Liberty Street Economics

January 7, 2026

What Is a Carbon Tariff and Why Is the EU Imposing One?

Pierre Coster, Julian di Giovanni, and Isabelle Mejean

The European Union has been an early adopter of carbon policies, with the introduction of the EU Emissions Trading System (ETS) in 2005. This scheme sets a common price for carbon and is applied to the most polluting manufacturing sectors. By increasing the cost of emissions-intensive production, the system incentivizes firms to decrease their use of fossil fuels. However, as we show in a companion post, the policy’s impact was moderated by firms increasing their reliance on high-emissions imports. To eliminate this workaround, the EU will expand the ETS to imports in 2026, through the Carbon Border Adjustment Mechanism (CBAM). The CBAM will essentially put a tariff on imported goods based on their carbon content. Our recent work provides a quantitative analysis of how the ETS and CBAM affect firms’ supply choice decisions, and the resulting changes in domestic prices and emissions.

Posted at 7:01 am in Exports, Financial Markets, Supply Chain | Permalink | Comments (0)

What Can Undermine a Carbon Tax?

Pierre Coster, Julian di Giovanni, and Isabelle Mejean

cement factory and chalk quarry against the sky with clouds

Several countries have implemented a carbon tax or cap-and-trade system to establish high carbon prices and create a disincentive for the use of fossil fuels. Essentially, the tax encourages firms to substitute toward low carbon emission energy. Costs also rise for firms down the supply chain that use production inputs with high-emission content, so the total impact of a carbon tax can be large. In practice, however, firms also have an incentive to find an offset to a carbon tax. In this post, based on our recent work, we present evidence of one such adaptation strategy. We show that French firms increased their imports of high-emission inputs from suppliers outside the European Union’s cap-and-trade system, known as the EU Emissions Trading System (EU ETS), reducing the effectiveness of this approach to cutting carbon emissions—an adaptation strategy that leads to “carbon leakage.” To help stop this leakage, the EU is implementing a “carbon tariff” in 2026, which is the topic of a companion post.

Posted at 7:00 am in Exports, Financial Markets, Supply Chain | Permalink | Comments (0)

January 5, 2026

Which Entrepreneurs Boost Productivity?

Ufuk Akcigit, Harun Alp, Jeremy Pearce, and Marta Prato

AI research facility, highlighting scientists or engineers work

Why do some entrepreneurs drive economic growth while others do not? This piece discusses new work that studies entrepreneurs using a comprehensive dataset from Denmark. We study who becomes an entrepreneur, along with their hiring and business decisions, and find that a distinct minority are “transformative.” These individuals, who generate disproportionate productivity gains, tend to have high IQ scores, be well-educated, and hire technical (R&D) workers. The data support the idea of productivity growth being driven by the symbiotic relationship between transformative entrepreneurs and R&D workers. For policymakers, the lesson is that when an economy has more R&D workers and transformative entrepreneurs, they sustain higher long-run productivity growth.

Posted at 7:00 am in Microeconomics | Permalink | Comments (0)

December 23, 2025

Tariffs, Trade, and Tumbling Credit Scores: The Top 5 LSE Posts of 2025

Maureen Egan

Each year brings a new set of economic challenges: In 2025, major areas of focus included tariffs and trade tensions, as well as the financial pressures facing younger adults. New York Fed economists contributed insightful research on both topics—and readers took notice. In fact, all five of the year’s most-read posts on Liberty Street Economics analyzed aspects of these issues. Read on to see how the restoration of student loan data to credit reports affected borrowers’ credit scores, whether the costs of a college degree are still worth it, how businesses are responding to higher tariffs, and why the U.S. runs a trade deficit.

Posted at 7:00 am in Household Finance, International Economics | Permalink | Comments (0)

December 22, 2025

A New Public Data Source: Call Reports from 1959 to 2025

Sergio Correia, Tiffany Fermin, Stephan Luck, and Emil Verner

Classic bank building with columns overlaid with balance sheet numbers.

Call Reports are regulatory filings in which commercial banks report their assets, liabilities, income, and other information. They are one of the most-used data sources in banking and finance. In this post, we describe a new dataset made available on the Federal Reserve Bank of New York’s website that contains time-consistent balance sheets and income statements for commercial banks in the United States from 1959 to 2025.

Posted at 9:00 am in Banks, Financial Institutions | Permalink | Comments (0)

December 17, 2025

Letters of Recommendation in the PhD Job Market: Lessons from Specialized Banks

Kristian S. Blickle and Cecilia Parlatore

Business people, handshake and interview success or recruitment, employment and hiring in office. Corporate, men and executive shaking hands with new employee or collaboration on deal or partnership.

Banks must extract useful signals of a potential borrower’s quality from a large set of possibly informative characteristics when making lending decisions. A model that speaks to how banks specialize in lending to an industry in order to better extract signals from data, can potentially be applied to a number of real-world scenarios. In this post, we apply lessons from such a model to a topic of timely relevance in economics: job market recommendation letters. Institutions looking to hire new economists must evaluate PhD applicants based on limited and often noisy signals of future performance, including letters of recommendation from these applicants’ advisors or co-authors. Using insights from our model, we argue that the value of these letters depends on who reads them.

Posted at 7:00 am in Banks, Employment, Financial Institutions | Permalink | Comments (0)

December 15, 2025

Designing Bank Regulation with Accounting Discretion

Kinda Hachem

Financial stability: A classic bank building with columns, financial symbols, and charts, representing the concept of financial stability and security.

Why does the banking industry remain prone to large and costly disruptions despite being so heavily regulated? Is there a need for more regulation, less regulation, or simply different regulation? Our recent Staff Report combines insights from academic research in economics, finance, and accounting to provide a deeper understanding of the challenges involved in designing and implementing bank regulation, as well as opportunities for future exploration. This post focuses on the regulation of bank capital, but the ideas are applicable more broadly.

Posted at 7:00 am in Banks, Regulation | Permalink | Comments (0)

December 12, 2025

The New York Fed DSGE Model Forecast— December 2025

Marco Del Negro, Ibrahima Diagne, Keshav Dogra, Elena Elbarmi, Donggyu Lee, and Michael Pham

decorative illustration: chart and stock prices background.

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 September 2025. To summarize, growth in 2025 is expected to be stronger than in September due to a lower projected path of the policy rate, as well as higher productivity. Inflation projections are higher in 2025 because of cost-push shocks, which capture the effects of tariffs. The model’s predictions for the short-run real natural rate of interest (or r*) in 2025 have decreased relative to September.

Posted at 9:00 am in DSGE | Permalink | Comments (0)

November 25, 2025

The Future of Payment Infrastructure Could Be Permissionless

Rod Garratt and Michael Junho Lee

USD Coin Stock Market Ticker Crypto World 1 - Positive Returns - Green Version 1

Following the recent passage of legislation in the U.S., payment stablecoins seem to be on the brink of wider-scale adoption and explosive growth in market capitalization. In this post, we contend that the driving factor is not their proximity to digital cash instruments, but rather how they are transferred—via global, open-access, peer-to-peer systems, or “permissionless blockchains,” for short.

Posted at 7:00 am in Cryptocurrencies | Permalink

November 24, 2025

How Businesses Set Prices—In Their Own Words

Wändi Bruine de Bruin, Keshav Dogra, Sebastian Heise, Edward S. Knotek II, Brent H. Meyer, Robert W. Rich, Raphael S. Schoenle, Giorgio Topa, and Wilbert van der Klaauw

Price tag on a clothes rack with the inscription Pullover, Sweater 26.99

There has been a lot of interest in firms’ pricing decisions in the past few years—both during the inflation surge of 2021-23 and in the more recent rounds of tariff increases. In this post, we let firms speak for themselves about what factors they consider when adjusting prices in response to various shocks. The analysis is based on an ongoing research project, joint with the Atlanta and Cleveland Federal Reserve Banks, on how businesses set prices and the extent of passthrough of cost increases. In particular, we leverage the qualitative portion of the study based on open-ended interviews with senior decision-makers on how they approach pricing decisions in their firms. Rather than a uniform approach, a very nuanced picture emerges of businesses trying to balance competing objectives while keeping an eye on demand conditions for their products as well as on their direct competitors’ behavior in the market.

Posted at 7:00 am in Inflation | Permalink

Markets & Policy Implementation

Liberty Street Economics

What Is a Carbon Tariff and Why Is the EU Imposing One?

What Can Undermine a Carbon Tax?

Which Entrepreneurs Boost Productivity?

Tariffs, Trade, and Tumbling Credit Scores: The Top 5 LSE Posts of 2025

A New Public Data Source: Call Reports from 1959 to 2025

Letters of Recommendation in the PhD Job Market: Lessons from Specialized Banks

Designing Bank Regulation with Accounting Discretion

The New York Fed DSGE Model Forecast— December 2025

The Future of Payment Infrastructure Could Be Permissionless

How Businesses Set Prices—In Their Own Words

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