100 posts from "2021"
October 20, 2021
The International Experience of Central Bank Asset Purchases and Inflation
Recent inflationary pressures in the global economy have rekindled the debate on the link between money growth and price stability. Specifically, does rapid central bank money creation resulting from large-scale purchases of government securities fuel inflationary spending by households and firms? We argue that there are many valid reasons to be skeptical about this textbook narrative. In this post, we look at the international experience with regard to asset purchases, money growth, and inflation dynamics in the pre-COVID era in an attempt to draw lessons from the recent past. Most notably, we find that the view that large-scale purchases of sovereign debt cause unmanageable inflationary pressures is not supported by the experiences of foreign advanced economies. As a matter of fact, despite the extent and duration of the quantitative easing programs in those economies, central banks faced challenges in achieving their inflation objectives.
October 18, 2021
Were Banks Exposed to Sell‑offs by Open‑End Funds during the Covid Crisis?
Should open-end mutual funds experience redemption pressures, they may be forced to sell assets, thus contributing to asset price dislocations that in turn could be felt by other entities holding similar assets. This fire-sale externality is a key rationale behind proposed and implemented regulatory actions. In this post, I quantify the spillover risks from fire sales, and present some preliminary results on the potential exposure of U.S. banking institutions to asset fire sales from open-end funds.
October 15, 2021
At the New York Fed: Implications of Federal Reserve Actions in Response to the COVID‑19 Pandemic
On September 30 and October 1, 2021, the New York Fed held a virtual conference on the implications of the Fed’s actions in response to the COVID-19 pandemic. New York Fed President John Williams gave the opening and concluding remarks.
Posted at 12:00 pm in COVID-19 Facilities, Crisis, Federal Reserve, Monetary Policy, Recession | Permalink
October 13, 2021
Insurance Companies and the Growth of Corporate Loan Securitization
Collateralized loan obligation (CLO) issuances in the United States increased by a factor of thirteen between 2009 and 2019, with the volume of outstanding CLOs more than doubling to approach $647 billion by the end of that period. While researchers and policy makers have been investigating the impact of this growth on the cost and riskiness of corporate loans and the potential implications for financial stability, less attention has been paid to the drivers of this phenomenon. In this post, which is based on our recent paper, we shed light on the role that insurance companies have played in the growth of corporate loans’ securitization and identify the key factors behind that role.
October 6, 2021
An Update on the U.S.–China Phase One Trade Deal
A Liberty Street Economics post from last summer by Matthew Higgins and Thomas Klitgaard contained an assessment of the Phase One trade agreement between the United States and China. The authors of that note found that, depending on how successfully the deal was implemented, the impact on U.S. economic growth could have been substantially larger than originally foreseen by many of its critics, as a result of the fact that the pandemic had depressed the U.S. economy far below its potential growth path. Here we take another look at these considerations with the benefit of an additional year’s worth of trade data and a much different economic environment in the United States.
October 4, 2021
Oil Prices, Global Demand Expectations, and Near‑Term Global Inflation
Oil prices have increased by nearly 60 percent since the summer of 2020, coinciding with an upward trend in global inflation. If higher oil prices are the result of constrained supply, then this could pose some stagflation risks to the growth outlook—a concern reflected in a June Financial Times article, “Why OPEC Matters.” In this post, we utilize the demand and supply decomposition from the New York Fed’s Oil Price Dynamics Report to argue that most of the oil price increase over the past year or so has reflected improving global demand expectations. We then illustrate what these changing global demand expectations might mean for near-term global inflation developments.
September 29, 2021
What Quantity of Reserves Is Sufficient?
A concern of the Federal Reserve is how to manage its balance sheet and whether, over the long run, the balance sheet should be small or large. In this post, we highlight results from a recent paper in which we show how, even during a period of “ample” reserves, the Fed’s management of its balance sheet had material impacts on funding markets and especially the repo market. We argue that the Fed’s “balance-sheet normalization” from March 2017 to September 2019—under which aggregate reserves declined by more than $950 billion—combined with post-crisis liquidity regulations, stressed the intraday management of reserves of large bank holding companies that are active in wholesale funding markets resulting in higher repo rates and spikes in such.
September 27, 2021
The Spillover Effects of COVID‑19 on Productivity throughout the Supply Chain
While the shocks from COVID-19 were concentrated in a handful of contact-intensive industries, they had rippling effects throughout the economy, which culminated in a considerable decline in U.S. GDP. In this post, we estimate how much of the fall in U.S. GDP during the pandemic was driven by spillover effects from the productivity losses of contact-intensive industries.
September 24, 2021
The New York Fed DSGE Model Forecast—September 2021
This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since June 2021.
Have Consumers’ Long‑Run Inflation Expectations Become Un‑Anchored?
With the recent surge in inflation since the spring there has been an increase in consumers’ short-run (one-year ahead) and, to a lesser extent, medium-run (three-year ahead) inflation expectations (see Survey of Consumer Expectations). Although this rise in short- and medium-run inflation expectations is relevant for policymakers, it does not provide direct evidence about “un-anchoring” of long-run inflation expectations. Roughly speaking, inflation expectations are considered un-anchored when long-run inflation expectations change significantly in response to developments in inflation or other economic variables, and begin to move away from levels consistent with the central bank’s (implicit or explicit) inflation objective. In that case, actual inflation can become unmoored and risks drifting persistently away from the central bank’s objective. Well-anchored long-run inflation expectations therefore represent an important measure of the success of monetary policy. In this post, we look at the current anchoring of consumers’ long-run inflation expectations using novel data from the Survey of Consumer Expectations (SCE). Our results suggest that in August 2021 consumers’ five-year ahead inflation expectations were as well anchored as they were two years ago, before the start of the pandemic.
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