Liberty Street Economics

November 15, 2024

To Whom It May Concern: Demographic Differences in Letters of Recommendation

Beverly Hirtle and Anna Kovner

Photo of an Asian female college student in the library in front of shelves of books looking at her laptop and taking notes with books on the desk beside her.

Letters of recommendation from faculty advisors play a critical role in the job market for Ph.D. economists. At their best, they can convey important qualitative information about a candidate, including the candidate’s potential to generate impactful research. But at their worst, these letters offer a subjective view of the candidate that can be susceptible to conscious or unconscious bias. There may also be similarity or affinity bias, a particularly difficult issue for the economics profession, where most faculty members are white men. In this post, we draw on our recent working paper to describe how recommendation letters differ by the gender, race, or ethnicity of the job candidate and how these differences are related to early career outcomes.

Posted at 6:30 am in Demographics, Human Capital, Inequality, Labor Market | Permalink | Comments (0)

November 14, 2024

Why Investment‑Led Growth Lowers Chinese Living Standards

Matthew Higgins

Photo of busy shopping street in Shanghai China at night.

Rapid GDP growth, due in part to high rates of investment and capital accumulation, has raised China out of poverty and into middle-income status. But progress in raising living standards has lagged, as a side-effect of policies favoring investment over consumption. At present, consumption per capita stands some 40 percent below what might be expected given China’s income level. We quantify China’s consumption prospects via the lens of the neoclassical growth model. We find that shifting the country’s production mix toward consumption would raise both current and future living standards, with the latter result owing to diminishing returns to capital accumulation. Chinese policy, however, appears to be moving in the opposite direction, to reemphasize investment-led growth.

Posted at 7:00 am in Forecasting, International Economics | Permalink | Comments (0)

November 13, 2024

Income Growth Outpaces Household Borrowing

Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw

Coins stack on wooden seesaw on the right side, a car and house model on the left, equally balanced.

U.S. household debt balances grew by $147 billion (0.8 percent) over the third quarter, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Balances on all loan products recorded moderate increases, led by mortgages (up $75 billion), credit cards (up $24 billion), and auto loans (up $18 billion). Meanwhile, delinquency rates have also risen over the past two years, returning to roughly pre-pandemic levels (and exceeding them in the case of credit cards and auto loans), though there are some signs of stabilization this quarter. Are rising aggregate debt burdens sustainable? Or is this expansion to be expected given increases in aggregate income and population size? In this post, we take a look at debt balances scaled by income, tracking the evolution of this ratio over the past twenty-five years.

Posted at 11:00 am in Household Finance | Permalink | Comments (1)

November 12, 2024

Banking System Vulnerability: 2024 Update

Matteo Crosignani, Thomas Eisenbach, and Fulvia Fringuellotti

Photo of a caucasian male at Bank ATM machine.

After a period of relative stability, a series of bank failures in 2023 renewed questions about the fragility of the banking system. As in previous years, we provide in this post an update of four analytical models aimed at capturing different aspects of the vulnerability of the U.S. banking system using data through 2024:Q2 and discuss how these measures have changed since last year.

Posted at 7:00 am in Financial Institutions | Permalink | Comments (2)

October 21, 2024

The Dueling Intraday Demands on Reserves

Adam Copeland and Sarah Yu Wang

Decorative photo: dark blue background with illustration of two banks with arrows going from one bank to another and dollar signs around a map of the U.S.

A central use of reserves held at Federal Reserve Banks (FRBs) is for the settlement of interbank obligations. These obligations are substantial—the average daily total reserves used on two main settlement systems, Fedwire Funds and Fedwire Securities, exceeds $6.5 trillion. The total amount of reserves needed to efficiently settle these obligations is an active area of debate, especially as the Federal Reserve’s current quantitative tightening (QT) policy seeks to drain reserves from the financial system. To better understand the use of reserves, in this post we examine the intraday flows of reserves over Fedwire Funds and Fedwire Securities and show that the mechanics of each settlement system result in starkly different intraday demands on reserves and differing sensitivities of those intraday demands to the total amount of reserves in the financial system.

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

October 17, 2024

Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity

Gara Afonso, Domenico Giannone, Gabriele La Spada, and John C. Williams

Decorative image: Man pulling an orange rubber band, holding a rubber band ball

As central banks shrink their balance sheets to restore price stability and phase out expansionary programs, gauging the ampleness of reserves has become a central topic to policymakers and academics alike. The reason is that the ampleness of reserves informs when to slow and then stop quantitative tightening (QT). The Federal Reserve, for example, implements monetary policy in a regime of ample reserves, whereby the quantity of reserves in the banking system needs to be large enough such that everyday changes in reserves do not cause large variations in short-term rates. The goal is therefore to implement QT while ensuring that reserves remain sufficiently ample. In this post, we review how to gauge the ampleness of reserves using the new Reserve Demand Elasticity (RDE) measure, which will be published monthly on the public website of the Federal Reserve Bank of New York as a standalone product.

Posted at 10:00 am in Fed Funds, Federal Reserve, Monetary Policy | Permalink | Comments (1)

October 10, 2024

International Stock Markets’ Reactions to EU Climate Policy Shocks

Julian di Giovanni, Galina Hale, Neel Lahiri, and Anirban Sanyal

The launch of the EU ETS marks a significant step towards achieving Europe's climate goals and fostering a sustainable future.

While policies to combat climate change are designed to address a global problem, they are generally implemented at the national level. Nevertheless, the impact of domestic climate policies may spill over internationally given countries’ economic and financial interdependence. For example, a carbon tax charged to domestic firms for their use of fossil fuels may lead the firms to charge higher prices to their domestic and foreign customers; given the importance of global value chains in modern economies, the impact of that carbon tax may propagate across multiple layers of cross-border production linkages. In this post, we quantify the spillover effects of climate policies on forward-looking asset prices globally by estimating the impact of carbon price shocks in the European Union’s Emissions Trading System (EU ETS) on stock prices across a broad set of country-industry pairs. In other words, we measure how asset markets evaluate the impact of changes to the carbon price on growth and profitability prospects of the firms.

Posted at 7:00 am in Climate Change, Financial Markets, Stocks | Permalink

October 9, 2024

A New Indicator of Labor Market Tightness for Predicting Wage Inflation

Sebastian Heise, Jeremy Pearce, and Jacob P. Weber

Job candidates standing in line, waiting for their turn to be interviewed for a new position at a corporate company. Shallow field of view.

A key question in economic policy is how labor market tightness affects wage inflation and ultimately prices. In this post, we highlight the importance of two measures of tightness in determining wage growth: the quits rate, and vacancies per searcher (V/S)—where searchers include both employed and non-employed job seekers. Amongst a broad set of indicators, we find that these two measures are independently the most strongly correlated with wage inflation. We construct a new index, called the Heise-Pearce-Weber (HPW) Tightness Index, which is a composite of quits and vacancies per searcher, and show that it performs best of all in explaining U.S. wage growth, including over the COVID pandemic and recovery.

Posted at 7:00 am in Inflation, Labor Market, Macroeconomics | Permalink | Comments (2)

October 7, 2024

What Do Climate Risk Indices Measure?

Hyeyoon Jung and Oliver Hannaoui

Photo of a melting iceberg with water trickling down splashing into a water body.

As interest in understanding the economic impacts of climate change grows, the climate economics and finance literature has developed a number of indices to quantify climate risks. Various approaches have been employed, utilizing firm-level emissions data, financial market data (from equity and derivatives markets), or textual data. Focusing on the latter approach, we conduct descriptive analyses of six text-based climate risk indices from published or well-cited papers. In this blog post, we highlight the differences and commonalities across these indices.

Posted at 7:00 am in Climate Change | Permalink

October 2, 2024

Exposure to Generative AI and Expectations About Inequality

Natalia Emanuel and Emma Harrington

With the rise of generative AI (genAI) tools such as ChatGPT, many worry about the tools’ potential displacement effects in the labor market and the implications for income inequality. In supplemental questions to the February 2024 Survey of Consumer Expectations (SCE), we asked a representative sample of U.S. residents about their experience with genAI tools. We find that relatively few people have used genAI, but that those who have used it have a bleaker outlook on its impacts on jobs and future inequality.

Posted at 9:00 am in Employment, Expectations, Human Capital, Inequality | Permalink | Comments (1)

Markets & Policy Implementation

Liberty Street Economics

To Whom It May Concern: Demographic Differences in Letters of Recommendation

Why Investment‑Led Growth Lowers Chinese Living Standards

Income Growth Outpaces Household Borrowing

Banking System Vulnerability: 2024 Update

The Dueling Intraday Demands on Reserves

Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity

International Stock Markets’ Reactions to EU Climate Policy Shocks

A New Indicator of Labor Market Tightness for Predicting Wage Inflation

What Do Climate Risk Indices Measure?

Exposure to Generative AI and Expectations About Inequality

Economic Inequality

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