Households frequently use stimulus checks to pay down existing debt. In this post, we discuss the empirical evidence on this marginal propensity to repay debt (MPRD), and we present new findings using the Survey of Consumer Expectations. We find that households with low net wealth-to-income ratios were more prone to use transfers from the CARES Act of March 2020 to pay down debt. We then show that standard models of consumption-saving behavior can be made consistent with these empirical findings if borrowers’ interest rates rise with debt. Our model suggests that fiscal policy may face a trade-off between increasing aggregate consumption today and assisting those with the largest debt balances.
The U.S. dollar plays a central role in the global economy. In addition to being the most widely used currency in foreign exchange transactions, it represents the largest share in official reserves, international debt securities and loans, cross-border payments, and trade invoicing. The ubiquity of the U.S. dollar in global transactions reflects several key factors, including the depth and liquidity of U.S. capital markets, the size of the U.S. economy, the relatively low cost of converting dollars into other currencies, and an enduring confidence in the U.S. legal system and its institutions.
Guillermo Calvo is a leading member of a group of economists who revolutionized macroeconomics by modeling how incentives and the anticipation of future policies affect aggregate outcomes. In celebration of his work, a conference was held in his honor at the Federal Reserve Bank of New York and at Columbia University on February 22-24, 2023. The conference program can be found on the event website. A longer version of this post with additional detail on the proceedings can be found here.
The Federal Reserve Bank of New York’s 2023 SCE Housing Survey, released in April, reported some novel data about expectations for home prices, interest rates, and mortgage refinancing. While the data showed a sharp drop in home price expectations, some of the most notable findings concern renters. In this post, we take a deeper dive into how renters’ expectations and financial situations have evolved over the past year. We find that both owners and renters expect rents to rise rapidly over the next year, albeit at a slower pace than last year. Furthermore, we also show that eviction expectations rose sharply over the past twelve months, and that this increase was most pronounced for those in the lowest quartile of the income distribution.
Though some offices have re-opened as the pandemic has receded, many workers have continued to work from home. Recent survey data suggest that workers would like more remote-work days than firms want to supply—a pattern that was evident even before the pandemic. Why have firms been so reluctant to offer remote work? And what will the recent seismic shift in remote work mean for the economy?
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 March 2023.
The Federal Reserve Bank of New York and Columbia University’s School of International and Public Affairs (SIPA) co-organized the fourth annual State-of-the-Field Conferences on Cyber Risk to Financial Stability, on April 14, 2023. The conference builds on joint activity by the New York Fed and SIPA since 2017. Each year, the conference convenes panels to confront the same three questions: What are we learning about cyber risk to financial stability? What are we doing to improve resilience and stability? And what’s next? This blog post reviews some of these conversations from the 2023 conference.
How do firms set prices? What factors do they consider, and to what extent are cost increases passed through to prices? While these are important questions in general, they become even more salient during periods of high inflation. In this blog post, we highlight preliminary results from ongoing research on firms’ price-setting behavior, a joint project between researchers at the Federal Reserve Banks of Atlanta, Cleveland, and New York. We use a combination of open-ended interviews and a quantitative survey in our analysis. Firms reported that the strength of demand was the most important factor affecting pricing decisions in recent years, while labor costs and maintaining steady profit margins were also highly important. Using three methodological approaches, we consistently estimate a rate of cost-price passthrough in the range of 60 percent for the representative firm over 2022-23—with considerable heterogeneity in this number across firms.
This post presents an updated estimate of inflation persistence, following the release of personal consumption expenditure (PCE) price data for April 2023. The estimates are obtained by the Multivariate Core Trend (MCT), a model we introduced on Liberty Street Economics last year and covered most recently in a May post. The MCT is a dynamic factor model estimated on monthly data for the seventeen major sectors of the PCE price index. It decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory shock. The trend in PCE inflation is constructed as the sum of the common and the sector-specific trends weighted by the expenditure shares.
Numerous studies of the Paycheck Protection Program (PPP), which provided loans to small businesses during the COVID-19 pandemic, have documented racial disparities in the program. Because publicly available PPP data only include information on approved loans, prior work has largely been unable to assess whether these disparities were driven by borrower application behavior or by lender approval decisions. In this post, which is based on a related Staff Report and NBER working paper, we use the Federal Reserve’s 2020 Small Business Credit Survey to examine PPP application behavior and approval decisions and to study the strengths and limitations of fintech lenders in enhancing access to credit for Black-owned businesses.