Is There Stigma to Discount Window Borrowing?
The Federal Reserve employs the discount window (DW) to provide funding to fundamentally solvent but illiquid banks (see the March 30 post “Why Do Central Banks Have Discount Windows?”). Historically, however, there has been a low level of DW use by banks, even when they are faced with severe liquidity shortages, raising the possibility of a stigma attached to DW borrowing. If DW stigma exists, it is likely to inhibit the Fed’s ability to act as lender of last resort and prod banks to turn to more expensive sources of financing when they can least afford it. In this post, we provide evidence that during the recent financial crisis banks were willing to pay higher interest rates in order to avoid going to the DW, a pattern of behavior consistent with stigma.
Local Hangovers: How the Housing Boom and Bust Affected Jobs in Metro Areas
What explains why some places suffered particularly severe job losses during the Great Recession? In this post, we extend our recent Current Issues article analyzing regional dimensions of the latest housing cycle and show that metropolitan areas that experienced the biggest housing booms and busts from 2000 to 2008 lost the most jobs during the recession. Not surprisingly, construction activity helps explain the tight link between housing and local job market performance. Given this pattern, we believe that each metro area’s boom-bust experience is likely to continue to influence its growth prospects for some time to come.
Historical Echoes: This Is Your (Great) Grandparents’ Quantitative Easing
A recent Federal Reserve Bank of St. Louis essay by Richard Anderson reminds us that the Fed’s recent large-scale asset purchase (LSAP) programs have a precedent. Anderson says: “Few analysts recall . . . that this is the second, not the first, quantitative easing by U.S. monetary authorities. During 1932, with congressional support, the Fed purchased approximately $1 billion in Treasury securities.” After the Fed’s program ended in October 1933, the Roosevelt administration continued to expand reserves, using measures authorized by the Gold Reserve Act of 1934, including large gold purchases.
Are Charter Schools Draining Private School Enrollment?
Charter schools are a major policy initiative at the national and local levels. As charter schools spread, one key question is whether they reduce private school enrollment, especially at CathoCharter schools are a major policy initiative at the national and local levels. As charter schools spread, one key question is whether they reduce private school enrollment, especially at Catholic schools. If so, an increase in charters could change public school spending patterns, decrease the number or size of private schools, and alter educational outcomes and school quality for public and private school students. But is this really the case? Maybe not. In this post, based on our 2010 New York Fed staff report, we find that despite widespread fears to the contrary, the expansion of charter schools in Michigan led to only a small decline in private school enrollment.lic schools.
Just Released: July’s Indexes of Coincident Economic Indicators Show Economic Activity Picking Up across the Region
The July Indexes of Coincident Economic Indicators (CEIs) for New York State, New York City, and New Jersey, released today, reveal that economic activity continued to expand in both New York State and New York City and—for the second month in a row—picked up moderately in New Jersey.
A Look at the Accuracy of Policy Expectations
Since the 1980s, the primary policy tool of the Federal Reserve has been the federal funds rate. Because expectations of the future path of the funds rate play a central role in the term structure of interest rates and thus the monetary transmission mechanism, it is important to know how accurate these expectations are in predicting the funds rate. In this post, we investigate this issue using a well-known survey of private sector forecasters. We find that forecasts tend to over-predict the funds rate in easing cycles and under-predict it in tightening cycles. In addition, while forecasts during tightening cycles have become more accurate over time, forecast accuracy during easing cycles has not improved.
Historical Echoes: These “Clams” Really Were Money
While money has taken all forms—precious commodities, beads, wampum, the large stones of Yap—we tend to think of those forms of money as archaic.
Tax Buyouts: Raising Government Revenues without Increasing Labor Tax Distortions
At a time of increasing fiscal pressures both here and abroad, it seems important to consider ways of raising government revenues without discouraging people from working. This post describes a revenue raising plan—a tax “buyout”—that does just that. The buyout would give you, the taxpayer, the option each year of paying a lump sum to the government in exchange for a given reduction in your marginal tax rate that year. In effect, you would use the lump sum payment to buy yourself a lower marginal tax rate, which would in turn give you more incentive to work. The buyout would be risk free: you wouldn’t have to decide whether to take the buyout until after you know your labor income. Why would this be good for you? If you choose to take it, you end up paying less taxes. If you don’t take it, you are just as well off as before. Why is this good for society? The lower marginal tax rate induces you to work more, so that some of the distortionary effects of taxation would disappear. Furthermore, your participation would be voluntary, so the buyout should be politically palatable.
What to Make of Market Measures of Inflation Expectations?
Central banks and investors around the world closely monitor developments in financial markets to gauge expectations of future interest rates and inflation. In this post, we argue that two of the most commonly used market-based inflation expectations measures—TIPS breakevens and inflation swaps—are noisy. Although movements in both measures provide policymakers with valuable information, readings should always be interpreted with care.
International Spillovers on Government Bond Yields: Are We All in the Same Boat?
Should we expect the Federal Reserve’s large-scale asset purchases since late 2008 to have much impact on bond yields beyond U.S. borders? Prior studies (mostly of particular events, such as Neely ) say yes. They find evidence of cross-country spillovers in the international bond market, but provide little insight into the strength, scope, and dynamics of these spillover effects. In this post, we quantify the international transmission of financial shocks between the U.S. government bond market and three other developed countries, thus providing a benchmark measure of the cross-country spillover effects in the international bond market. We find that an unexpected increase of 1 percent in long-term U.S. bond yields can lead to a 0.14 percent to 0.19 percent rise in the bond yields of other developed countries on impact, and that the cumulative spillover effect from U.S. to foreign bond markets ranges from 0.26 percent to 0.35 percent over a longer horizon.