State Manufacturing Survey

Jason Bram and Richard Deitz

According to the most recent Empire State Manufacturing Survey, manufacturing conditions are continuing to improve in New York State, but only barely. The headline general business conditions index from the April 2013 report was 3.1—down 6 points from March and not much above zero. The positive reading indicates that activity is growing, though its decline suggests that the pace of growth has slowed. Employment indexes, however, climbed higher and suggested a modest increase in hiring and hours worked. It will be particularly important to see how next month’s report turns out to get a clearer sense of whether regional manufacturing conditions are getting better or if the slow growth signaled by the past few reports is fizzling out.

Do Treasury Term Premia Rise around Monetary Tightenings?

Tobias Adrian, Richard Crump, and Emanuel Moench

Some commentators have expressed concern that Treasury yields might rise sharply once the Federal Open Market Committee (FOMC) begins to raise the federal funds rate (FFR), worrying, in particular, about a sudden increase in Treasury term premia. In this post, we analyze the dynamics of Treasury term premia over the last fifty years and discuss their evolution around recent tightening cycles, paying special attention to the 1994 episode when bond prices dropped sharply around the world. We find that term premia don’t typically rise when monetary policy tightens. We also conclude, based on the behavior of term premia and survey evidence, that the sharp rise in Treasury yields in 1994 was in large part due to an upward shift in the expected path of future short-term interest rates.

Historical Echoes: The Invention of the ATM–A Case of Multiple Independent Discovery?

Amy Farber

Amazingly, something resembling a drive-through automated bank teller existed back in 1941 (twenty-six years before the invention of the true ATM, or automated teller machine). It was an ingenious curbside teller’s window, as described in this October 1941 Popular Science article, “Bank Gives Curb Service to Motorists with Novel ‘Teller-Vision’ Cage” (p. 63 for IE7 users).

Foreclosures Loom Large in the Region

Jaison R. Abel and Richard Deitz

Households in the New York-northern New Jersey region were spared the worst of the housing bust and have generally experienced less financial stress than average over the past several years. However, as the housing market has begun to recover both regionally and nationally, the region is faring far worse than the nation in one important respect—a growing backlog of foreclosures is resulting in a foreclosure rate that is now well above the national average. In this blog post, we describe this outsized increase in the region’s foreclosure rate and explain why it has occurred. We then discuss why the large build-up in foreclosures could cause a headwind for home-price gains in the region.

Does Import Competition Improve the Quality of Domestic Goods?

Mary Amiti and Amit Khandelwal

Firms must produce high-quality goods to be competitive in international markets, but how do they transition from producing low- to high-quality goods? In a new study (“Import Competition and Quality Upgrading,” forthcoming in the Review of Economics and Statistics), we focus on how tougher import competition affects firms’ decisions to upgrade the quality of their goods. Our results, which we summarize in this post, show that stiffer import competition affects quality-upgrading decisions. For firms already producing very high-quality goods, lower tariffs induce them to produce goods of even higher quality. However, for firms producing very low-quality goods, lower tariffs actually discourage quality upgrading. Ours is the first study to show a significant relationship between import competition and quality.

Historical Echoes: Central Bank and Paper Money Innovator Given Death Sentence for His Efforts

Amy Farber

In 1668, Johan Palmstruch, the head of Stockholm Banco, the precursor to the oldest central bank still operating today—the Swedish Riksbank—was charged and sentenced to death, according to Wikipedia and the Riksbank.

Just Released: February Report Points to Moderate Regional Economic Growth

Jason Bram and James Orr

The February Indexes of Coincident Economic Indicators (CEIs) for New York State, New York City, and New Jersey released today show activity expanding at a moderate pace across the region. Like those for January, the February CEIs incorporate the annual benchmark employment revisions for 2011 and 2012, and reveal that the economies of the region did not go off track as a result of the disruptions caused by Superstorm Sandy. (A recent blog post explores the employment effects of Sandy in the New York City metropolitan area.)

I Want My Money Now: The Highs and Lows of Payments in Real Time

Parinitha Sastry and David Skeie

Peel back the layers of complex financial institutions and instruments, and you're left with individuals demanding to be paid, and to be paid quickly. Payments are the electricity that powers the entire financial system. The ability to securely send and receive timely payments is a prerequisite for commerce and the smooth functioning of financial markets. Despite the seemingly straightforward nature of the subject, a preliminary exploration of payments data offers insight into how institutions react to changing economic conditions. In this post, we aim to investigate recent volatility in the amount of payments, particularly during the recent financial crisis. We focus on estimating and extracting changing levels of payments required for interbank lending, which reflect banks’ varying needs for liquidity. We find that variables capturing macroeconomic conditions and financial market stress are additional large drivers of fluctuations in payments.

How Liquid Is the Inflation Swap Market?

Michael Fleming and John Sporn

Inflation swaps are used to transfer inflation risk and make inferences about the future course of inflation. Despite the importance of this market to inflation hedgers, inflation speculators, and policymakers, there is little evidence on its liquidity. Based on an analysis of new and detailed data in this post we show that the market appears reasonably liquid and transparent despite low trading activity, likely reflecting the high liquidity of related markets for inflation risk. In a previous post, we examined similar issues for the broader interest rate derivatives market.