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14 posts from May 2012

May 09, 2012

A Boost in Your Paycheck: How Are U.S. Workers Using the Payroll Tax Cut?

Basit Zafar, Grant Graziani, and Wilbert van der Klaauw

Over the past several months, there was a flurry of debate in Washington over the extension of the payroll tax cut. Many supporters of the tax cut—worth about $1,000 to a family earning the median income of slightly more than $50,000 a year—have cited its importance to the nation’s economic recovery, while opponents claim that it will only add to the national deficit without boosting the economy. Exactly how such a tax cut affects the aggregate economy relies heavily on how U.S. workers use the extra funds in their paychecks. Unfortunately, we know little about how such tax cuts are used by workers. So we decided to ask them and, in this post, report the answers they gave us.

Continue reading "A Boost in Your Paycheck: How Are U.S. Workers Using the Payroll Tax Cut?" »

Posted by Blog Author at 7:00 AM in Fed Funds, Fiscal Policy, Household Finance | Permalink | Comments (0)

May 07, 2012

The Flash Crash, Two Years On

Adam Biesenbach* and Marco Cipriani

On May 6, 2010, several U.S.-based equity products underwent an extraordinary price decline and recovery, all within less than half an hour. The Dow Jones Industrial Average (DJIA) and other equity indices dropped by more than 5 percent in a matter of minutes, only to rebound as quickly. Individual equity securities experienced similar, if not larger, swings in prices, both up and down. This post describes what happened on that fateful day, and summarizes the findings of the academic literature on this topic.

Continue reading "The Flash Crash, Two Years On" »

Posted by Blog Author at 7:00 AM in Financial Markets, High Frequency Trading | Permalink | Comments (0)

May 04, 2012

Historical Echoes: Pneumatic Tubes and Banking

Amy Farber, New York Fed Research Library

Pneumatic tubes—a system in which cylinder-shaped containers (that could contain messages, money, small objects, and even food) are propelled through a network of tubes via compressed air or partial vacuum—are a relatively old technology. (Pneumatic tubes were patented in the United States in 1940, with earlier forms existing prior to this date). But when used in innovative ways in the past, they were viewed as futuristic. What may come to mind first is the use of pneumatic tubes in George Orwell’s 1984 (1949) to transport messages and newspapers. The 1954 film of the book depicts the use of the technology (starting three minutes into this clip).

Continue reading "Historical Echoes: Pneumatic Tubes and Banking" »

Posted by Blog Author at 7:00 AM in Historical Echoes | Permalink | Comments (0)

May 02, 2012

Euro Area Spending Imbalances and the Sovereign Debt Crisis

Matthew Higgins and Thomas Klitgaard

Euro area periphery countries borrowed heavily from abroad in the run-up to the sovereign debt crisis. How were these funds used? In this post, we recap our recent Current Issues study, showing that pre-crisis borrowing by the periphery countries (Greece, Ireland, Portugal, and Spain) went mainly to finance private consumption or housing booms rather than productivity-enhancing investments. Most analysis of the crisis has focused on the need for fiscal adjustment in the periphery. A look at the drivers of the run-up in foreign borrowing, however, suggests that private spending in the periphery will also need to move to a lower plane. The fact that debts were built up without adding to these countries’ productive capacity is likely to make the needed adjustment in spending all the more difficult.

Continue reading "Euro Area Spending Imbalances and the Sovereign Debt Crisis" »

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

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