Liberty Street Economics
August 10, 2015

History of Discount Window Stigma



In August 2007, at the onset of the recent financial crisis, the Federal Reserve encouraged banks to borrow from the discount window (DW) but few did so. This lack of DW borrowing has been widely attributed to stigma—concerns that, if discount borrowing were detected, depositors, creditors, and analysts could interpret it as a sign of financial weakness. In this post, we review the history of the DW up until 2003, when the current DW regime was established, and argue that some past policies may have inadvertently contributed to a reluctance to borrow from the DW that persists to this day.

August 07, 2015

Crisis Chronicles–The California Gold Rush and the Gold Standard



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On the crisp morning of January 24, 1848, James Marshall, a carpenter in the employ of John Sutter, traveled up the American River to inspect a lumber mill that Sutter had ordered constructed close to timber sources. Marshall arrived to find that overnight rains had washed away some of the tailrace the crew had been digging. But as Marshall examined the channel, something shiny caught his eye, and as he bent over to retrieve the object, his heart began to pound. Gold! Marshall and Sutter tried to contain the secret, but rumors soon spread to Monterey, San Francisco, and beyond—and the rush was on. In this edition of Crisis Chronicles, we describe the excitement of the California Gold Rush and explain how it constituted an inflationary shock because the United States was tied to the gold standard at the time.

August 05, 2015

When Women Out-Earn Men



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We often hear that women earn “77 cents on the dollar” compared with men. However, the gender pay gap among recent college graduates is actually much smaller than this figure suggests. We estimate that among recent college graduates, women earn roughly 97 cents on the dollar compared with men who have the same college major and perform the same jobs. Moreover, what may be surprising is that at the start of their careers, women actually out-earn men by a substantial margin for a number of college majors. However, our analysis shows that as workers approach mid-career, the wage premium that young women enjoy in these majors completely disappears, and males earn a more substantial premium in nearly every major. We discuss some of the possible reasons why the gender wage gap widens as workers progress through their careers.


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

August 03, 2015

Investigating the Trading Activity of CLO Portfolio Managers



Unlike mortgage-backed and home equity-backed securities, collateralized loan obligations (CLOs), whose collateral is predominantly corporate loans, are slowly but steadily recovering. This revival, illustrated in the chart below, spotlights again a sector of nonagency structured finance that has been scrutinized for its investment practices. This post investigates the trading activities of CLO collateral managers. Understanding their investment strategies is crucial to assessing their effectiveness as financial intermediaries, including their role in financing leveraged buyouts, corporate recapitalizations, project finance, and their impact on bank loan underwriting standards. It is also relevant to the recent debate concerning the potential perils of the reemergence of CLOs.

July 20, 2015

Just Released: The U.S. Treasury Market on October 15, 2014



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The $12.7 trillion U.S. Treasury market plays a critical role in the global economy, serving as the primary means of financing the U.S. government, a risk-free benchmark for other financial instruments, and a key venue for the Federal Reserve’s implementation of monetary policy. On October 15, 2014, the market experienced unusually high volatility, record trading volume, and a rapid “round-trip” in prices without a clear cause. In a recently released report, staff of the U.S. Treasury, the Federal Reserve Board, the New York Fed, the SEC, and the CFTC examine the events of that day. This preliminary report provides the most thorough analysis to date of the events that day and serves as a foundation for future analysis of Treasury market functioning and structure.

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 4 )

Have Dealers' Strategies in the GCF Repo© Market Changed?



In a previous post, “Mapping and Sizing the U.S. Repo Market,” our colleagues described the structure of the U.S. repurchase agreement (repo) market. In this post, we consider whether recent regulatory changes have changed the behavior of securities broker-dealers, who play a significant role in repo markets. We focus on the General Collateral Finance (GCF) Repo market, an interdealer market primarily using U.S. Treasury and agency securities as collateral. We find that some dealers use GCF Repo as a substantial source of funding for their inventories, while others primarily use GCF Repo to fine-tune their repo positions. Recent regulatory changes, such as the supplementary leverage ratio (SLR), may be contributing to reduced lending in the GCF Repo market.

July 17, 2015

The Effect of the Strong Dollar on U.S. Growth



Correction: This post was updated on July 17 to replace the term “export volumes” with “real export values.” Although the terms are often used interchangeably, the term “real export values” is deemed more precise. We have updated the post accordingly.

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The recent strengthening of the U.S. dollar has raised concerns about its impact on U.S. GDP growth. The U.S. dollar has appreciated around 12 percent since mid-2014, rising against almost all of our trading partners, with the largest gains against Japan, Mexico, Canada, and the euro area. There was far less movement against newly industrial Asian economies and hardly any change against China. In this blog, we ask how the strength of the dollar affects U.S. GDP growth. Although the dollar can impact the U.S. growth through a number of different channels, we focus on the direct impact through the U.S. trade balance. Our analysis shows that a 10 percent appreciation in one quarter shaves 0.5 percentage point off GDP growth over one year and an additional 0.2 percentage point in the following year if the strength of the dollar persists.


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

July 15, 2015

A Discussion of Thomas Piketty’s Capital in the Twenty-First Century: Does More Capital Increase Inequality?



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Second in a two-part series


My aim in the second post of this series on Thomas Piketty’s Capital in the Twenty-First Century is to talk about the economist’s research accomplishment in reconstructing capital-output ratios for developed countries from the Industrial Revolution to the present and using them to explain why wealth inequality will rise in developed countries. I will then provide a critical discussion of his interpretation of the history of capital in the developed world. Finally, I’ll end by discussing Piketty’s main policy proposal: the global tax on capital.

July 14, 2015

Historical Echoes: The Woman Who Would Be Bank



Mary Roebling (1904-94) was the first woman to serve as president of a major U.S.  bank. (She was also the first woman governor of the American Stock Exchange, among numerous other honors.) According to a New York Times obituary, she came into her position through a combination of happenstance and preparation:

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

July 13, 2015

The Survey of Consumer Expectations Turns Two!



Survey of Consumer Expectations

The Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) turned two years old in June. In this post, we review some of the key findings from the first two years of the survey’s history, highlighting the most noteworthy trends revealed in the data.

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

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