Liberty Street Economics
April 13, 2015

Population Lost: Puerto Rico’s Troubling Out-Migration



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For the first time in modern history, Puerto Rico is seeing its population decline. This troubling loss can be traced to an exodus of Puerto Rican citizens to the U.S. mainland, a current that has picked up considerably in recent years as Puerto Rico’s economy has deteriorated. Today, fully a third of those born in Puerto Rico now reside on the U.S. mainland. In this post, we examine the recent surge in out-migration that is driving Puerto Rico’s population decline (which we delve into in more detail in a recent article in the New York Fed’s Current Issues in Economics and Finance series), and then discuss measures the Island could adopt to address this troubling trend.

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

April 10, 2015

Crisis Chronicles: The Panic of 1825 and the Most Fantastic Financial Swindle of All Time



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Centered in London, the banking panic of 1825 has been called the first modern financial crisis, the first Latin American crisis, and the first emerging market crisis. And while the panic displayed many of the key elements of past crises we have covered—fluctuations in money growth, an investment bubble, a stock market crash, and bank runs—this crisis had its own twists, including a Bank of England that hesitated before stepping in as lender of last resort. But it is perhaps best known for an infamous bond market swindle surrounding an entirely made-up Central American principality. In this edition of Crisis Chronicles, we explore the Panic of 1825 and visit the mythical nation of Poyais.

April 08, 2015

The FR 2420 Data Collection: A New Base for the Fed Funds Rate



On April 1, 2014, the Federal Reserve began collecting transaction-level data on federal funds, Eurodollars, and certificates of deposits from a large set of domestic banks and agencies of foreign banks operating in the United States. Previously, the Fed had only received fed funds and Eurodollar data from major brokers, and not directly from the banks borrowing in these markets. These new data, collected on form FR 2420, have helped the Fed better understand activity in the fed funds and Eurodollar markets. In this post, we focus on the new data on fed funds, in light of the Federal Reserve Bank of New York’s Trading Desk announcement that it plans to use these data to calculate and publish the fed funds effective rate. We plan to publish other posts on the fed funds and Eurodollar markets over the next several months.

From the Vault: Separating News and Noise … and Jokes



Tesla Motors’ shares saw a brief bounce from a far-out and fictional product (a smart watch) announced as part of an April fool's prank. While markets evidently made quick sense of the joke, that’s not always the case.
Posted by Blog Author at 12:40 PM in Financial Markets | Permalink | Comments ( 0 )

April 06, 2015

Are BHC and Federal Reserve Stress Test Results Converging? What Do We Learn from 2015?



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In March, the Federal Reserve and thirty-one large U.S. bank holding companies (BHCs) announced results of the latest Dodd-Frank Act-mandated stress tests. Some commentators have argued that BHCs, in designing their stress test models, have strong incentives to mimic the Fed’s stress test results, since the Fed’s results are an integral part of the Federal Reserve’s supervisory assessment of capital adequacy for these firms. In this post, we look at the 2015 stress test projections by the eighteen largest U.S. BHCs and by the Fed and compare them to similar numbers from 2013 and 2014. As stress testing becomes more established, do we see evidence that the BHCs are mimicking the Fed?

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

April 03, 2015

Historical Echoes: Pop Culture Sold Savings Bonds



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U.S. savings bonds were created in 1935 under President Franklin D. Roosevelt to assist the United States in raising funds for a variety of government programs.

     One popular marketing tool was to enlist popular culture to sell the bonds, with television proving to be a natural outlet. An example was a commercial featuring Lucille Ball and Desi Arnaz encouraging people to buy U.S. savings bonds for Christmas.

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

April 01, 2015

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Posted by New York Fed at 10:33 AM | Permalink | Comments ( 0 )

Central Bank Solvency and Inflation



The monetary base in the United States, defined as currency plus bank reserves, grew from about $800 billion in 2008 to $2 trillion in 2012, and to roughly $4 trillion at the end of 2014 (see chart below). Some commentators have viewed this increase in the monetary base as a sure harbinger of inflation. For example, one economist wrote that this “unprecedented expansion of the money supply could make the '70s look benign.” These predictions of inflation rest on the monetarist argument that nominal income is proportional to the money supply. The fact that the money supply has expanded rapidly while real income has grown very modestly means that sooner or later prices will have to catch up. Most academic economists (from Cochrane to Krugman and Mankiw) disagree. The monetarist argument arguably applies only to non-interest-bearing central bank liabilities, but since October 2008 a large fraction of the monetary base has consisted of reserves that pay interest (the so-called IOER, or interest on excess reserves) and one linchpin of the Fed’s “policy normalization principles” consists precisely in raising the IOER along with the federal funds rate. Since reserves pay close to market interest rates, they are close substitutes for other short-term assets such as Treasury bills from a bank’s perspective. As long as the central bank can affect the return on these short-term assets by adjusting the IOER, controlling inflation with a large balance sheet seems no different than it was before the Great Recession.

March 30, 2015

The Effects of Entering and Exiting a Credit Default Swap Index



Correction: In the last line of the third paragraph, we mischaracterized a reference to the chart. The difference between the blue and gold bars represents the maturity differential, not the credit quality differential. We regret the error.

Since their inception in 2002, credit default swap (CDS) indexes have gained tremendous popularity and become leading barometers of the credit market. Today, investors who want to hedge credit risk or to speculate can choose from a broad menu of indexes that offer protection against the default of a firm, a European sovereign, or a U.S. municipality, among others. The major CDS indexes in the U.S. are the CDX.NA.IG and the CDX.NA.HY, composed of North American investment-grade (IG) and high-yield (HY) issuers, respectively. In this post, we focus on the CDX.NA.IG index. We discuss the interplay between the index and its constituents, specifically the “roll” process of the index, when irrelevant constituents are replaced by new ones. Analyzing the relation between the CDX.NA.IG index and its constituents in the context of the roll process allows us to gain a better understanding of how the exit of dealers from the single-name CDS market might affect pricing dynamics in the CDS market as a whole.


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

March 27, 2015

Just Released: SCE Credit Access Survey Shows Higher Likelihood of Consumers Applying for Credit



The Federal Reserve Bank of New York today released results from its February 2015 Survey of Consumer Expectations Credit Access Survey, which provides information on consumers' experiences with and expectations about credit demand and credit access. The survey shows little change in application rates for credit over the last twelve months, but a decline in rejection rates, in particular for credit card limit increases. The expectations component of the survey shows an increase in the average likelihood of consumers applying for credit over the next twelve months for all five credit products; the increase is most pronounced for mortgage refinances and higher credit card limits.

Posted by Blog Author at 10:15 AM in Household Finance | Permalink | Comments ( 0 )

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

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

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