The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar
The New York Fed’s Survey of Consumer Expectations (SCE) collects information on household heads’ economic expectations and behavior. In particular, the survey covers respondents’ views on how inflation, spending, credit access, and the housing and labor markets will evolve over time. The SCE yields important insights that inform our monetary policy decisions. This morning, President Dudley joined New York Fed economists to brief the press on the design of the SCE and the latest releases of survey results. President Dudley introduced the briefing by speaking about the benefits of measuring consumers’ expectations.
Sushant Acharya, Julien Bengui, Keshav Dogra, and Shu Lin Wee
Economic activity has remained subdued following the Great Recession. One interpretation of the listless recovery is that recessions inflict permanent damage on an economy’s productive capacity. For example, extended periods of high unemployment can lead to skill losses among workers, reducing human capital and lowering future output. This notion that temporary recessions have long-lasting consequences is often termed hysteresis. Another explanation for sluggish growth is the influential secular stagnation hypothesis, which attributes slow growth to long-term changes in the economy’s underlying structure. While these explanations are observationally similar, they have very different policy implications. In particular, if structural factors are responsible for slow growth, then there might be little monetary policy can do to reverse this trend. If instead hysteresis is to blame, then monetary policy may be able to reverse slowdowns in potential output, or even prevent them from occurring in the first place.
Bianca De Paoli, Thomas Klitgaard, and Harry Wheeler
Japan offers a preview of future U.S. demographic trends, having already seen a large increase in the population over 65. So, how has the Japanese economy dealt with this change? A look at the data shows that women of all ages have been pulled into the labor force and that more people are working longer. This transformation of the work force has not been enough to prevent a very tight labor market in a slowly growing economy, and it may help explain why inflation remains minimal. Namely, wages are not responding as much as they might to the tight labor market because women and older workers tend to have lower bargaining power than prime-age males.
In Monday’s post, we described the estimation of real wage growth rates for different cohorts of U.S. workers. We showed that the life-cycle pattern of real wage growth is characterized by high growth early in a worker’s career, little to no growth in mid-career, and negative growth as workers near retirement. We also documented that a growing fraction of the U.S. adult population is transitioning into the flat to negative real wage growth phases of their careers. Here, we turn our attention to estimating the effect of this demographic shift on the economy-wide average real wage growth rate. Our analysis shows that this economy-wide average real wage growth rate has declined by a third since the mid-1980s.
Jaison R. Abel, Giacomo De Giorgi, Richard Deitz, and Harry Wheeler
Given Puerto Rico’s long-term economic malaise and ongoing fiscal crisis, it is no wonder that out-migration of the Island’s residents has picked up. Over the past five years alone, migration has resulted in a net outflow of almost 300,000 people, a staggering loss. It would make matters worse, however, if Puerto Rico were losing an outsized share of its highest-paid workers. But we find that, if anything, Puerto Rico’s migrants are actually tilted somewhat toward the lower end of the skills and earnings spectrum. Still, such a large outflow of potentially productive workers and taxpayers is an alarming trend that is likely to have profound consequences for the Island for years to come.
Stefano Eusepi, Erica Moszkowski, and Argia Sbordone
The May 2016 forecast of the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model remains broadly in line with those of our two previous semiannual reports (see our May 2015 and December 2015 posts). In the past year, the headwinds that contributed to slower growth in the aftermath of the financial crisis finally began to abate. However, the widening of credit spreads associated with swings in financial markets in the second half of 2015 and the first few months of this year have had a negative impact on economic activity. Despite this setback, the model expects a rebound in growth in the second half of the year, so that the medium-term forecast remains, as in the December post, one of steady, gradual economic expansion. The model also continues to predict gradual progress in the inflation rate toward the Federal Open Market Committee’s (FOMC) long-run target of 2 percent.
The image of a newly minted college graduate working behind the counter of a hip coffee shop has become a hallmark of the plight of recent college graduates following the Great Recession. Recurring news stories about young college graduates stuck in low-skilled jobs make it easy to see why many college students may be worried about their futures. However, while there is some truth behind the popular image of the college-educated barista, this portrayal is really more myth than reality. Although many recent college graduates are “underemployed”—working in jobs that typically don’t require a degree—our research indicates that only a small fraction worked in a low-skilled service job in the years following the Great Recession. We find that underemployed recent college graduates held a wide range of jobs and, while most of these positions were clearly not equivalent to jobs that require a college education, some were actually fairly skilled and well paid. Further, our analysis suggests that many of those who started their careers in a low-skilled service job transitioned to a better job after gaining some experience in the labor market.
Marco Del Negro, Marc Giannoni, Erica Moszkowski, Sara Shahanaghi, and Micah Smith
This post presents an update of the economic forecasts implied by the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model, which we first introduced in a series of blog posts in September 2014. The model continues to predict a gradual recovery in economic activity, but one that will proceed at a slightly slower pace than was forecast in our April update. It also predicts a slow return of inflation toward the Federal Open Market Committee’s (FOMC) long-run target of 2 percent. This forecast remains surrounded by significant uncertainty. Please note that the DSGE model forecasts are not the official New York Fed staff forecasts, but only an input to the overall forecasting process at the Bank.
Inflation dynamics are often described by some form of the Phillips curve. Named after A. W. Phillips, the British economist whose study of U.K. wage and unemployment data laid the groundwork, the Phillips curve denotes an inverse relationship between inflation and some measure of economic slack. A much-discussed issue in the literature is how forward-looking this relationship is. In this post, we address this question using a flexible version of the New KeynesianPhillips curve (NKPC) to illustrate the key role that expectations play in inflation dynamics.
Luis Armona, Samuel Kapon, Laura Pilossoph, Ayşegül Şahin, and Giorgio Topa
Since the peak of the recession, the unemployment rate has fallen by almost 5 percentage points, and observers continue to focus on whether and when this decline will lead to robust wage growth. Typically, in the wake of such a decline, real wages grow since there is more competition for workers among potential employers. While this relationship has historically been quite informative, real wage growth more recently has not been commensurate with observed declines in the unemployment rate.
Liberty Street Economics features insight and analysis from economists working at the intersection of research and policy. The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Donald Morgan.
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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