Mary Amiti and David E. Weinstein*

The financial crisis of 2008-09 brought about one of the largest collapses in world trade since the end of World War II. Between the first quarter of 2008 and the first quarter of 2009, the value of real global GDP fell 4.6 percent while exports plummeted 17 percent, as can be seen in the chart below. The dramatic decline in world trade—a loss of $761 billion in nominal exports—came through two channels: decreased demand for imports and supply effects, most likely arising from financial constraints. In this post, we look at evidence that supply effects, including curtailed funding for export-related activities, played a key role in the trade collapse—and thus in the transmission of the financial crisis from Wall Street to “Main Street,” here and abroad.

Jan J.J. Groen and Paolo Pesenti

Over the last decade, unprecedented spikes and drops in commodity prices have been a recurrent source of concern to both policymakers and the general public. Given all the recent attention, have economists and analysts made any progress in their ability to predict movements in commodity prices? In this post, we find there is no easy answer. We consider different strategies to forecast near-term commodity price inflation, but find that no particular approach is systematically more accurate and robust. Additionally, the results warn against interpreting current forecasts of commodity prices upswings as reliable and dependable signals of future inflationary pressure.

Jonathan McCarthy

In a previous post, I discussed the impact of changing commodity prices on the discretionary income of households and concluded that these effects generally were relatively modest except in cases of extreme swings in commodity prices. As many people know, there was a large surge in energy prices during the first quarter of 2011, and it appears to have had a significant effect on discretionary income and consumer spending. (See recent speeches by Federal Reserve Chairman Bernanke and New York Fed President Dudley; for views outside the Fed, see FT Alphaville, Tim Duy, and James Hamilton.)

New York Fed Research Library

During the 1930s, major events were often announced by newsreels shown in movie theaters before feature films. This is how the Fed’s new headquarters made its film debut in 1937.

Kenneth D. Garbade

The Federal Reserve announced on November 3, 2010, that in the interest of stimulating economic recovery, it would purchase $600 billion of longer-term Treasury securities. The announcement led some commentators to conjecture that the Fed’s large-scale asset purchase (LSAP) program—popularly known as “quantitative easing”—is more likely to trigger inflation than stimulate recovery. This post discusses why those concerns may be misplaced, and also why they are not without some basis. A recent Liberty Street Economics post by James J. McAndrews—“Will the Federal Reserve's Asset Purchases Lead to Higher Inflation?” addressed the same issue from a broader perspective and came to a substantially similar conclusion.

John Sporn* and Andrea Tambalotti

Inflation has picked up in the last few months. Between June and November 2010, the twelve-month change in the seasonally adjusted consumer price index (CPI) was stable, at slightly above 1 percent, but it jumped to 3.1 percent as of last April. Higher food and energy prices have been an important factor behind this pickup in “headline” inflation. However, core inflation has also increased; the year-over-year core CPI (excluding volatile food and energy prices) moved from a record low of 0.6 percent in October 2010 to 1.3 percent in April.

New York Fed Research Library

Frogs? Santa Claus? Goddesses? In the past, U.S. currency has featured much more than just the images of deceased presidents and pyramids. For a view of some surprising images that have appeared on U.S. paper currency, see “Symbols on American Money,” published by the Federal Reserve Bank of Philadelphia. What you won’t find is an image of a king or a queen, dead or alive.

Gauti Eggertsson

In 1937, on the eve of a major policy mistake, U.S. economic conditions were surprisingly similar to those in the nation today. Consider, for example, the following summary of economic conditions: (1) Signs indicate that the recession is finally over. (2) Short-term interest rates have been close to zero for years but are now expected to rise. (3) Some are concerned about excessive inflation. (4) Inflation concerns are partly driven by a large expansion in the monetary base in recent years and by banks’ massive holding of excess reserves. (5) Furthermore, some are worried that the recent rally in commodity prices threatens to ignite an inflation spiral.