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22 posts from May 2020

May 18, 2020

Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows



Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows


The COVID-19 outbreak has triggered unusually fast outflows of dollar funding from emerging market economies (EMEs). These outflows are known as “sudden stop” episodes, and they are typically followed by economic contractions. In this post, we assess the macroeconomic effects of the COVID-induced sudden stop of capital flows to EMEs, using our open-economy DSGE model. Unlike existing frameworks, such as the Federal Reserve Board’s SIGMA model, our model features both domestic and international financial constraints, making it well-suited to capture the effects of an outflow of dollar funding. The model predicts output losses in EMEs due in part to the adverse effect of local currency depreciation on private-sector balance sheets with dollar debts. The financial stresses in EMEs, in turn, spill back to the U.S. economy, through both trade and financial channels. The model-predicted output losses are persistent (consistent with previous sudden stop episodes), with financial effects being a significant drag on the recovery. We stress that we are only tracing out the effects of one particular channel (the stop of capital flows and its associated effect on funding costs) and not the totality of COVID-related effects.

Continue reading "Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows" »

Posted by Blog Author at 7:00 AM in Crisis, Exchange Rates, International Economics, Macroecon, Pandemic | Permalink | Comments (2)

May 15, 2020

The Commercial Paper Funding Facility



LSE_2020_facilities-cpff_crump_460

This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak.

In mid-March, the Federal Reserve announced a slew of credit and liquidity facilities aimed at supporting credit provision to U.S. households and businesses. Among the initiatives is the Commercial Paper Funding Facility (CPFF) which aims to support market functioning and provide a liquidity backstop for the commercial paper market. The domestic commercial paper market provides a venue for short-term financing for companies which employ more than 6 million Americans. Securities in the commercial paper market represent a key asset class for money market mutual funds. This post documents the dislocations in the commercial paper market that motivated the creation of this facility, and tracks the subsequent improvement in market conditions.

Continue reading "The Commercial Paper Funding Facility" »

Posted by Blog Author at 7:00 AM in Central Bank, Corporate Finance, COVID-19 Facilities, Federal Reserve, Financial Markets, Liquidity, Pandemic | Permalink | Comments (0)

May 14, 2020

Putting the Current Oil Price Collapse into Historical Perspective



LSE_Putting the Current Oil Price Collapse into Historical Perspective

Since the outbreak of the COVID-19 pandemic in late January, oil prices have fallen sharply. In this post, we compare recent price declines with those seen in previous oil price collapses, focusing on the drivers of such episodes. In order to do that, we break oil price shocks down into demand and supply components, applying the methodology behind the New York Fed’s weekly Oil Price Dynamics Report.

Continue reading "Putting the Current Oil Price Collapse into Historical Perspective" »

Posted by Blog Author at 7:00 AM in Financial Markets, International Economics, Macroecon, Pandemic | Permalink | Comments (0)

May 13, 2020

Inflation Expectations in Times of COVID-19



Inflation Expectations in Times of COVID-19

As an important driver of the inflation process, inflation expectations must be monitored closely by policymakers to ensure they remain consistent with long-term monetary policy objectives. In particular, if inflation expectations start drifting away from the central bank’s objective, they could become permanently “un-anchored” in the long run. Because the COVID-19 pandemic is a crisis unlike any other, its impact on short- and medium-term inflation has been challenging to predict. In this post, we summarize the results of our forthcoming paper that makes use of the Survey of Consumer Expectations (SCE) to study how the COVID-19 outbreak has affected the public’s inflation expectations. We find that, so far, households’ inflation expectations have not exhibited a consistent upward or downward trend since the emergence of the COVID-19 pandemic. However, the data reveal unprecedented increases in individual uncertainty—and disagreement across respondents—about future inflation outcomes. Close monitoring of these measures is warranted because elevated levels may signal a risk of inflation expectations becoming unanchored.

Continue reading "Inflation Expectations in Times of COVID-19 " »

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

May 12, 2020

How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?



How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?

The COVID-19 pandemic has had a significant impact on trade between the United States and China so far. As workers became sick or were quarantined, factories temporarily closed, disrupting international supply chains. At the same time, the trade relationship between the United States and China has been characterized by rising protectionism and heightened trade policy uncertainty over the last few years. Against this background, this post examines how the recent period of economic disruptions in China has affected U.S. imports and discusses how this episode might impact firms’ supply chains going forward.

Continue reading "How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?" »

Posted by Blog Author at 7:00 AM in International Economics, Pandemic | Permalink | Comments (1)

May 11, 2020

Does the BCG Vaccine Protect Against Coronavirus? Applying an Economist’s Toolkit to a Medical Question



Editor’s note: A sentence in this post has been corrected to state that Heinsberg, Germany, borders the Netherlands (rather than France, as originally stated). (May 11, 2020, 12:30 p.m.)

LSE_2020_BCG-coronavirus_pinkovskiy_460

As COVID-19 has spread across the globe, there is an intense search for treatments and vaccines, with numerous trials running in multiple countries. Several observers and prominent news outlets have noticed that countries still administering an old vaccine against tuberculosis—the Bacillus Calmette-Guérin (BCG) vaccine—have had fewer coronavirus cases and fewer deaths per capita in the early stages of the outbreak. But is that correlation really strong evidence that the BCG vaccine provides some defense against COVID-19? In this post, we look at the incidence of coronavirus cases along the former border between East and West Germany, using econometric techniques to investigate whether historical differences in vaccination policies account for the lower level of infection in the former East.

Continue reading "Does the BCG Vaccine Protect Against Coronavirus? Applying an Economist’s Toolkit to a Medical Question" »

Posted by Blog Author at 7:00 AM in Crisis, Pandemic | Permalink | Comments (5)

May 08, 2020

The Money Market Mutual Fund Liquidity Facility



LSE_2020_facilities-mmlf_laspada_art_460

This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak.

Over the first three weeks of March, as uncertainty surrounding the COVID-19 pandemic increased, prime and municipal (muni) money market funds (MMFs) faced large redemption pressures. Similarly to past episodes of industry dislocation, such as the 2008 financial crisis and the 2011 European bank crisis, outflows from prime and muni MMFs were mirrored by large inflows into government MMFs, which have historically been seen by investors as a safe haven in times of crisis. In this post, we describe a liquidity facility established by the Federal Reserve in response to these outflows.

Continue reading "The Money Market Mutual Fund Liquidity Facility" »

Posted by Blog Author at 7:00 AM in Central Bank, COVID-19 Facilities, Credit, Federal Reserve, Financial Institutions, Financial Intermediation, Financial Markets, Liquidity, Monetary Policy, Pandemic | Permalink | Comments (0)

May 07, 2020

Amid the COVID-19 Outbreak, Consumers Temper Spending Outlook



LSE_Amid the COVID-19 Outbreak, Consumers Temper Spending Outlook

The New York Fed’s Center for Microeconomic Data released results today from its April 2020 SCE Household Spending Survey, which provides information on consumers' experiences and expectations regarding household spending. These data have been collected every four months since December 2014 as part of our Survey of Consumer Expectations (SCE). Given the ongoing COVID-19 outbreak, the April survey, which was fielded between April 2 and 30, unsurprisingly shows a number of sharp changes in consumers’ spending behavior and outlook, which we review in this post.

Continue reading "Amid the COVID-19 Outbreak, Consumers Temper Spending Outlook" »

Posted by Blog Author at 11:00 AM in Expectations, Household Finance, Pandemic | Permalink | Comments (0)

Translating Weekly Jobless Claims into Monthly Net Job Losses



LSE_2020_weekly-job-loss_bram_460

News headlines highlighting the loss of at least 30 million jobs (so far) underscore the massive shock that has hit the U.S. economy and the dislocation, hardship, and stress it has caused for so many American workers. But how accurately does this number actually capture the number of net job losses? In this post, we look at some of the statistical anomalies and quirks in the weekly claims series and offer a guide to interpreting these numbers. What we find is that the relationship between jobless claims and payroll employment for the month can vary substantially, depending on the nature, timing, and persistence of the disaster.

Continue reading "Translating Weekly Jobless Claims into Monthly Net Job Losses" »

Posted by Blog Author at 7:00 AM in Employment, Financial Markets, Human Capital, Labor Economics, Labor Market, Pandemic, Regional Analysis, Unemployment | Permalink | Comments (4)

May 06, 2020

Where Have the Paycheck Protection Loans Gone So Far?



Where Have the Paycheck Protection Loans Gone So Far?

The Paycheck Protection Program (PPP) is a central piece of the CARES Act. In the program’s first round, $349 billion in forgivable government-guaranteed loans were extended to small businesses to cover costs related to payroll and utilities, as well as mortgage and rent payments. The program opened for applications on April 3 and was oversubscribed by April 16. Because of its popularity, lawmakers passed a new bill replenishing the fund with another $310 billion and the Small Business Administration (SBA) started approving loans again on April 27. With a new round of PPP lending underway, it is natural to examine the allocation of credit in the first round and ask: Have PPP loans gone to the areas of the country and sectors of the economy hardest hit by COVID-19?

Continue reading "Where Have the Paycheck Protection Loans Gone So Far?" »

Posted by Blog Author at 7:00 AM in Credit | Permalink | Comments (3)

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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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