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15 posts from November 2012

November 14, 2012

Income Flows from U.S. Foreign Assets and Liabilities

Matthew Higgins and Thomas Klitgaard

Foreign investors placed roughly $1.0 trillion in U.S. assets in 2011, pushing the total value of their claims on the United States to $20.6 trillion. Over the same period, U.S. investors placed $0.5 trillion abroad, bringing total U.S. holdings of foreign assets to $16.4 trillion. One might expect that the large gap of -$4.2 trillion between U.S. assets and liabilities would come with a substantial servicing burden. Yet U.S. income receipts easily exceed payments abroad. As we explain in this post, a key reason is that foreign investments in the United States are weighted toward interest-bearing assets currently paying a low rate of return while U.S. investments abroad are weighted toward multinationals' foreign operations and other corporate claims earning a much higher rate of return.

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Posted by Blog Author at 7:00 AM in Balance of Payments, Exchange Rates, International Economics | Permalink | Comments (0)

November 09, 2012

Historical Echoes: How Do You Say “Wall Street” in Latin?

Marco Del Negro and Mary Tao

The Forum. This is where finance happened in ancient Rome. According to the historian Jean Andreau (“Banking and Business in the Roman World”), both run-of-the-mill banking and high finance took place in the Forum. The former was performed by money lenders (in Latin, argentarii), who were mostly plebeians. The latter, as far as we know, was almost exclusively run by and for the patrician classes: senators and knights (equites). Money lenders were a professional group (many of them were former slaves). Taking deposits, making loans, and assaying and changing money (which was then made of precious metals—gold, silver, and bronze—in different denominations) was how they made their living. Those patricians who were involved in high finance, however, often had a patrimony (land, real estate, slaves) and an income they could live off. Yet they sought to increase their wealth by lending both their money and other patricians’ money. To lend money for interest in Latin is called faenerare; hence, these people were called faeneratores (see also Koenraad Verboven, “Faeneratores, Negotiatores and Financial Intermediation in the Roman World”). They were “specialized businessmen who spent all their time in the forum” (Andreau, p. 15), and who hung around the Janus medius, a vaulted passageway in the Forum: “Both creditors and lenders could be found there—that is to say both passive investors seeking to place their money and also intermediaries arranging credit, who were experts at investing money” (Andreau, p. 16). To quote Cicero (De Officiis, Book II):

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Posted by Blog Author at 7:00 AM in Historical Echoes | Permalink | Comments (1)

November 07, 2012

Federal Reserve Liquidity Facilities Gross $22 Billion for U.S. Taxpayers

Michael J. Fleming

During the 2007-09 crisis, the Federal Reserve took many measures to mitigate disruptions in financial markets, including the introduction or expansion of liquidity facilities. Many studies have found that the Fed’s lending via the facilities helped stabilize financial markets. In addition, because the Fed’s loans were well collateralized and generally priced at a premium to the cost of funds, they had another, less widely noted benefit: they made money for U.S. taxpayers. In this post, I bring information together from various sources and time periods to show that the facilities generated $21.7 billion in interest and fee income.  

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Posted by Blog Author at 7:00 AM in Fed Funds, Financial Markets, Liquidity, Monetary Policy | Permalink | Comments (3)

November 05, 2012

Nudging Inflation Expectations: An Experiment

Basit Zafar, Olivier Armantier, Scott Nelson, Giorgio Topa, and Wilbert van der Klaauw

Managing consumers’ inflation expectations is of critical importance to central banks in the conduct of monetary policy. But managing inflation expectations requires more than just monitoring expectations; it also requires an understanding of how these expectations are formed. In this post, we present results from a new study that investigates how individual consumers use selected information on food prices in forming their inflation expectations. While the provision of this information leads individuals to meaningfully revise expectations of their own-basket inflation rate, we find there is little impact on expectations of overall inflation.

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

November 02, 2012

Historical Echoes: FOMC … “Minutes” by Minutes

Kathleen McKiernan

Although the Federal Reserve was founded in 1913, the Federal Open Market Committee,  or FOMC, wasn’t created until passage of the Banking Act of 1933. Congress established the name and legal structure of the FOMC as a formal committee of the twelve Reserve Banks. In 1935, a System reorganization added the seven-member Board of Governors to the twelve Reserve Bank presidents—uniting the centralized and decentralized components of the Fed. In the Banking Act of 1935, Congress mandated that only five of the twelve Reserve Bank presidents would vote at any one time, along with the seven governors. The first FOMC meeting convened a year later, in March 1936.

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

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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.

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