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72 posts on "Crisis"August 13, 2020The Disproportionate Effects of COVID-19 on Households with Children
A growing body of evidence (here, here, and here) points to large negative economic and health impacts of the COVID-19 pandemic on low-income, Black, and Hispanic Americans. Beyond the consequences of school cancellations and lost social interactions, there exists considerable concern about the long-lasting effects of economic hardship on children. In this post, we assess the extent of the underlying economic and financial strain faced by households with children living at home, using newly collected data from the monthly Survey of Consumer Expectations (SCE).
Posted at 7:00 am in Crisis, Household, Household Finance, Inequality, Pandemic | Permalink | Comments (3)June 17, 2020Did State Reopenings Increase Social Interactions?
Social distancing—avoiding nonessential movement and largely staying at home—is seen as key to limiting the spread of COVID-19. To promote social distancing, over forty states imposed shelter-in-place or stay-at-home orders, closing nonessential businesses, banning large gatherings, and encouraging citizens to stay home. Over the course of the last month, virtually all of these states have reopened. However, these reopenings were preceded by a spontaneous increase in mobility and decline in social distancing. Did the reopenings decrease social distancing, or did it ratify ex post what was already going to take place? In this post, we will investigate this question using an event study methodology and demonstrate that reopenings probably have caused a large decline in social distancing, even after accounting for the trends already in place at the time of reopening.
June 16, 2020Outflows from Bank-Loan Funds during COVID-19
The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of the loan-fund industry to the COVID-19 crisis (and to negative shocks more generally) seems to be even greater than that of high-yield bond funds, which also invest in high-risk debt securities and have received much attention because of their possible exposure to run-like behavior by investors and their implications for financial stability.
Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Liquidity, Pandemic | Permalink | Comments (2)June 12, 2020How Fed Swap Lines Supported the U.S. Corporate Credit Market amid COVID-19 Strains
The onset of the COVID-19 shock in March 2020 brought large changes to the balance sheets of the U.S. branches of foreign banking organizations (FBOs). Most of these branches saw sizable usage of committed credit lines by U.S.-based clients, resulting in increased funding needs. In this post, we show that branches of FBOs from countries whose central banks used standing swap lines with the Federal Reserve (“standing swap central banks”—SSCBs) met their increased funding needs by accessing dollars that flowed into the United States through their foreign parent banks. This volume of dollar inflows accounted for at least half of the late March aggregate take-up at SSCB dollar operations.
Posted at 9:19 am in Crisis, Currency, Federal Reserve, Financial Institutions, Pandemic | Permalink | Comments (0)May 22, 2020Have the Fed Swap Lines Reduced Dollar Funding Strains during the COVID-19 Outbreak?
In March 2020, the Federal Reserve made changes to its swap line facilities with foreign central banks to enhance the provision of dollars to global funding markets. Because the dollar has important roles in international trade and financial markets, reducing these strains helps facilitate the supply of credit to households and businesses, both domestically and abroad. This post summarizes the changes made to central bank swap lines and shows that these changes were effective at bringing down dollar funding strains abroad.
May 20, 2020The Paycheck Protection Program Liquidity Facility (PPPLF)
On April 9, 2020, the Federal Reserve announced that it would take additional actions to provide up to $2.3 trillion in loans to support the economy in response to the COVID-19 crisis. Among the measures taken was the establishment of a new facility intended to facilitate lending to small businesses via the Small Business Administration’s Paycheck Protection Program (PPP). Under the Paycheck Protection Program Liquidity Facility (PPPLF), Federal Reserve Banks are authorized to supply liquidity to financial institutions participating in the PPP in the form of term financing on a non-recourse basis while taking PPP loans as collateral. The facility was launched April 16, 2020. As of May 7, it had issued over $29 billion in loans (see the H.4.1 Statistical Release). This post lays out the background for the PPPLF and discusses its intended effects.
Posted at 7:00 am in COVID-19 Facilities, Crisis, Federal Reserve, Pandemic | Permalink | Comments (0)May 18, 2020Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows
The COVID-19 outbreak has triggered unusually fast outflows of dollar funding from emerging market economies (EMEs). These outflows are known as “sudden stop” episodes, and they are typically followed by economic contractions. In this post, we assess the macroeconomic effects of the COVID-induced sudden stop of capital flows to EMEs, using our open-economy DSGE model. Unlike existing frameworks, such as the Federal Reserve Board’s SIGMA model, our model features both domestic and international financial constraints, making it well-suited to capture the effects of an outflow of dollar funding. The model predicts output losses in EMEs due in part to the adverse effect of local currency depreciation on private-sector balance sheets with dollar debts. The financial stresses in EMEs, in turn, spill back to the U.S. economy, through both trade and financial channels. The model-predicted output losses are persistent (consistent with previous sudden stop episodes), with financial effects being a significant drag on the recovery. We stress that we are only tracing out the effects of one particular channel (the stop of capital flows and its associated effect on funding costs) and not the totality of COVID-related effects.
Posted at 7:00 am in Crisis, Exchange Rates, International Economics, Macroecon, Pandemic | Permalink | Comments (2)May 11, 2020Does the BCG Vaccine Protect Against Coronavirus? Applying an Economist’s Toolkit to a Medical Question
As COVID-19 has spread across the globe, there is an intense search for treatments and vaccines, with numerous trials running in multiple countries. Several observers and prominent news outlets have noticed that countries still administering an old vaccine against tuberculosis—the Bacillus Camille-Guerin (BCG) vaccine—have had fewer coronavirus cases and fewer deaths per capita in the early stages of the outbreak. But is that correlation really strong evidence that the BCG vaccine provides some defense against COVID-19? In this post, we look at the incidence of coronavirus cases along the former border between East and West Germany, using econometric techniques to investigate whether historical differences in vaccination policies account for the lower level of infection in the former East.
April 15, 2020The COVID-19 Pandemic and the Fed’s Response
In this post, the authors review the Fed’s action following the coronavirus outbreak, and compare it with the response to the 2007-09 financial crisis.
Posted at 4:11 pm in Crisis, Federal Reserve, FOMC, Great Recession, Monetary Policy, Pandemic | Permalink | Comments (0)April 8, 2020How Does Supervision Affect Bank Performance during Downturns?
New research finds that there is a cyclical nature to the benefits of bank supervisory attention: in normal times, the benefits are smaller, but during downturns the more closely supervised banks exhibit better loan performance and lower earnings volatility.
Posted at 7:00 am in Bank Capital, Banks, Crisis, Federal Reserve, Financial Institutions, Great Recession, Pandemic, Recession, Systemic Risk | Permalink | Comments (0)Economic Research Tracker
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