120 posts from "2023"
October 11, 2023
Spending Down Pandemic Savings Is an “Only‑in‑the‑U.S.” Phenomenon
Household saving soared in the United States and other high-income economies during the pandemic, as consumers cut back on spending while government policies supported incomes. More recently, saving behavior has diverged, with the U.S. saving rate dropping below its pre-pandemic average while saving rates elsewhere have remained above their pre-pandemic averages. As a result, U.S. consumers have been spending down the “excess savings” built up during the pandemic while the excess savings abroad remain untapped. This divergent behavior helps explain why U.S. GDP has returned to its pre-pandemic trend path even as GDP levels in other high-income economies continue to run well below trend.
October 10, 2023
Who’s Borrowing and Lending in the Fed Funds Market Today?
The Federal Open Market Committee (FOMC) communicates the stance of monetary policy through a target range for the federal funds rate, which is the rate set in the market for uncollateralized short-term lending and borrowing of central bank reserves in the U.S. Since the global financial crisis, the market for federal funds has changed markedly. In this post, we take a closer look at who is currently trading in the federal funds market, as well as the reasons for their participation.
Posted at 7:00 am | Permalink
October 5, 2023
Does Income Inequality Affect Small Firms?
The share of income going to high-income households has increased significantly in the United States in recent decades. In 1980, the average income share of earners in the top 10 percent was around 30 percent. However, by 2015, it had surpassed 45 percent. The employment share of small firms has also declined, with a decrease of approximately 5 percentage points over the same period. In this post, we use variation across states to show a correlation between these two developments, with states having the greatest increase in the upper income share also tending to be those with the biggest job creation declines in small firms compared to large firms. One explanation for this correlation is that the increase in the income share of the highest income earners reduced deposits in small and medium-size banks from what they otherwise would have been. In doing so, this shift in income reduced the available credit for small firms, putting them at a disadvantage relative to large firms.
October 3, 2023
A Look at Convenience Yields around the World
This post estimates “convenience yields” for government debt in ten of the G11 currencies based on analysis from a recent paper. As in our companion post, we measure convenience yields with option-implied box rate data that is estimated from options traded on the main stock market index in each country. We find that a country’s average convenience yield is closely related to its level of interest rates. In addition, we find that average covered interest parity (CIP) deviations are roughly the same across countries when they are measured with box rates. We rationalize these findings with a model in which convenience yields depend on domestic financial intermediaries, but CIP deviations depend on international arbitrageurs funded with dollar debt.
October 2, 2023
Options for Calculating Risk‑Free Rates
One of the most fundamental concepts in finance is the notion of a risk-free rate. This interest rate tells us how much money investors are guaranteed to receive in the future by saving one dollar today. As a result, risk-free rates reflect investors’ preferences for payoffs in the future relative to the present. Yields on U.S. Treasury securities are generally viewed as a standard benchmark for the risk-free rate, but they may also feature a “convenience yield,” reflecting Treasuries’ special, money-like properties. In this post, we estimate a risk-free rate implicit in the prices of S&P 500 index options—called the box rate—to measure investors’ time preference separate from Treasury convenience yields.
September 27, 2023
Why Are China’s Households in the Doldrums?
A perennial challenge with China’s growth model has been overly high investment spending relative to GDP and unusually low consumer spending, something which China has long struggled to rebalance. As China attempts to move away from credit-intensive, investment-focused growth, the economy’s growth will have to rely on higher consumer spending. However, a prolonged household borrowing binge, COVID scarring and a deep slump in the property market in China have damaged household balance sheets and eroded consumer sentiment. In this post, we examine the impact of recent shocks on Chinese household behavior for clues around the outlook for reviving consumption and economic growth in China.
September 26, 2023
Who Uses “Buy Now, Pay Later”?
“Buy now, pay later” (BNPL) has become an increasingly popular form of payment among Americans in recent years. While BNPL provides shoppers with the flexibility to pay for goods and services over time, usually with zero interest, the Consumer Financial Protection Bureau (CFPB) has identified several areas of potential consumer harm associated with its growing use, including inconsistent consumer protections, and the risk of excessive debt accumulation and over-extension. BNPL proponents have argued that the service enables improved credit access and greater financial inclusion, with approval being quick and relatively easy. More research is needed to assess the overall risks and benefits of BNPL for consumers. As a first step, we draw on new survey data to examine the background and circumstances of consumers who receive and take up BNPL offers. We find both the availability and use of BNPL to be fairly widespread but see disproportionate take-up among consumers with unmet credit needs, limited credit access, and greater financial fragility. While BNPL expands financial inclusion, especially to those with low credit scores, there is a risk that these payment plans contribute to excessive debt accumulation and over-extension.
Posted at 10:00 am in Household Finance | Permalink
September 22, 2023
The New York Fed DSGE Model Forecast— September 2023
Editor's note: We have updated the "date of forecast" row in the forecast comparison table to display the correct year (2023, not 2024). (September 25, 2023, 5:01 p.m.)
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 2023. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.
September 8, 2023
Reintroducing the New York Fed Staff Nowcast
“Nowcasts” of GDP growth are designed to track the economy in real time by incorporating information from an array of indicators as they are released. In April 2016, the New York Fed’s Research Group launched the New York Fed Staff Nowcast, a dynamic factor model that generated estimates of current quarter GDP growth at a weekly frequency. The onset of the COVID-19 pandemic sparked widespread economic disruptions—and unprecedented fluctuations in the economic data that flow into the Staff Nowcast. This posed significant challenges to the model, leading to the suspension of publication in September 2021. Taking advantage of recent developments in time-series econometrics, we have since developed a more robust version of the Staff Nowcast model, one that better handles data volatility. In this post, we discuss the model’s new features, present estimates of current quarter GDP growth, and evaluate how the Staff Nowcast would have performed during the pandemic period. Today’s post marks the resumption of regular New York Fed Staff Nowcast releases, to be published each Friday.
September 7, 2023
How Large Are Inflation Revisions? The Difficulty of Monitoring Prices in Real Time
With prices quickly going up after the COVID-19 pandemic, inflation releases have rarely been as present in the public debate as in recent years. However, since inflation estimates are frequently revised, how precise are the real-time data releases? In this Liberty Street Economics post, we investigate the size and nature of revisions to inflation. We find that inflation estimates for a given month can change substantially as subsequent data vintages are released. As an example, consider March 2009. With the economy contracting amid the Global Financial Crisis, the twelve-month inflation rate for personal consumption expenditures (PCE) excluding food and energy dropped from an initial estimate of 1.8 percent to 0.8 percent in the current series. The difference is dramatic and points to the difficulty of monitoring inflation in real time. Our results suggest that there is significant uncertainty in measuring inflation, and the key features of the recent spike and subsequent moderation of inflation may look quite different in hindsight once further revisions have taken place.
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