107 posts on "Crisis"
May 18, 2020
Modeling 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, Macroeconomics, Pandemic | Permalink | Comments (2)
May 11, 2020
Does 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 8, 2020
How 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, Recession, Systemic Risk | Permalink
March 27, 2020
Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu
The COVID-19 outbreak has sparked urgent questions about the impact of pandemics, and the associated countermeasures, on the real economy. Policymakers are in uncharted territory, with little guidance on what the expected economic fallout will be and how the crisis should be managed. In this blog post, we use insights from a recent research paper to discuss two sets of questions. First, what are the real economic effects of a pandemic—and are these effects temporary or persistent? Second, how does the local public health response affect the economic severity of the pandemic? In particular, do non-pharmaceutical interventions (NPIs) such as social distancing have economic costs, or do policies that slow the spread of the pandemic also reduce its economic severity?
Posted at 5:18 pm in Balance of Payments, Crisis, Economic History, Pandemic, Recession | Permalink | Comments (3)
February 26, 2020
Did Subprime Borrowers Drive the Housing Boom?
The role of subprime mortgage lending in the U.S. housing boom of the 2000s is hotly debated in academic literature. One prevailing narrative ascribes the unprecedented home price growth during the mid-2000s to an expansion in mortgage lending to subprime borrowers. This post, based on our recent working paper, “Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom,” presents evidence that is inconsistent with conventional wisdom. In particular, we show that the housing boom and the subprime boom occurred in different places.
Posted at 7:00 am in Banks, Credit, Crisis, Household Finance, Housing, Recession | Permalink | Comments (8)
September 23, 2019
Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition
How does competition among banks affect credit growth and real economic growth? In addition, how does it affect financial stability? In this blog post, we derive insights into this important set of questions from novel data on the U.S. banking system during the nineteenth century.
Posted at 7:00 am in Banks, Crisis, Economic History, Financial Institutions, Financial Intermediation | Permalink
June 26, 2019
How Large Are Default Spillovers in the U.S. Financial System?
When a financial firm suffers sufficiently high losses, it might default on its counterparties, who may in turn become unable to pay their own creditors, and so on. This “domino” or “cascade” effect can quickly propagate through the financial system, creating undesirable spillovers and unnecessary defaults. In this post, we use the framework that we discussed in “Assessing Contagion Risk in a Financial Network,” the first part of this two-part series, to answer the question: How vulnerable is the U.S. financial system to default spillovers?
Posted at 7:00 am in Banks, Crisis, Financial Institutions, Financial Intermediation, Systemic Risk | Permalink | Comments (1)
June 24, 2019
Assessing Contagion Risk in a Financial Network
Duarte, Jones, and Ruela describe how stress can propagate through the financial system and sketch out an approach for quantifying economic losses stemming from default cascades.
Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Financial Markets, Systemic Risk | Permalink | Comments (1)
February 25, 2019
What Can We Learn from the Timing of Interbank Payments?
From 2008 to 2014 the Federal Reserve vastly increased the size of its balance sheet, mainly through its large-scale asset purchase programs (LSAPs). The resulting abundance of reserves affected the financial system in a number of ways, including by changing the intraday timing of interbank payments. In this post we show that (1) there appears to be a nonlinear relationship between the amount of reserves in the system and the timing of interbank payments, and (2) with the increase in reserves, smaller banks shifted their timing of payments more significantly than larger banks did. This result suggests that tracking the timing of payments sent by banks could provide an informative signal about the impact of the shrinking Federal Reserve balance sheet on the payments system.
January 18, 2019
Post‑Crisis Financial Regulation: Experiences from Both Sides of the Atlantic
To celebrate the 100-year anniversary of the Banca d’Italia’s New York office, the Federal Reserve Bank of New York and the Banca d’Italia hosted a workshop on post-crisis financial regulation in November 2018. The goal of the workshop was to discuss differences in regulation between the United States and Europe (and around the globe more broadly), examine gaps in current regulations, identify challenges to be addressed, and raise awareness about the unintended consequences of regulation. The workshop included presentations on such topics as market liquidity, funding, and capital requirements. In this post, we present some of the findings and discussions from the workshop.
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