129 posts from "2020"
February 12, 2020
Reading the Tea Leaves of the U.S. Business Cycle—Part Two
New work by Richard Crump, Domenico Giannone, and David Lucca finds labor market data to be the most reliable information for dating the U.S. business cycle.
Posted at 7:00 am in Labor Market, Macroeconomics, Recession, Unemployment | Permalink | Comments (1)
February 11, 2020
Charging into Adulthood: Credit Cards and Young Consumers
The New York Fed’s Center for Microeconomic Data today released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2019. Total household debt balances grew by $193 billion in the fourth quarter, marking a $601 billion increase in household debt balances in 2019, the largest annual gain since 2007. The main driver was a $433 billion annual upswing in mortgage balances, also the largest since 2007.
February 10, 2020
Reading the Tea Leaves of the U.S. Business Cycle—Part One
Richard Crump, Domenico Giannone, and David Lucca discuss different conceptual approaches to dating the business cycle and study their past performance for the U.S. economy.
February 5, 2020
The Affordable Care Act and For‑Profit Colleges
Getting health insurance in America is intimately connected to choosing whether and where to work. Therefore, it should not be surprising that the U.S. health insurance market may influence, and be influenced by, the market for higher education—which itself is closely tied to the labor market. In this post, and the staff report it is based on, we investigate the effects of the largest overhaul of health insurance in the U.S. in recent decades—the Patient Protection and Affordable Care Act of 2010 (ACA) — on college enrollment choices.
February 3, 2020
Have the Risk Profiles of Large U.S. Bank Holding Companies Changed?
After the global financial crisis, regulatory changes were implemented to support financial stability, with some changes directly addressing capital and liquidity in bank holding companies (BHCs) and others targeting BHC size and complexity. Although the overall size of the largest U.S. BHCs has not decreased since the crisis, the organizational complexity of these same organizations has declined, with less notable changes being observed in their range of businesses and geographic scope (Goldberg and Meehl forthcoming). In this post, we explore how different types of BHC risks—risks that can influence the probability that a BHC is stressed, as well as the chance of systemic implications—have changed over time. The results are mixed: Levels of most BHC risks currently tend to be higher than in the years immediately preceding the crisis, but are markedly lower than the levels seen during and immediately following the crisis.
Posted at 7:00 am in Banks, Financial Institutions, Financial Intermediation, Regulation, Systemic Risk | Permalink
January 15, 2020
How Does Tick Size Affect Treasury Market Quality?
The popularity of U.S. Treasury securities as a means of pricing other securities, managing interest rate risk, and storing value is, in part, due to the efficiency and liquidity of the U.S. Treasury market. Any structural changes that might affect these attributes of the market are therefore of interest to market participants and policymakers alike. In this post, we consider how a 2018 change in the minimum price increment, or tick size, for the 2-year U.S. Treasury note affected market quality, following our recently updated New York Fed staff report.
January 13, 2020
How Does Information Affect Liquidity in Over‑the‑Counter Markets?
A large volume of financial transactions occur in decentralized markets that commonly depend on a network of dealers. Dealers face two impediments to providing liquidity in these markets. First, dealers may face informed traders. Second, they may face costs associated with maintaining large balance sheets, either due to inventory or liquidity costs. In a recent paper, we study a model of over-the-counter (OTC) markets in which liquidity is endogenously determined by dealers who must contend with both asymmetric information and liquidity costs. This post provides an intuitive explanation of our model and the dynamics of interdealer liquidity.
January 8, 2020
What’s in A(AA) Credit Rating?
Rising nonfinancial corporate business leverage, especially for riskier “high-yield” firms, has recently received increased public and supervisory scrutiny. For example, the Federal Reserve’s May 2019 Financial Stability Report notes that “growth in business debt has outpaced GDP for the past 10 years, with the most rapid growth in debt over recent years concentrated among the riskiest firms.” At the upper end of the credit spectrum, “investment-grade” firms have also increased their borrowing, while the number of higher-rated firms has decreased. In fact, there are currently only two U.S. companies rated AAA: Johnson & Johnson and Microsoft. In this post, we examine recent trends in the issuance of investment-grade corporate bonds and argue that the combination of increased BAA issuance and virtually nonexistent AAA issuance both reduces the usefulness of the BAA–AAA spread as a credit risk indicator and poses a financial stability concern.
January 6, 2020
The Evolving Market for U.S. Sovereign Credit Risk
How should we measure market expectations of the U.S. government failing to meet its debt obligations and thereby defaulting? A natural candidate would be to use the spreads on U.S. sovereign single-name credit default swaps (CDS): since a CDS provides insurance to the buyer for the possibility of default, an increase in the CDS spread would indicate an increase in the market-perceived probability of a credit event occurring. In this post, we argue that aggregate measures of activity in U.S. sovereign CDS mask a decrease in risk-forming transactions after 2014. That is, quoted CDS spreads in this market are based on few, if any, market transactions and thus may be a misleading indicator of market expectations.
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