Liberty Street Economics
August 08, 2016

Restoring Economic Growth in Puerto Rico: Introduction to the Series



LSE_Restoring Economic Growth in Puerto Rico: Introduction to the Series


The difficult economic and financial issues facing the Commonwealth of Puerto Rico have remained very much in the news since our post on options for addressing its fiscal problems appeared last fall. That post was itself a follow-up on a series of analyses, starting with a 2012 report that detailed the economic challenges facing the Commonwealth. In 2014, we extended that analysis with an update where we focused more closely on the fiscal challenges facing the Island. As the problems deepened, we have continued to examine important related subjects ranging from positive revisions in employment data, to the credit conditions faced by small businesses, to understanding emigration, and to considering how the Commonwealth’s public debts stack up. In most of this work, we have focused on how policymakers could help to address the immediate issues facing the Island and its people. The U.S. Congress and the Obama Administration took action in June to provide a framework to help address Puerto Rico’s fiscal crisis. But much remains to be done to address these ongoing problems, which represent a significant impediment to economic growth in the short run. It also seems important to revisit the question of the prospects for reviving longer-run growth in the Commonwealth. These concerns were underscored by projections published by the International Monetary Fund (IMF) in the April edition of the World Economic Outlook that forecast Puerto Rico’s real GDP and population to decline through 2021.

August 05, 2016

Historical Echoes: Tickety-Tock, the Bank with the Clock, or Not Just a Pretty Face



LSE_Historical Echoes: Tickety-Tock, the Bank with the Clock, or Not Just a Pretty Face

Which bank in the United States is “the bank with the clock?” More than one bank goes by, or once went by, that nickname, and many more could be called that in a passing reference. One was the Watertown National Bank at 200 Washington Street in Watertown, New York. From a January 1968 article titled “Familiar Face is Gone: Historic Bank Clock Retired”:
Because of the timepiece, the banking institution was for years identified as “the bank with the clock.” When the Watertown National Bank moved . . . in 1943, the clock was retained and placed on the building marking the bank’s relocated quarters. The “bank with the clock” trademark was eventually dropped with a change in name of the banking institutions.

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

August 03, 2016

The Reluctance of Firms to Interview the Long-Term Unemployed



LSE_The Reluctance of Firms to Interview the Long-Term Unemployed

Estimates from the Current Population Survey show that the probability of finding a job declines the longer one is unemployed. Is this due to a loss of skills from being unemployed, employer discrimination against the long-term unemployed, or are there characteristics of workers in this segment of the workforce that lower their probability of finding a job? Studies that send out fictitious resumes find that employers do consider the length of unemployment in deciding whom to interview. Our recent work examines how such employer screening based on unemployment duration ultimately affects job-finding rates and long-term unemployment.

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

August 01, 2016

Which Households Have Negative Wealth?



Editors’ note: Some numbers related to the relative exposure of households to credit card debt and housing assets have been corrected. (August 2)

LSE_Which Households Have Negative Wealth?

At some point in its life a household’s total debt may exceed its total assets, in which case it has “negative wealth.” Even if this status is temporary, it may affect the household’s ability to save for durable goods, restrict access to further credit, and may require living in a state of limited consumption. Detailed analysis of the holdings of negative-wealth households, however, is a topic that has received little attention. In particular, relatively little is known about the characteristics of such households or about what drives negative wealth. A better understanding of these factors could also prove valuable in explaining and forecasting the persistence of wealth inequality. In this post, we take advantage of a special module of the Survey of Consumer Expectations to shed light on this issue.

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

July 18, 2016

Forecasting Interest Rates over the Long Run



LSE_Forecasting Interest Rates over the Long Run

In a previous post, we showed how market rates on U.S. Treasuries violate the expectations hypothesis because of time-varying risk premia. In this post, we provide evidence that term structure models have outperformed direct market-based measures in forecasting interest rates. This suggests that term structure models can play a role in long-run planning for public policy objectives such as assessing the viability of Social Security.

July 15, 2016

Historical Echoes: The Fed’s Cuban Connection



LSE_Historical Echoes: The Fed’s Cuban Connection

Did you know that the Federal Reserve once had not one, but two offices in Cuba?

In the early years of the twentieth century, U.S. currency was in wide circulation in the Caribbean nation, a legacy of the Spanish-American War. But that had become a problem.

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

Implementing Monetary Policy Post-Crisis: What Do We Need to Know?



Columbia University’s School of International and Public Affairs and the New York Fed co-sponsored a recent workshop to discuss important issues related to monetary policy implementation. The May 4 event, held at Columbia, supports the extended effort that the Federal Reserve has undertaken to evaluate potential long-run monetary policy implementation frameworks, which was announced at a Federal Open Market Committee meeting last July.

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

July 13, 2016

Could Liquidity Regulation Revive the Bank Lending Channel?

Dong Beom Choi and Ulysses Velasquez

LSE_Could Liquidity Regulation Revive the Bank Lending Channel?

How does monetary policy affect spending in the economy? The economic literature suggests two main channels of monetary transmission: the money or interest rate channel and the bank lending channel. The first view focuses on changes in real interest rates resulting from a shift in monetary policy and corresponding responses in consumption, saving, and investment. The second view focuses on changes in the supply of bank credit resulting from an altered policy stance and concomitant changes in spending.

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

July 11, 2016

How Have High Reserves and New Policy Tools Reshaped the Fed Funds Market?



Over the last decade, the federal funds market has evolved to accommodate new policy tools such as interest on reserves and the overnight reverse repo facility. Trading motives have also responded to the expansion in aggregate reserves as the result of large-scale asset purchases. These changes have affected market participants differently since, for instance, not all institutions are required to keep reserves at the Fed and some are not eligible to earn interest on reserves. Differential effects have changed the profile of participants willing to borrow and lend in this market, and this shift provides an opportunity to study how unconventional policy actions shape participant incentives. In today’s post, we take a detailed look at regulatory filings to identify the main players in today’s fed funds market and understand how their roles have evolved.

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

July 08, 2016

Hey, Economist! Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?



LSE_Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?

Few people know the Treasury market from as many angles as Ken Garbade, a senior vice president in the Money and Payments Studies area of the New York Fed’s Research Group. Ken taught financial markets at NYU’s graduate school of business for many years before heading to Wall Street to assume a position in the research department of the primary dealer division of Bankers Trust Company. At Bankers, Ken conducted relative-value research on the Treasury market, assessing how return varies relative to risk for particular Treasury securities. For a time, he also traded single-payment Treasury obligations known as STRIPS—although not especially successfully, he notes.

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