Benjamin R. Mandel and Geoffrey Barnes

An important measure of success for monetary policy is a central bank’s ability to anchor inflation expectations; inflation expectations influence actual inflation and, hence, the achievement of a given inflation goal. This notion has special significance for Japan, where CPI inflation has been intermittently negative since 1994 and where it is widely believed that expectations of future inflation have been persistently negative (that is, ongoing deflation is expected). In this post, we describe and evaluate an alternative, market-based measure of Japanese inflation expectations based on international price parity conditions. We find that recent inflation expectations have attained a level substantially higher than their previous peaks over the past three years.

M. Henry Linder, Richard Peach, and Sarah Stein

Correction: This post was updated on April 25 to correct the label on the y-axis in the top panel of the "Gauging Hurricane Impact" chart. We also corrected the explanatory text in the preceding paragraph.

The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce has reported that real Gross Domestic Product (GDP) increased at a very sluggish 0.4 percent annual rate in the final quarter of 2012. A natural question to ask is to what extent, if any, did superstorm Sandy contribute to this weak performance. While not a particularly intense storm, it was the largest Atlantic storm on record with a diameter of roughly 1,100 miles. The storm severely disrupted economic activity from late October until well into November along the eastern seaboard from the Mid-Atlantic region into New England, an area that is densely populated and that represents a significant portion of total economic activity of the entire country. Nonetheless, we suggest that superstorm Sandy likely had a relatively modest impact on the fourth-quarter growth rate, and that we cannot even be certain of the sign of that impact.

Amy Farber

First there was Newspeak (from George Orwell’s book 1984), which intended to bend the thinking of the masses, then there was doublespeak (derived from Newspeak, meaning a deliberate disguising or distortion of meaning, and with its very own achievement award), and then there was Fedspeak (and likely many other “-speaks”).

Meta Brown and Sydnee Caldwell

Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012. Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances—making student loans the second largest debt of U.S. households, following mortgages. Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree. Nevertheless, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.

Jason Bram and Richard Deitz

According to the most recent Empire State Manufacturing Survey, manufacturing conditions are continuing to improve in New York State, but only barely. The headline general business conditions index from the April 2013 report was 3.1—down 6 points from March and not much above zero. The positive reading indicates that activity is growing, though its decline suggests that the pace of growth has slowed. Employment indexes, however, climbed higher and suggested a modest increase in hiring and hours worked. It will be particularly important to see how next month’s report turns out to get a clearer sense of whether regional manufacturing conditions are getting better or if the slow growth signaled by the past few reports is fizzling out.

Tobias Adrian, Richard K. Crump, and Emanuel Moench

Some commentators have expressed concern that Treasury yields might rise sharply once the Federal Open Market Committee (FOMC) begins to raise the federal funds rate (FFR), worrying, in particular, about a sudden increase in Treasury term premia. In this post, we analyze the dynamics of Treasury term premia over the last fifty years and discuss their evolution around recent tightening cycles, paying special attention to the 1994 episode when bond prices dropped sharply around the world. We find that term premia don’t typically rise when monetary policy tightens. We also conclude, based on the behavior of term premia and survey evidence, that the sharp rise in Treasury yields in 1994 was in large part due to an upward shift in the expected path of future short-term interest rates.

Amy Farber

Amazingly, something resembling a drive-through automated bank teller existed back in 1941 (twenty-six years before the invention of the true ATM, or automated teller machine). It was an ingenious curbside teller’s window, as described in this October 1941 Popular Science article, “Bank Gives Curb Service to Motorists with Novel ‘Teller-Vision’ Cage” (p. 63 for IE7 users).

Jaison R. Abel and Richard Deitz

Households in the New York-northern New Jersey region were spared the worst of the housing bust and have generally experienced less financial stress than average over the past several years. However, as the housing market has begun to recover both regionally and nationally, the region is faring far worse than the nation in one important respect—a growing backlog of foreclosures is resulting in a foreclosure rate that is now well above the national average. In this blog post, we describe this outsized increase in the region’s foreclosure rate and explain why it has occurred. We then discuss why the large build-up in foreclosures could cause a headwind for home-price gains in the region.

Mary Amiti and Amit Khandelwal

Firms must produce high-quality goods to be competitive in international markets, but how do they transition from producing low- to high-quality goods? In a new study (“Import Competition and Quality Upgrading,” forthcoming in the Review of Economics and Statistics), we focus on how tougher import competition affects firms’ decisions to upgrade the quality of their goods. Our results, which we summarize in this post, show that stiffer import competition affects quality-upgrading decisions. For firms already producing very high-quality goods, lower tariffs induce them to produce goods of even higher quality. However, for firms producing very low-quality goods, lower tariffs actually discourage quality upgrading. Ours is the first study to show a significant relationship between import competition and quality.

Amy Farber

In 1668, Johan Palmstruch, the head of Stockholm Banco, the precursor to the oldest central bank still operating today—the Swedish Riksbank—was charged and sentenced to death, according to Wikipedia and the Riksbank.