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Liberty Street Economics
9 posts from October 2020October 19, 2020
How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?
“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of closely related assets since the 2007–09 financial crisis. In this post, we document how post-crisis changes to bank regulations have affected the relationship between hedge funds and broker-dealers.
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Posted by Blog Author at 7:00 AM in Bank Capital, Banks, Central Bank, Corporate Finance, Financial Institutions, Financial Markets, Regulation | Permalink | Comments (0)October 16, 2020
How Do Consumers Believe the Pandemic Will Affect the Economy and Their Households?
In this post we analyze consumer beliefs about the duration of the economic impact of the pandemic and present new evidence on their expected spending, income, debt delinquency, and employment outcomes, conditional on different scenarios for the future path of the pandemic. We find that between June and August respondents to the New York Fed Survey of Consumer Expectations (SCE) have grown less optimistic about the pandemic’s economic consequences ending in the near future and also about the likelihood of feeling comfortable in crowded places within the next three months. Although labor market expectations of respondents differ considerably across fairly extreme scenarios for the evolution of the COVID pandemic, the difference in other economic outcomes across scenarios appear relatively moderate on average. There is, however, substantial heterogeneity in these economic outcomes and some vulnerable groups (for example, lower income, non-white) appear considerably more exposed to the evolution of the pandemic.
Posted by Blog Author at 11:00 AM in Credit, Employment, Expectations, Household, Household Finance, Housing, Pandemic, Unemployment, Wages | Permalink | Comments (0)October 15, 2020
COVID-19 Has Temporarily Supercharged China’s Export Machine
China’s export performance this year has been stronger than expected. After a sharp slump at the beginning of 2020, the country’s exports have posted positive growth—the only major economy’s to do so. However, a closer look at the data reveals that this growth has not been very broad-based, but rather concentrated in areas where China’s export structure was well-positioned to take advantage of the global crisis—namely, production of medical supplies and school-from-home and work-from-home (S/WFH) goods. Once the COVID-19 crisis passes, China’s exports will likely return to their pre-coronavirus growth path, including a gradual loss of market share to other countries.
Continue reading "COVID-19 Has Temporarily Supercharged China’s Export Machine" »
Posted by Blog Author at 7:00 AM in Balance of Payments, Exports, International Economics, Pandemic | Permalink | Comments (0)October 13, 2020
How Have Households Used Their Stimulus Payments and How Would They Spend the Next?
In this post, we examine how households used economic impact payments, a large component of the CARES Act signed into law on March 27 that directed stimulus payments to many Americans to help offset the economic fallout from the coronavirus pandemic. An important question in evaluating how much this part of the CARES Act stimulated the economy concerns what share of these payments households used for consumption—what economists call the marginal propensity to consume (MPC). There also is interest in learning the extent to which the payments contributed to the sharp increase in the U.S. personal saving rate during the early months of the pandemic. We find in this analysis that as of the end of June 2020, a relatively small share of stimulus payments—29 percent—was used for consumption, with 36 percent saved and 35 percent used to pay down debt. Reported expected uses for a potential second stimulus payment suggest an even smaller MPC, with households expecting to use more of the funds to pay down their debts. We find similarly small estimated average consumption out of unemployment insurance (UI) payments, but with somewhat larger shares of these funds used to pay down debt.
Posted by Blog Author at 2:00 PM in Crisis, Expectations, Labor Market, Pandemic | Permalink | Comments (0)Weathering the Storm: Who Can Access Credit in a Pandemic?
Credit enables firms to weather temporary disruptions in their business that may impair their cash flow and limit their ability to meet commitments to suppliers and employees. The onset of the COVID recession sparked a massive increase in bank credit, largely driven by firms drawing on pre-committed credit lines. In this post, which is based on a recent Staff Report, we investigate which firms were able to tap into bank credit to help sustain their business over the ensuing downturn.
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Posted by Blog Author at 7:00 AM in Corporate Finance, Financial Institutions | Permalink | Comments (0)October 07, 2020
Are People Overconfident about Avoiding COVID-19?
More than six months into the COVID-19 outbreak, the number of new cases in the United States remains at an elevated level. One potential reason is a lack of preventative efforts either because people believe that the pandemic will be short-lived or because they underestimate their own chance of infection despite it being a public risk. To understand these possibilities, we elicit people’s perceptions of COVID-19 as a public health concern and a personal concern over the next three months to the following three years within the May administration of the Survey of Consumer Expectations (SCE). This post reports results from these survey questions.
Continue reading "Are People Overconfident about Avoiding COVID-19?" »
October 05, 2020
The Banking Industry and COVID-19: Lifeline or Life Support?
Editor’s note: Since this post was first published, we have corrected a description accompanying the Variable Capital Buffer graphic — Currently, with a countercyclical capital buffer set to 0, the combined minimum and buffer CET1 requirements range from 7 percent to 10.5 percent. (October 6:10 p.m.)
By many measures the U.S. banking industry entered 2020 in good health. But the widespread outbreak of the COVID-19 virus and the associated economic disruptions have caused unemployment to skyrocket and many businesses to suspend or significantly reduce operations. In this post, we consider the implications of the pandemic for the stability of the banking sector, including the potential impact of dividend suspensions on bank capital ratios and the use of banks’ regulatory capital buffers.
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October 02, 2020
Should Emerging Economies Embrace Quantitative Easing during the Pandemic?
Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis will not mitigate this double whammy of capital outflows and policies to cope with the pandemic. We argue that purchases of local currency government bonds could be a viable option for credible emerging market central banks to support macroeconomic policy goals in these circumstances.
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Posted by Blog Author at 7:00 AM in Central Bank, Exchange Rates, Monetary Policy | Permalink | Comments (0)October 01, 2020
The Impact of the Corporate Credit Facilities
American companies have raised almost $1 trillion in the U.S. corporate bond market since March. If companies had been unable to refinance those bonds, their inability to repay may have led to an immediate default on all of their obligations, creating a cascade of defaults and layoffs. Based on Compustat data, an inability to access public bond markets could have affected companies employing more than 16 million people. In this post, we document the impact of the Primary Market and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) on bond market functioning, summarizing a detailed evaluation described in a new working paper. We also describe the impact that a collapse of corporate bond markets could have had on employment and investment.
Continue reading "The Impact of the Corporate Credit Facilities" »
Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Markets, Pandemic | Permalink | Comments (2)About the BlogLiberty 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.
Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.
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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