Liberty Street Economics
We'll be publishing a piece in our "Just Released" series on July 31. Regular blogging resumes on August 4 after the FOMC meeting.
May 23, 2014

Historical Echoes: The Trouble with Money

Marja Vitti

“The trouble with money,” said a Federal Reserve Bank of New York publication in the 1960s, “as with all material things in the world, is that it does not last forever.” The Federal Reserve has the important task of adding liquidity to the market, but did you know that it is also responsible for removing money—literally—through currency destruction? U. S. currency is made of 25 percent linen and 75 percent cotton, which makes it pretty durable, but even so, currency is removed from circulation at a surprising rate. Each denomination of notes has its own life cycle, and $1 bills, for example, have to be replaced every 5.9 years or so.

Posted by Blog Author at 7:00 AM in Historical Echoes | Permalink | Comments ( 1 )

May 21, 2014

Just Released: What Kinds of Jobs Have Been Created during the Recovery?

Jaison R. Abel and Richard Deitz

At today’s regional economic press briefing, we provided an update on economic conditions in New York, northern New Jersey, and Puerto Rico, with a special focus on the kinds of jobs that have been created in each of these places during the recovery. Led by New York City, economic activity has continued to expand in most parts of the region. As a result, a growing number of places have now gained back, or are close to gaining back, all of the jobs that were lost during the Great Recession. That said, not all the news was positive. Economic conditions appear to have weakened somewhat in northern New Jersey during the first few months of 2014, in part due to the harsh winter weather earlier this year. And a few places remain very weak. In particular, Binghamton, Elmira, Utica, and Puerto Rico have yet to see any meaningful jobs recovery.

Posted by Blog Author at 12:00 PM in Regional Analysis | Permalink | Comments ( 0 )

Why U.S. Exporters Use Letters of Credit

Friederike Niepmann and Tim Schmidt-Eisenlohr

This post is the second of two Liberty Street Economics posts on trade finance.

Banks play a critical role in international trade by offering letters of credit (LCs) that substantially reduce the risk faced by exporters. As we discuss in our recent New York Fed staff report, the use of LCs by U.S. exporters has been on an upward trend in recent years. Two reasons for this may be that firms rely more heavily on LCs in financing export sales when interest rates are low and when uncertainty in global markets is high. Furthermore, the use of LCs differs across countries. Specifically, LCs largely support exports to countries with intermediate levels of risk. This is likely because the fees for exports to higher-risk countries eventually become too substantial.

May 19, 2014

The Trade Finance Business of U.S. Banks

Friederike Niepmann and Tim Schmidt-Eisenlohr

This post is the first of two Liberty Street Economics posts on trade finance.

Banks facilitate international trade by providing financing and guarantees to importers and exporters. This is a big business for U.S. banks, but it has been difficult to estimate exactly how big due to a lack of data. In our recent New York Fed staff report, we shed some light on the size and structure of this market using information on banks’ trade finance claims available internally at the New York Fed. This post, the first of two, shows how trade finance has become more important in recent years, particularly with firms exporting to Asia. It also reveals that the size of the trade finance business varies widely across countries, with distance and shipping times from the United States being important factors. The second post will look at how trade finance is tied to country risk.

May 16, 2014

Just Released: The New York Fed Staff Forecast—May 2014

Jonathan McCarthy and Richard Peach

Today, the Federal Reserve Bank of New York (FRBNY) is hosting the spring meeting of its Economic Advisory Panel (EAP). At this meeting, FRBNY staff are presenting their forecast for U.S. growth, inflation, and unemployment through the end of 2015.  Following the presentation, members of the EAP, all of whom are leading economists in academia and the private sector, are asked to critique the staff forecast. Such feedback helps the staff evaluate the assumptions and reasoning underlying their forecast and the key risks to it. Subjecting the staff forecast to periodic evaluation is an important part of the forecasting process; this review informs the staff’s discussions with New York Fed President William Dudley about economic conditions. In the same spirit of inviting feedback, we are sharing a short summary of the staff forecast in this post; for more detail, see the material from the EAP meeting on our website.


Posted by Blog Author at 10:30 AM in Macroecon | Permalink | Comments ( 1 )

Will the United States Benefit from the Trans-Pacific Partnership?

Mary Amiti and Benjamin Mandel

U.S. involvement in what could be one of the world’s largest free trade agreements, the Trans-Pacific Partnership (TPP), has garnered a lot of attention, especially since the entry of Japan into negotiations last year. The proposed free trade agreement (FTA) encompasses twelve countries, which combined account for 45 percent of U.S. exports and 37 percent of U.S. imports. This broad coverage of U.S. trade seems to suggest large potential gains for the U.S. from the agreement. However, three quarters of this trade is already within the U.S. free trade agreement with Canada and Mexico (the North American Free Trade Agreement (NAFTA)), making the assessment of potential gains to the TPP less clear cut. In this post, we investigate some implications of TPP for U.S. international trade, with a focus on identifying areas with the greatest potential for liberalization and, hence, benefits to U.S. exporters and consumers.

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

May 14, 2014

When Are Equity Investors Paid to Take Risk?

J. Benson Durham

Most gauges of “the” equity risk premium have declined since the financial crisis but remain elevated, even as broad market indexes near record highs. The implication for investors seems simple; they can expect to be rewarded handsomely for bearing equity risk, relative to holding Treasuries. Lessons for central bankers may also appear straightforward. Sizable premiums could imply that aggressive unconventional monetary policy hasn’t necessarily eased financial market conditions satisfactorily. However, my recent New York Fed staff report suggests that such a cursory reading ignores the term structure of equity premiums, which conveys a subtler story about more precisely when over the investment horizon investors get paid to take risk and how monetary policy accommodation may have affected stock prices.

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 3 )

May 13, 2014

Just Released: Young Student Loan Borrowers Remained on the Sidelines of the Housing Market in 2013

Meta Brown, Sydnee Caldwell, and Sarah Sutherland

Last year, our blog presented results from the FRBNY Consumer Credit Panel (CCP) indicating that, at a time of unprecedented growth in student debt, student borrowers were collectively retreating from housing and auto markets. In this post, we compare our 2012 findings to the news for 2013.

May 12, 2014

Treasury Term Premia: 1961-Present

Tobias Adrian, Richard Crump, Benjamin Mills, and Emanuel Moench

Treasury yields can be decomposed into two components: expectations of the future path of short-term Treasury yields and the Treasury term premium. The term premium is the compensation that investors require for bearing the risk that short-term Treasury yields do not evolve as they expected. Studying the term premium over a long time period allows us to investigate what has historically driven changes in Treasury yields. In this blog post, we estimate and analyze the Treasury term premium from 1961 to the present, and make these estimates available for download here.

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 5 )

May 09, 2014

Crisis Chronicles: Central Bank Crisis Management during Wall Street’s First Crash (1792)

James Narron and David Skeie

As we observed in our last post on the Continental Currency Crisis, the finances of the United States remained chaotic through the 1780s as the young government moved to establish its credit. U.S. Congress was finally given the power of taxation in 1787 and, in 1789, Alexander Hamilton was appointed as the first Secretary of the Treasury. Hamilton moved quickly to begin paying off war debts and to establish a national bank—the Bank of the United States. But in 1791, a burst of financial speculation in subscription rights to shares in the new bank caused a tangential rally and fall in public debt securities prices. In this edition of Crisis Chronicles, we describe how Hamilton invented central bank crisis management techniques eight decades before Walter Bagehot described them in Lombard Street.

Posted by Blog Author at 7:00 AM in Crisis Chronicles | Permalink | Comments ( 3 )

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Liberty Street Economics features insight and analysis from economists working at the intersection of research and Fed policymaking.

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