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15 posts from May 2015

May 11, 2015

Financial Innovation: The Origins of the Tri-Party Repo Market



First in a two-part series
The conventional wisdom about financial innovation is that it is typically undertaken as a way to increase profits. However, financial innovation can also occur as a response to the need to reduce risk. Tri-party repo is an example of such innovation. While tri-party repo ultimately evolved in ways that created and amplified systemic risk (as we describe in the second post in this series), its origin was as a solution to inefficiencies and risks associated with the repo settlement arrangements prevailing at the time.

Continue reading "Financial Innovation: The Origins of the Tri-Party Repo Market" »

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

May 08, 2015

Crisis Chronicles: The Man on the Twenty-Dollar Bill and the Panic of 1837



Correction: This post was updated on May 8 to correct the book title and spelling of the author’s name in the fifth paragraph. We regret the error.

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President Andrew Jackson was a "hard money" man. He saw specie—that is, gold and silver—as real money, and considered paper money a suspicious store of value fabricated by corrupt bankers. So Jackson issued a decree that purchases of government land could only be made with gold or silver. And just as much as Jackson loved hard money, he despised the elites running the banking system, so he embarked on a crusade to abolish the Second Bank of the United States (the Bank). Both of these efforts by Jackson boosted the demand for specie and revealed the soft spots in an economy based on hard money. In this edition of Crisis Chronicles, we show how the heightened demand for specie ultimately led to the Panic of 1837, resulting in a credit crunch that pushed the economy into a depression that lasted until 1843.

Continue reading "Crisis Chronicles: The Man on the Twenty-Dollar Bill and the Panic of 1837" »

Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History, Panic | Permalink | Comments (8)

May 07, 2015

From the Vault: Monetary Policy and Government Finances



Each year, the manager of the Federal Reserve’s System Open Market Account (SOMA) submits an accounting of open market operations and other developments influencing the composition and performance of the Fed’s balance sheet to the Federal Open Market Committee (FOMC).

Continue reading "From the Vault: Monetary Policy and Government Finances" »

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

May 06, 2015

U.S. Potential Economic Growth: Is It Improving with Age?



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The contribution of labor input to the potential GDP growth rate for the United States has changed over time. We decompose this contribution into two components: the size of the adult population and the average demographically adjusted employment rate. We find that these two components in the late 1960s and early 1970s contributed at least 2.5 percentage points to potential growth. Since the mid-1990s, the aging of the population has reduced the contribution of labor to growth. We estimate that the current contribution to potential economic growth from labor input has declined to around 0.6 percentage points. One implication going forward is that more labor productivity growth will be required to sustain U.S. growth.

Continue reading "U.S. Potential Economic Growth: Is It Improving with Age?" »

Posted by Blog Author at 7:00 AM in Demographics, Employment, Labor Economics, Macroecon | Permalink | Comments (4)

May 04, 2015

Interest-Bearing Securities When Interest Rates are Below Zero



Note: A PDF version of this post fully documents the authors’ sources.

Negative interest rates have evolved, over the past few years, from a topic of modest academic interest to a practical reality. Short- and intermediate-term sovereign debt of several European countries, including Germany, Denmark, the Netherlands, Sweden, Austria, and Switzerland, now trades at negative yields.

Continue reading "Interest-Bearing Securities When Interest Rates are Below Zero" »

Posted by Blog Author at 7:00 AM in Financial Institutions, Monetary Policy | Permalink | Comments (1)

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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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