Liberty Street Economics

Look for our next post on May 6, 2024.

December 19, 2023

Dropping Like a Stone: ON RRP Take‑up in the Second Half of 2023

Gara Afonso, Marco Cipriani, and Gabriele La Spada

Decorative photo of tall buildings with bank sign and spreadsheet overlay.

Take-up at the Overnight Reverse Repo Facility (ON RRP) has halved over the past six months, declining by more than $1 trillion since June 2023. This steady decrease follows a rapid increase from close to zero in early 2021 to $2.2 trillion in December 2022, and a period of relatively stable balances during the first half of 2023. In this post, we interpret the recent drop in ON RRP take-up through the lens of the channels that we identify in our recent Staff Report as driving its initial increase.

Posted at 7:00 am in Fed Funds, Federal Reserve, Monetary Policy, Repo | Permalink

December 18, 2023

Hey, Economist! Outgoing Advisor Antoine Martin Reflects on How His New York Fed Perch Has Shaped His Work

An Interview with Antoine Martin

Antoine Martin, an economist and financial stability advisor in the New York Fed’s Research and Statistics Group, will soon take up a new post at the Swiss National Bank (SNB), as head of its third department covering money markets/foreign exchange (FX). In that role, Martin, who is originally from Switzerland, also becomes one of three members of that central bank’s rate-setting governing board. Readers of Liberty Street Economics will be familiar with his byline, as he has written more than sixty posts presenting new research findings and policy analysis, all with an eye for breaking down the most complicated topics in clear terms. He took a few questions from publications editor Anna Snider about his experiences and future plans as he prepares to move on.

Posted at 7:00 am in Central Bank, Federal Reserve, Hey, Economist! | Permalink

December 15, 2023

The New York Fed DSGE Model Forecast—December 2023

Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula

decorative illustration: chart and stock prices background.

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since September 2023. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.

Posted at 9:00 am in DSGE, Forecasting, Macroeconomics | Permalink

December 1, 2023

Recent Disparities in Earnings and Employment

Rajashri Chakrabarti, Kasey Chatterji-Len, Dan Garcia, and Maxim Pinkovskiy

Dectorative image of collage of polaroids of diverse group of people portraits.

The New York Fed recently released its latest set of Equitable Growth Indicators (EGIs). Updated quarterly, the EGIs continue to report demographic and geographic differences in inflation, earnings (real and nominal), employment, and consumer spending (real and nominal) at the national level. This release also launches a set of national wealth EGIs (which will be examined more closely on Liberty Street Economics early next year). Going forward, EGI releases will also include a set of regional EGIs, which will present disparities in inflation, earnings (real and nominal), employment, and consumer spending (real and nominal) in our region. Drawing on the just released EGIs, in this post, we present recent gender gaps in the labor market at the national and regional levels. We provide a picture of how gender wage and employment disparities have evolved since the pandemic, examining and contrasting gaps at the national and regional level. We find that the gaps between the employment rates and earnings of men and women have declined steadily following the pandemic, but have declined perceptibly more so in our region than in the nation.

Posted at 7:00 am in Demographics, Inequality, New Jersey, New York, Regional Analysis, Unemployment | Permalink

November 30, 2023

FHA First‑Time Buyer Homeownership Sustainability: An Update

Donghoon Lee and Joseph Tracy

Young African American heterosexual couple sitting on the steps of a house with front door open and cardboard moving boxes around them.

An important part of the mission of the Federal Housing Administration (FHA) is to provide affordable mortgages that both promote the transition from renting to owning and create “sustainable” homeownership. The FHA has never defined what it means by sustainability. However, we developed a scorecard in 2018 that tracks the long-term outcomes of FHA first-time buyers (FTBs) and update it again in this post. The data show that from 2011 to 2016 roughly
21.8 percent of FHA FTBs failed to sustain their homeownership.

Posted at 7:00 am in Equitable Growth, Household Finance, Housing | Permalink

November 29, 2023

Treasury Bill Supply and ON RRP Investment

Gara Afonso, Marco Cipriani, Catherine Huang, Gabriele La Spada, and Sergio Olivas

Decorative photo: close up of the words "The Treasury" on the treasury building showing the top of the columns outside the structure.

Take-up at the Federal Reserve’s Overnight Reverse Repo Facility (ON RRP) increased from a few billion dollars in January 2021 to around $2.6 trillion at the end of December 2022. In this post, based on a recent Staff Report, we explain how the supply of U.S. Treasury bills (T-bills) affects the decision of money market mutual funds (MMFs) to invest at the facility. We show that MMFs responded to a reduction in T-bill supply by increasing their take-up at the ON RRP, helping to explain the increased overall take-up.

Posted at 7:00 am in Financial Markets | Permalink

November 28, 2023

Bond Funds in the Aftermath of SVB’s Collapse

Nicola Cetorelli and Sarah Zebar

Decorative image: Bond market screen with rising yields and interest rates

March 2023 will rightfully be remembered as a period of major turmoil for the U.S. banking industry. In this post, we go beyond banks to analyze how fixed-income, open-end funds (bond funds) fared in the days after the start of the banking crisis. We find that bond funds experienced net outflows each day for almost three weeks after the run on Silicon Valley Bank (SVB), and that these outflows were experienced diffusely across the entire segment. Our preliminary evidence suggests that the outflows from bond funds may have been an unintended consequence of the exceptional measures taken to strengthen the balance sheet of banks during this time.

Posted at 7:00 am in Banks, Financial Markets | Permalink

November 27, 2023

The Nonbank Shadow of Banks

Nicola Cetorelli and Saketh Prazad

Decorative image: Aerial view of money transfer icon over cityscape

Financial and technological innovation and changes in the macroeconomic environment have led to the growth of nonbank financial institutions (NBFIs), and to the possible displacement of banks in the provision of traditional financial intermediation services (deposit taking, loan making, and facilitation of payments). In this post, we look at the joint evolution of banks—referred to as depository institutions from here on—and nonbanks inside the organizational structure of bank holding companies (BHCs). Using a unique database of the organizational structure of all BHCs ever in existence since the 1970s, we document the evolution of NBFI activities within BHCs. Our evidence suggests that there exist important conglomeration synergies to having both banks and NBFIs under the same organizational umbrella.

Posted at 7:00 am in Banks, Nonbank (NBFI) | Permalink

November 21, 2023

The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy

Richard Crump, Marco Del Negro, Keshav Dogra, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula

Decorative image: Factory workers on an assembly line with baseball caps on.

This post uses the New York Fed DSGE model to ask the question: What would have happened to interest rates, output, and inflation had the Federal Reserve been following an average inflation targeting (AIT)-type reaction function since 2021:Q2, when inflation began to rise—as opposed to keeping the federal funds rate at the zero lower bound (ZLB) until March 2022, and then raising it aggressively thereafter? We show that actual policy was more accommodative in 2021 than implied by the AIT reaction function and then more contractionary in 2022 and beyond. On net, the lagged effect of monetary policy on the level of GDP, when measured relative to the counterfactual, has been positive throughout the forecast horizon, due to the initial boost associated with keeping the fed funds rate near zero in 2021.

Posted at 7:01 am in DSGE, Monetary Policy | Permalink

A Bayesian VAR Model Perspective on the Lagged Effect of Monetary Policy

Richard Crump, Marco Del Negro, Keshav Dogra, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula

Over the last few years, the U.S. economy has experienced unusually high inflation and an unprecedented pace of monetary policy tightening. While inflation has fallen recently, it remains above target, and the economy continues to expand at a robust pace. Does the resilience of the U.S. economy imply that monetary policy has been ineffectual? Or does it reflect that policy acts with “long and variable lags” and so we haven’t yet observed the full effect of the monetary tightening that has already taken place? Using a Bayesian vector autoregressive (BVAR) model, we show that economic activity has, indeed, been substantially stronger than would have been anticipated considering the rapid policy tightening. Still, the model expects a significant slowdown in 2024-25, even though short-term interest rates are forecasted to fall.

Posted at 7:00 am in Forecasting, Macroeconomics, Monetary Policy | Permalink | Comments (1)

Markets & Policy Implementation

Liberty Street Economics

Dropping Like a Stone: ON RRP Take‑up in the Second Half of 2023

Hey, Economist! Outgoing Advisor Antoine Martin Reflects on How His New York Fed Perch Has Shaped His Work

The New York Fed DSGE Model Forecast—December 2023

Recent Disparities in Earnings and Employment

FHA First‑Time Buyer Homeownership Sustainability: An Update

Treasury Bill Supply and ON RRP Investment

Bond Funds in the Aftermath of SVB’s Collapse

The Nonbank Shadow of Banks

The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy

A Bayesian VAR Model Perspective on the Lagged Effect of Monetary Policy

Economic Inequality

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