-Liberty Street Economics
Liberty Street Economics
Look for our next post on February 3.
January 15, 2020

How Does Tick Size Affect Treasury Market Quality?



The popularity of U.S. Treasury securities as a means of pricing other securities, managing interest rate risk, and storing value is, in part, due to the efficiency and liquidity of the U.S. Treasury market. Any structural changes that might affect these attributes of the market are therefore of interest to market participants and policymakers alike. In this post, we consider how a 2018 change in the minimum price increment, or tick size, for the 2-year U.S. Treasury note affected market quality, following our recently updated New York Fed staff report.

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

January 13, 2020

How Does Information Affect Liquidity in Over-the-Counter Markets?



How Does Information Affect Liquidity in Over-the-Counter Markets?

A large volume of financial transactions occur in decentralized markets that commonly depend on a network of dealers. Dealers face two impediments to providing liquidity in these markets. First, dealers may face informed traders. Second, they may face costs associated with maintaining large balance sheets, either due to inventory or liquidity costs. In a recent paper, we study a model of over-the-counter (OTC) markets in which liquidity is endogenously determined by dealers who must contend with both asymmetric information and liquidity costs. This post provides an intuitive explanation of our model and the dynamics of interdealer liquidity.

Posted by Blog Author at 7:00 AM in Dealers , Liquidity | Permalink | Comments ( 0 )

January 08, 2020

What’s in A(AA) Credit Rating?



Update: Clarifying text regarding the net leverage chart, as well as an additional chart, have been added to the bottom of this post. (January 10, 10:40 a.m.)

What’s in A(AA) Credit Rating?

Rising nonfinancial corporate business leverage, especially for riskier “high-yield” firms, has recently received increased public and supervisory scrutiny. For example, the Federal Reserve’s May 2019 Financial Stability Report notes that “growth in business debt has outpaced GDP for the past 10 years, with the most rapid growth in debt over recent years concentrated among the riskiest firms.” At the upper end of the credit spectrum, “investment-grade” firms have also increased their borrowing, while the number of higher-rated firms has decreased. In fact, there are currently only two U.S. companies rated AAA: Johnson & Johnson and Microsoft. In this post, we examine recent trends in the issuance of investment-grade corporate bonds and argue that the combination of increased BAA issuance and virtually nonexistent AAA issuance both reduces the usefulness of the BAA–AAA spread as a credit risk indicator and poses a financial stability concern.

Posted by Blog Author at 7:00 AM in Credit , Fire Sale | Permalink | Comments ( 0 )

January 06, 2020

The Evolving Market for U.S. Sovereign Credit Risk



The Evolving Market for U.S. Sovereign Credit Risk

How should we measure market expectations of the U.S. government failing to meet its debt obligations and thereby defaulting? A natural candidate would be to use the spreads on U.S. sovereign single-name credit default swaps (CDS): since a CDS provides insurance to the buyer for the possibility of default, an increase in the CDS spread would indicate an increase in the market-perceived probability of a credit event occurring. In this post, we argue that aggregate measures of activity in U.S. sovereign CDS mask a decrease in risk-forming transactions after 2014. That is, quoted CDS spreads in this market are based on few, if any, market transactions and thus may be a misleading indicator of market expectations.

Posted by Blog Author at 7:00 AM in Financial Markets , Liquidity | Permalink | Comments ( 1 )

December 20, 2019

The New York Fed DSGE Model Forecast—December 2019



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 2019. 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 by Blog Author at 7:00 AM in DSGE , Forecasting , Macroecon | Permalink | Comments ( 0 )

December 18, 2019

Banking System Vulnerability: Annual Update



Banking System Vulnerability: Annual Update

A key part of understanding the stability of the U.S. financial system is to monitor leverage and funding risks in the financial sector and the way in which these vulnerabilities interact to amplify negative shocks. In this post, we provide an update of four analytical models, introduced in a Liberty Street Economics post last year, that aim to capture different aspects of banking system vulnerability. Since their introduction, vulnerabilities as indicated by these models have increased moderately, continuing the slow but steady upward trend that started around 2016. Despite the recent increase, the overall level of vulnerabilities according to this analysis remains subdued and is still significantly smaller than before the financial crisis of 2008-09.

December 17, 2019

Growth Has Slowed across the Region



Growth Has Slowed across the Region title=

At today’s regional economic press briefing, we highlighted some recent softening in the tri-state regional economy (New York, Northern New Jersey, and Fairfield County, Connecticut)—a noteworthy contrast from our briefing a year ago, when economic growth and job creation were fairly brisk. We also showed that Puerto Rico and the U.S. Virgin Islands, which are part of the New York Fed’s district, both continue to face major challenges but have made significant economic progress following the catastrophic hurricanes of 2017.

December 16, 2019

Selection in Banking



LSE_Selection in Banking

Over the past thirty years, more than 2,900 U.S. banks have transformed from pure depository institutions into conglomerates involved in a broad range of business activities. What type of banks choose to become conglomerate organizations? In this post, we document that, from 1986 to 2018, such institutions had, on average, a higher return on equity in the three years prior to their decision to expand, as well as a lower level of risk overall. However, this superior pre-expansion performance diminishes over time, and all but disappears by the end of the 1990s.

December 13, 2019

Tariffs, Auto Loans, Rising College Costs, and Other Top LSE Posts of 2019



Tariffs, Auto Loans, Rising College Costs, and Other Top LSE Posts of 2019

With each new Liberty Street Economics post, we aim to build familiarity with New York Fed research and policy analysis, and to share the expertise of our staff when it is relevant to the issues of the day. More than sixty economists contribute, and we tap coauthors from other central banks and academia as well, so the topics vary widely, covering the alphabet of “JEL Codes” in the economics literature plus numerous policy themes. Judging from our internet traffic, we have a core group that checks in to read nearly everything. Some posts break out to a wider public, prompted by news articles that cite our findings and even a mention in a presidential candidate’s tweet. Take a look at our top five most-read posts of 2019.


November 25, 2019

Who Pays the Tax on Imports from China?



Who Pays the Tax on Imports from China?

Tariffs are a form of taxation. Indeed, before the 1920s, tariffs (or customs duties) were typically the largest source of funding for the U.S. government. Of little interest for decades, tariffs are again becoming relevant, given the substantial increase in the rates charged on imports from China. U.S. businesses and consumers are shielded from the higher tariffs to the extent that Chinese firms lower the dollar prices they charge. U.S. import price data, however, indicate that prices on goods from China have so far not fallen. As a result, U.S. wholesalers, retailers, manufacturers, and consumers are left paying the tax.

About the Blog
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

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.


Economic Research Tracker

Liberty Street Economics is now available on the iPhone® and iPad® and can be customized by economic research topic or economist.


Most Viewed

Last 12 Months
Useful Links
Comment Guidelines
We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:
Please be brief: Comments are limited to 1500 characters.
Please be quick: Comments submitted after COB on Friday will not be published until Monday morning.
Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.
Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will not be posted.‎
Disclosure Policy
The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.
Archives