Just Released: Historical Reconstruction of the New York Fed Staff Nowcast, 2002-15

Patrick Adams, Domenico Giannone, Eric Qian, and Argia Sbordone



The New York Fed Staff Nowcast has been running for over three years. Each Friday at 11:15 a.m., we publish our updated predictions for real GDP growth based on the data released each week. When the Bureau of Economic Analysis (BEA) releases the first estimate of GDP growth, we stop updating our nowcast and archive it. We maintain these archives as part of our Nowcasting Report on the New York Fed’s public website to allow users to study the features of the nowcast and its accuracy. Now, to better understand the model and its performance during different cyclical episodes, we are publishing extended historical archives of the nowcast. Doing so provides fourteen additional years of forecasts that can be used not only to evaluate our nowcast model, but also to explore daily U.S. economic history through the model’s lens.

Did the Value of a College Degree Decline during the Great Recession?

Rajashri Chakrabarti, Michelle Jiang, and William Nober



In an earlier post, we studied how educational attainment affects labor market outcomes and earnings inequality. In this post, we investigate whether these labor market effects were preserved across the last business cycle: Did students with certain types of educational attainment weather the recession better?

Just Released: Great Recession’s Impact Lingers in Hardest-Hit Regions

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw



The New York Fed’s Center for Microeconomic Data today released our Quarterly Report on Household Debt and Credit for the fourth quarter of 2017. Along with this report, we have posted an update of state-level data on balances and delinquencies for 2017. Overall aggregate debt balances increased again, with growth in all types of balances except for home equity lines of credit. In our post on the first quarter of 2017 we reported that overall balances had surpassed their peak set in the third quarter of 2008—the result of a slow but steady climb from several years of sharp deleveraging during the Great Recession.

What about Spending on Consumer Goods?

Jonathan McCarthy



In a recent Liberty Street Economics post, I showed that one major category of consumer spending—spending on discretionary services such as recreation, transportation, and household utilities—behaved very differently in the 2007-09 recession and subsequent recovery than in previous business cycles: specifically, it fell more steeply and has recovered much more slowly. This finding prompted one of the editors of this blog to inquire whether consumer goods spending has also departed markedly from its behavior in past cycles. To answer that question, I examined the decline of expenditures on consumer durable goods and nondurable goods across recessions as well as the pace of recovery during long expansions like the current one.

Discretionary Services Spending Has Finally Made It Back (to 2007)

Jonathan McCarthy



The current economic expansion is now the third-longest expansion in U.S. history (based on National Bureau of Economic Research [NBER] dating of U.S. business cycles). Even so, average growth in this expansion—a 2.1 percent annual rate—has been extraordinarily weak. In this post, I return to previous analysis on a specific portion of consumer spending—household discretionary services expenditures—that has displayed unusual weakness in the current expansion (see this post for the definition of discretionary versus nondiscretionary services expenditures, and these posts from 2012 and 2014 for previous updates). Even though these expenditures have picked up over the past couple of years, such that they have finally exceeded their previous peak, their recovery remains well behind that of other major categories of consumer spending. One explanation for the slow growth of spending on discretionary services is that households are concerned about their future income.

Household Borrowing in Historical Perspective

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw



Today, the New York Fed’s Center for Microeconomic Data released its Quarterly Report on Household Debt and Credit for the first quarter of 2017. The report shows a rise in household debt balances in the quarter of $149 billion, the eleventh consecutive quarterly increase since the long period of deleveraging following the Great Recession. As of March 31, 2017, household debt balances stood at $12.73 trillion, surpassing the previous 2008 peak and hitting a level 14 percent above the trough seen in the second quarter of 2013. With this report’s release, we’re adding two new charts which show both early and severe delinquency trends by loan product type. The report and the analyses presented here are based on the New York Fed’s Consumer Credit Panel (CCP), which is sourced from Equifax credit report data.

Which Dealers Borrowed from the Fed’s Lender-of-Last-Resort Facilities?

Viral V. Acharya, Michael J. Fleming, Warren B. Hrung, and Asani Sarkar



During the 2007-08 financial crisis, the Fed established lending facilities designed to improve market functioning by providing liquidity to nondepository financial institutions—the first lending targeted to this group since the 1930s. What was the financial condition of the dealers that borrowed from these facilities? Were they healthy institutions behaving opportunistically or were they genuinely distressed? In published research, we find that dealers in a weaker financial condition were more likely to participate than healthier ones and tended to borrow more. Our findings reinforce the importance of Bagehot’s principle that the lender-of-last resort should lend only against high-quality collateral and at a penalty rate so as to discourage unneeded or opportunistic borrowing.

Financial Crises and the Desirability of Macroprudential Policy

Ozge Akinci and Albert Queralto



The global financial crisis has put financial stability risks—and the potential role of macroprudential policies in addressing them—at the forefront of policy debates. The challenge for macroeconomists is to develop new models that are consistent with the data while being able to capture the highly nonlinear nature of crisis episodes. In this post, we evaluate the impact of a macroprudential policy that has the government tilt incentives for banks to encourage them to build up their equity positions. The government has a role since individual banks do not internalize the systemic benefit of having more bank equity. Our model allows for an evaluation of the tradeoff between the size of such incentives and the probability of a future financial crisis.

Developing a Narrative: The Great Recession and Its Aftermath

Andrea Tambalotti and Argia M. Sbordone

Third in a five-part series

This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts. The severe recession experienced by the U.S. economy between December 2007 and June 2009 has given way to a disappointing recovery. It took three and a half years for GDP to return to its pre-recession peak, and by most accounts this broad measure of economic activity remains below trend today. What precipitated the U.S. economy into the worst recession since the Great Depression? And what headwinds are holding back the recovery? Are these headwinds permanent, calling for a revision of our assessment of the economy’s speed limit? Or are they transitory, although very long-lasting, as the historical record on the persistent damages inflicted by financial crisis seems to suggest? In this post, we address these questions through the lens of the FRBNY DSGE model.

Why Didn’t Inflation Collapse in the Great Recession?

Marco Del Negro, Marc Giannoni, Raiden B. Hasegawa, and Frank Schorfheide

GDP contracted 4 percent from 2008:Q2 to 2009:Q2, and the unemployment rate peaked at 10 percent in October 2010. Traditional backward-looking Phillips curve models of inflation, which relate inflation to measures of “slack” in activity and past measures of inflation, would have predicted a substantial drop in inflation. However, core inflation declined by only one percentage point, from 2.2 percent in 2007 to 1.2 percent in 2009, giving rise to the “missing deflation” puzzle. Based on this evidence, some authors have argued that slack must have been smaller than suggested by indicators such as the unemployment rate or deviations of GDP from its long-run trend. On the contrary, in Monday’s post, we showed that a New Keynesian DSGE model can explain the behavior of inflation in the aftermath of the Great Recession, despite large and persistent output gaps. An implication of this model is that information about the future stance of monetary policy is very important in determining current inflation, in contrast to backward-looking Phillips curve models where all that matters is the current and past stance of policy.