Liberty Street Economics
October 03, 2014

Crisis Chronicles: The Crisis of 1816, the Year without a Summer, and Sunspot Equilibria



In 1815, England emerged victorious after what had been nearly a quarter century of war with France. And during those years, encouraged by high prices and profits, England greatly expanded its agricultural and industrial capacity in terms of land and new machinery, with these activities often financed on credit. Improved harvests from 1812 to 1815 coincided with an export market boom in 1814, as the continent began to reopen for trade and speculation in South America increased. But the speculation turned to frenzy compared to the boom of 1810 as everything that could be shipped was shipped—until the speculation broke. The crisis started first with farmers and landlords, spread to business and industry, and was followed by mass starvation on the continent. In this edition of Crisis Chronicles, we recount the Crisis of 1816, the Year without a Summer, and the idea of Sunspot Equilibria.

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

October 01, 2014

Cross-Country Evidence on Transmission of Liquidity Risk through Global Banks

Claudia M. Buch, James Chapman, and Linda Goldberg

Over the past thirty years, the typical large bank has become a global entity with subsidiaries in many countries. In parallel, financial liberalization has increased the interconnectedness of banking systems, with domestic banking systems becoming more exposed to shocks transmitted through foreign banks. This globalization of banking propagated liquidity risk during the global financial crisis and subsequent euro area crisis. Unfortunately, little is known about how cross-border operations of global banks transmit liquidity shocks between countries. The seminal work by Peek and Rosengren (1997, 2000) provides early examples of how bank-level data can help identify the specific transmission channels. There are, however, two limitations to conducting this line of research. First, there is a lack of public data on the balance sheets of global banks. Second, it is difficult to compare the results of different research projects that use sensitive supervisory data collected by banking supervisors and central banks. Together with other scholars, we established the International Banking Research Network (IBRN) to overcome these limitations.

September 30, 2014

Do Unemployment Benefits Expirations Help Explain the Surge in Job Openings?



Job openings are arguably one of the most important indicators of recovery in the labor market, as they reflect employers’ willingness to hire. The number of job openings has recovered steadily since the recession, yet through the end of 2013, the openings rate was still substantially below its pre-recession peak (see chart below). Starting in January 2014, however, the number of job openings increased dramatically, up by 20 percent through June 2014, and job openings relative to employment jumped back to the peak of the previous expansion. In this post, we argue that the expiration of the Emergency Unemployment Compensation (EUC) program may have contributed to this rapid rise in 2014.

Posted by Blog Author at 7:00 AM in Labor Economics , Macroecon | Permalink | Comments ( 5 )

September 29, 2014

Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

Kenneth D. Garbade

From time to time, and most recently in the April 2014 meeting of the Treasury Borrowing Advisory Committee, U.S. Treasury officials have questioned whether the Treasury should have a safety net that would allow it to continue to meet its obligations even in the event of an unforeseen depletion of its cash balances. (Cash balances can be depleted by an unanticipated shortfall in revenues or a spike in disbursements, an inability to access credit markets on a timely basis, or an auction failure.) The original version of the Federal Reserve Act provided a robust safety net because the act implicitly allowed Reserve Banks to buy securities directly from the Treasury. This post reviews the history of the Fed’s direct purchase authority. (A more extensive version of the post appears in this New York Fed staff report.)

September 26, 2014

The FRBNY DSGE Model Forecast



Fifth in a five-part series
This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts. The U.S. economy has been in a gradual but slow recovery. Will the future be more of the same? This post presents the current forecasts from the Federal Reserve Bank of New York’s (FRBNY) DSGE model, described in our earlier “Bird’s Eye View” post, and discusses the driving forces behind the forecasts. Find the code used for estimating the model and producing all the charts in this blog series here. (We should reiterate that these are not the official New York Fed staff forecasts, but only an input to the overall forecasting process at the Bank.)

Posted by Blog Author at 10:00 AM in Macroecon , Monetary Policy | Permalink | Comments ( 3 )

September 25, 2014

Connecting “the Dots”: Disagreement in the Federal Open Market Committee



People disagree, and so do the members of the Federal Open Market Committee (FOMC). How much do they disagree? Why do they disagree? We look at the FOMC’s projections of the federal funds rate (FFR) and other variables and compare them with those in the New York Fed’s Survey of Primary Dealers (SPD). We show that the members of the FOMC tend to disagree more than the primary dealers and offer some potential explanations.


Posted by Blog Author at 7:05 AM in Macroecon , Monetary Policy | Permalink | Comments ( 1 )

An Assessment of the FRBNY DSGE Model's Real-Time Forecasts, 2010-13



Fourth in a five-part series
This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts. The previous post in this series showed how the Federal Reserve Bank of New York’s DSGE model can be used to provide an interpretation of the Great Recession and the slow recovery. In this post, we look at the role of the model as a forecasting tool and evaluate its forecasting performance since 2010. This analysis will give context for the last post, which will present the model’s current forecast for the U.S. economy.

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

September 24, 2014

Developing a Narrative: The Great Recession and Its Aftermath



Third in a five-part series
This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts. The severe recession experienced by the U.S. economy between December 2007 and June 2009 has given way to a disappointing recovery. It took three and a half years for GDP to return to its pre-recession peak, and by most accounts this broad measure of economic activity remains below trend today. What precipitated the U.S. economy into the worst recession since the Great Depression? And what headwinds are holding back the recovery? Are these headwinds permanent, calling for a revision of our assessment of the economy’s speed limit? Or are they transitory, although very long-lasting, as the historical record on the persistent damages inflicted by financial crisis seems to suggest? In this post, we address these questions through the lens of the FRBNY DSGE model.

Posted by Blog Author at 7:00 AM in Macroecon , Monetary Policy | Permalink | Comments ( 5 )

September 23, 2014

A Bird’s Eye View of the FRBNY DSGE Model



Second in a five-part series
This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts. Dynamic stochastic general equilibrium (DSGE) models provide a stylized representation of reality. As such, they do not attempt to model all the myriad relationships that characterize economies, focusing instead on the key interactions among critical economic actors. In this post, we discuss which of these interactions are captured by the FRBNY model and describe how we quantify them using macroeconomic data. For more curious readers, this New York Fed working paper provides much greater detail on these and other aspects of the model.

Posted by Blog Author at 7:00 AM in Macroecon , Monetary Policy | Permalink | Comments ( 2 )

September 22, 2014

Forecasting with the FRBNY DSGE Model



First in a five-part series
This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts. The Federal Reserve Bank of New York (FRBNY) has built a DSGE model as part of its efforts to forecast the U.S. economy. On Liberty Street Economics, we are publishing a weeklong series to provide some background on the model and its use for policy analysis and forecasting, as well as its forecasting performance. In this post, we briefly discuss what DSGE models are, explain their usefulness as a forecasting tool, and preview the forthcoming pieces in this series.

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

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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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