Discounting the Long Run

Tobias Adrian, Richard K. Crump, Peter A. Diamond, and Rui Yu



Expectations about the path of interest rates matter for many economic decisions. Three sources for obtaining information about such expectations are available. The first is extrapolation from historical data. The second consists of surveys of expectations. The third are expectations drawn from financial market prices, often referred to as market expectations. The last are usually considered to be model-based expectations, because, generally, a model is needed to reliably extract expectations from current prices. In this post, we explain the need for and usage of term structure models for extracting far in the future interest rate expectations from market rates, which can be used to discount the long run. We will illustrate our arguments by discussing the measurement of long-run discount rates for Social Security.

Historical Echoes: How Members of the Society for Creative Anachronism Make Money

Amy Farber



Have you seen these people? You might come upon them wearing historic period garb. The Society for Creative Anachronism (SCA), founded in 1966, is, according to its website, “an international organization dedicated to researching and re-creating the arts and skills of pre-17th-century Europe.”  The members like to recreate life in an earlier time, which means using the technology existing at that time and eschewing later technology (not all the time, just when they are in “anachronism mode”).

Entry and Exit Leads to Zero Profit for Bitcoin Miners

Rod Garratt and Rosa Hayes



In a previous post, we discussed bitcoin miners’ incentives to undertake a 51 percent attack given the current condition of the bitcoin market. We also speculated that high profits and free entry would cause more miners to enter the market, driving marginal mining profits to zero in the long run. Since then, the price of a bitcoin has declined over 40 percent and both the hash rate and the difficulty level of the bitcoin mining problem, which adjusts automatically to changes in the hash rate, appear to have leveled off. Our most recent calculations suggest the long run may have arrived.

From the Vault: Supplementing a Monetary Policy Syllabus

Anna Snider



The San Francisco Fed’s John Williams gave an interesting speech awhile back on the challenge of teaching economics after the financial crisis, since the Federal Reserve had deployed new monetary policy and lending tools that “were not found in any textbook.”

Just Released: An Update on Regional Economic Conditions Provided at Our Economic Press Briefing

Jaison R. Abel, Jason Bram, Richard Deitz, and James Orr

Today’s Economic Press Briefing at the New York Fed presented our economic outlook for New York, Northern New Jersey, and Puerto Rico. We showed that many parts of the region have bounced back quite well from the Great Recession and are growing at a solid clip, including New York City, Buffalo, and Albany. The picture is a bit different in other parts of the region, though. In both Northern New Jersey and the Lower Hudson Valley, employment has been growing steadily, but jobs are still not back to their pre-recession peak. And there are also pockets of significant weakness, such as Binghamton, Puerto Rico, and the U.S. Virgin Islands, which have yet to show any meaningful signs of recovery.

Mind the Gap: Assessing Labor Market Slack

Joseph Tracy, Robert Rich, Samuel Kapon, and Ellen Fu



Indicators of labor market slack enable economists to judge pressures on wages and prices. Direct measures of slack, however, are not available and must be constructed. Here, we build on our previous work using the employment-to-population (E/P) ratio and develop an updated measure of labor market slack based on the behavior of labor compensation. Our measure indicates that roughly 90 percent of the labor gap that opened up following the recession has been closed.

Incentive Pay and Gender Compensation Gaps for Top Executives

Stefania Albanesi, Claudia Olivetti, and Maria Prados




The persistence of a gender gap in wages is shaping the debate over women’s equality in the workplace and underscores the challenge facing policymakers as they consider their potential role in closing it. While the disparity affects females at all income levels, women in professional and managerial occupations tend to experience greater gender-pay differences than those in working-class jobs. The rise in the use of incentive pay, which has been linked to the growth of income inequality (Lemieux, MacLeod, and Parent), might have contributed to the gender gap in earnings (Albanesi and Olivetti). In this post, which is based on our related New York Fed staff report, we document three new facts about gender differences in the structure of executive compensation.

Rethinking Mortgage Design

John Campbell, Andreas Fuster, David O. Lucca, Stijn Van Nieuwerburgh, and James Vickery




Because mortgages make up the majority of household debt in most developed countries, mortgage design has important implications for macroeconomic policy and household welfare. As one example, most U.S. mortgages have fixed interest rates—if interest rates fall, existing borrowers need to refinance to lower their interest payments. In practice, households are often slow to refinance, or may not be able to do so. As a result, the transmission of U.S. monetary policy is dampened relative to countries like the United Kingdom where mortgage rates on most loans adjust automatically with short-term interest rates. In this post, we discuss some of the key takeaways from a recent conference where policymakers, academics, practitioners, and other experts convened to discuss mortgage design and consider possible mortgage market innovations.

What’s Driving Dealer Balance Sheet Stagnation?

Tobias Adrian, Michael J. Fleming, Daniel Stackman, and Erik Vogt

Fifth in a five-part series

Securities brokers and dealers (“dealers”) engage in the business of trading securities on behalf of their customers and for their own account, and use their balance sheets primarily for trading operations, particularly for market making. Total financial assets of dealers in the United States have not shown any growth since 2009. This stagnation in their balance sheets raises the worry that dealers’ market-making capacity could be constrained, adversely affecting market liquidity. In this post, we investigate the stagnation of dealer balance sheets, focusing particularly on the boom and bust of the housing market.

The Evolution of Workups in the U.S. Treasury Securities Market

Michael J. Fleming, Ernst Schaumburg, and Ron Yang

Fourth in a five-part series

The market for benchmark U.S. Treasury securities is one of the deepest and most liquid in the world. Although trading in the interdealer market for these securities is over-the-counter, it features a central limit order book (CLOB) similar to that found in exchange-traded instruments, such as equities and futures. A distinctive feature of this market is the “workup” protocol, whereby the execution of a marketable order opens a short time window during which market participants can transact additional volume at the same price. With the broadening of the interdealer market to include hedge funds and proprietary trading firms, and the increase in trading activity, some market participants consider the workup to be somewhat of an anachronism that is destined to lose its relevance relative to the CLOB. Contrary to this notion, we document the continued important role played by the workup, show some ways in which trading behavior in the workup has evolved, and explain some of the observed changes.