The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
Rod Garratt, Antoine Martin, and James J. McAndrews
The Fedwire® Funds Service is a large-value payment system, operated by the Federal Reserve Bank of New York, that facilitates more than $3 trillion a day in payments. Turnover in Fedwire Funds, the value of payments made for every dollar of liquidity provided, has dropped nearly 75 percent since the crisis. Should we be concerned? In this post, we explain why turnover has dropped so much and argue that it is, in fact, a good thing.
We’ve already talked about clams being used as money as late as 1933, but some genuine clam shells found during the construction of the New York Fed’s building at 33 Liberty Street sparked both geological interest and many witty remarks about “clams” being fossilized under a bank.
The United States has been borrowing from the rest of the world since the mid-1980s. From 2000 to 2008, this borrowing averaged over $600 billion per year, which translates into U.S. spending exceeding income by almost 5.0 percent of GDP. Borrowing fell during the recent recession, as would be expected, and then rebounded with the recovery. Since 2011, however, borrowing has trended down and fell to 2.4 percent of GDP in 2013, the smallest amount as a share of GDP since 1997. A reduced dependency on foreign funds can be viewed as a favorable development to the extent that it reflects an improvement in the fiscal balance to a more easily sustainable level. However, it also reflects the lackluster recovery in residential investment, which is one reason the economy has yet to get back to its full operating potential.
The Federal Reserve Bank of New York’s monthly surveys of manufacturers and service-sector firms include special supplementary questions on topics of interest. The August survey questions focused on the effects of the Affordable Care Act (ACA) on businesses in the District, and how, if at all, firms are making changes in response to it.
Marco Cipriani, Antoine Martin, Patrick E. McCabe, and Bruno Parigi
In the academic literature on banks, “suspension of convertibility”—that is, preventing the exchange of deposits at par for cash—has traditionally been seen as a potential means of preventing economically damaging bank runs. In this post, however, we show that giving a financial intermediary (FI) the option to suspend convertibility may ultimately increase the risk of runs by causing preemptive runs. That is, investors who face potential restrictions on their future access to cash may run when they anticipate that such restrictions may be imposed.
Caricatures of Alan Greenspan and Warren Buffett in the National Portrait Gallery? Are we hearing correctly? The National Portrait Gallery indeed collects and has great respect for caricatures. The Gallery had a 1998 exhibition and post entitled “Celebrity Caricature in America.” Caricature is quite an old art form: According to Werner Hofmann’s 1957 “Caricature from Leonardo to Picasso,” caricature in the Western world dates back to Leonardo da Vinci. Caricatures of bankers and financiers have been around probably as long as bankers and financiers.
Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the second quarter of 2014. Aggregate debt was relatively flat in the second quarter as housing-related debt shrank, held down by sluggish mortgage originations. But non-housing debt balances increased across the board, with especially strong gains in auto loans. Auto loan balances, which include leases, have increased for thirteen straight quarters, and originations have not been this high since the third quarter of 2006. The Quarterly Report and the following analysis are based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.
Marco Del Negro, Marc Giannoni, Raiden B. Hasegawa, and Frank Schorfheide
GDP contracted 4 percent from 2008:Q2 to 2009:Q2, and the unemployment rate peaked at 10 percent in October 2010. Traditional backward-looking Phillips curve models of inflation, which relate inflation to measures of “slack” in activity and past measures of inflation, would have predicted a substantial drop in inflation. However, core inflation declined by only one percentage point, from 2.2 percent in 2007 to 1.2 percent in 2009, giving rise to the “missing deflation” puzzle. Based on this evidence, some authors have argued that slack must have been smaller than suggested by indicators such as the unemployment rate or deviations of GDP from its long-run trend. On the contrary, in Monday’s post, we showed that a New Keynesian DSGE model can explain the behavior of inflation in the aftermath of the Great Recession, despite large and persistent output gaps. An implication of this model is that information about the future stance of monetary policy is very important in determining current inflation, in contrast to backward-looking Phillips curve models where all that matters is the current and past stance of policy.
Marco Del Negro, Marc Giannoni, Raiden Hasegawa, and Frank Schorfheide
Since the financial crisis of 2007-08 and the Great Recession, many commentators have been baffled by the “missing deflation” in the face of a large and persistent amount of slack in the economy. Some prominent academics have argued that existing models cannot properly account for the evolution of inflation during and following the crisis. For example, in his American Economic Association presidential address, Robert E. Hall called for a fundamental reconsideration of Phillips curve models and their modern incarnation—so-called dynamic stochastic general equilibrium (DSGE) models—in which inflation depends on a measure of slack in economic activity. The argument is that such theories should have predicted more and more disinflation as long as the unemployment rate remained above a natural rate of, say, 6 percent. Since inflation declined somewhat in 2009, and then remained positive, Hall concludes that such theories based on a concept of slack must be wrong.
James Narron, David R. Skeie, and Donald P. Morgan
With intermittent war raging across much of Western Europe near the end of the eighteenth century, by about 1795, Hamburg had replaced Amsterdam as an important hub for commodities trade. And from 1795 to 1799, Hamburg boomed. Prices for goods increased, the harbor was full, and warehouses were bulging. But when a harsh winter iced over the harbor, excess demand and speculation drove up prices. By spring, demand proved lower than supply, and prices started falling, credit tightened, and the decline in prices accelerated. So when a ship bound for Hamburg laden with gold sunk off the coast, an act meant to avert a crisis failed to do so. In this issue of Crisis Chronicles, we use some diverse sources from the American Machinist and Mary Lindemann’s Patriots and Paupers to explore the Hamburg crisis of 1799 and describe how harsh winter weather still impacts the economy today.
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.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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