Liberty Street Economics
Look for our next post on May 2, 2016 following the FOMC meeting.
March 04, 2016

Hey, Economist! How Well Do We Weather Snowstorms?



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Editors’ note: With this post, Liberty Street Economics launches an occasional series featuring interviews with our economists about their areas of expertise or recent research. In today’s post, Trevor Delaney, one of our publications editors, caught up with Jason Bram, a research officer in our Regional Analysis division to discuss how snowstorms do, or don’t, affect New York City’s economy. With a bit of snow expected here this weekend, the timing is auspicious.

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

March 02, 2016

Would Monetary Tightening Increase Bank Wholesale Funding?



The recent financial crisis clearly revealed that the reliance of banks on short-term wholesale funding critically increased their funding liquidity risks; during market disruptions, it becomes more likely that banks will be unable to roll over those funds and will hence be forced to fire-sell illiquid assets and possibly contract lending. To limit such risk, the Basel Committee on Banking Supervision (BCBS) has introduced new liquidity regulations such as the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) to prevent excessive reliance on runnable funding in the banking sector. But what forces contributed to the banking sector’s reliance upon wholesale funding and how will the new liquidity regulations interact with monetary policy? Drawing on our recent Staff Report, we argue that monetary tightening by central banks, perhaps intended to contain credit booms, can lead banks to increase their reliance upon wholesale funding and contribute to systemic imbalances. Importantly, we explain how the new liquidity regulations adopted since the crisis would help mitigate any such increase in systemic risk.

Posted by Blog Author at 7:00 AM | Permalink | Comments ( 0 )

February 29, 2016

The “Cadillac Tax”: Driving Firms to Change Their Plans?



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Since the 1940s, employers that provide health insurance for their employees can deduct the cost as a business expense, but the government does not treat the value of that coverage as taxable income. This exclusion of employer-provided health insurance from taxable income—$248 billion in 2013, according to the Congressional Budget Office—is a huge subsidy for health spending. Many economists cite the distortionary effects of this tax subsidy as an important reason for why U.S. health care spending accounts for such a large share of the economy and why spending historically has grown so rapidly. In this blog post, we focus on a provision of the Affordable Care Act (ACA) that is intended to chip away at this tax subsidy, the colloquially labelled “Cadillac Tax” on the priciest employer-provided health insurance plans.

February 26, 2016

From the Vault: The Path of Interest Rates



LSE_2016_vault-interest-rates_snider_art In recent speeches, the Federal Reserve’s Janet Yellen and Lael Brainerd explained how policymakers are likely to take a cautious approach to normalizing monetary policy given historically low estimates for the natural rate of interest and expectations that the rate will rise only gradually over time.

Posted by Blog Author at 7:00 AM in Monetary Policy | Permalink | Comments ( 0 )

February 25, 2016

Just Released: Five New Data Series on Consumer Expectations



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Today, the New York Fed is introducing a number of new data series and interactive charts reporting findings from its Survey of Consumer Expectations (SCE). Since January 2014, we have been reporting findings from this monthly survey on U.S. households’ views on inflation, commodity prices, the labor market and household finances. In addition to interactive charts showing national trends (going back to June 2013), as well as trends by demographic groups (age, income, education, numeracy and geography), we also make the underlying micro data (with a nine-month lag) available for download for research purposes.

Posted by Blog Author at 7:00 AM in Household Finance | Permalink | Comments ( 0 )

February 24, 2016

The Graying of American Debt



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The U.S. population is aging and so are its debts. In this post, we use the New York Fed Consumer Credit Panel, which is based on Equifax credit data, to look at how debt is changing as baby boomers reach retirement age and millennials find their footing. We find that aggregate debt balances held by younger borrowers have declined modestly from 2003 to 2015, with a debt portfolio reallocation away from credit card, auto, and mortgage debt, toward student debt. Debt held by borrowers between the ages of 50 and 80, however, increased by roughly 60 percent over the same time period. This shifting of debt from younger to older borrowers is of obvious relevance to markets fueled by consumer credit. It is also relevant from a loan performance perspective as consumer debt payments are being made by older debtors than ever before.

Posted by Blog Author at 7:00 AM in Household Finance , Housing | Permalink | Comments ( 0 )

February 22, 2016

Whither Mortgages?



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Our most recent Quarterly Report on Household Debt and Credit showed that although total household debt has increased somewhat since 2012, that growth has been driven almost entirely by nonhousing debt—credit cards, auto loans and student loans. The largest category of household debt—mortgages—has been essentially flat since 2012, in spite of a substantial rise in housing prices over that period. In this post, we explore the sources of the sluggish growth in mortgage debt using our New York Fed Consumer Credit Panel, which is based on Equifax credit data.

Posted by Blog Author at 7:00 AM in Household Finance , Housing | Permalink | Comments ( 2 )

February 19, 2016

Did Third Avenue’s Liquidation Reduce Corporate Bond Market Liquidity?



Liquidity Series III, eleventh of eleven posts

The announced liquidation of Third Avenue’s high-yield Focused Credit Fund (FCF) on December 9, 2015, drew widespread attention and reportedly sent ripples through asset markets. Events of this kind have the potential to increase the demand for market liquidity, as investors revise expectations, reassess risk exposures, and fulfill the need to trade. Moreover, portfolio effects and general fears of contagion may increase the demand for liquidity in assets only remotely related to a liquidating firm’s direct holdings. In this post, we examine whether FCF’s announced liquidation affected liquidity and returns in broader corporate bond markets.

Quantifying Potential Spillovers from Runs on High-Yield Funds



Liquidity Series III: Tenth of eleven posts

On December 9, 2015, Third Avenue Focused Credit Fund (FCF) announced a “Plan of Liquidation,” effectively halting investor redemptions. This announcement followed a period of poor performance and large outflows. Assets at the fund had declined from a peak of $2.5 billion in May of 2015 to $942 million in November. Investors had redeemed more than $1.1 billion in shares since April 2015, and the fund’s year-to-date performance as of November had fallen below -21 percent. The FCF “run” highlights the need to quantify the potential for systemic risk among open-end mutual funds and the potential for contagion in the event of more widespread runs on other vulnerable funds. In this post, we first characterize open-end mutual funds that seem vulnerable to redemptions in much the same way as FCF. We then analyze the potential for fire-sale spillovers to other mutual funds if large redemptions in “at-risk” funds were to occur.


February 18, 2016

Are Asset Managers Vulnerable to Fire Sales?



Update: A technical appendix has been added to the post.

Liquidity Series III: Ninth of eleven posts

According to conventional wisdom, an open-ended investment fund that has a floating net asset value (NAV) and no leverage will never experience a run and hence never have to fire-sell assets. In that view, a decline in the value of the fund’s assets will just lead to a commensurate and automatic decline in the fund’s equity—end of story. In this post, we argue that the conventional wisdom is incomplete and then explore some of the systemic risk consequences of investment funds’ vulnerabilities to fire-sale spillovers.

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