Since the financial crisis of 2007-08 and the Great Recession, many commentators have been baffled by the “missing deflation” in the face of a large and persistent amount of slack in the economy.
August 11, 2014
Inflation in the Great Recession and New Keynesian Models
Posted at 7:00 am in DSGE, Financial Markets, Macroeconomics, Monetary Policy, Unemployment | Permalink | Comments (1)
August 8, 2014
Crisis Chronicles: The Hamburg Crisis of 1799 and How Extreme Winter Weather Still Disrupts the Economy
With intermittent war raging across much of Western Europe near the end of the eighteenth century, by about 1795, Hamburg had replaced Amsterdam as an important hub for commodities trade.
August 6, 2014
The Slow Recovery in Consumer Spending
One contributor to the subdued pace of economic growth in this expansion has been consumer spending.
August 4, 2014
Financial Stability Monitoring
In a recently released New York Fed staff report, we present a forward-looking monitoring program to identify and track time-varying sources of systemic risk.
Posted at 10:00 am in Fed Funds, Financial Institutions, Financial Markets, Macroeconomics, Monetary Policy, Systemic Risk | Permalink
July 31, 2014
Just Released: Updated Study of the Competitiveness of Puerto Rico’s Economy Proposes Steps to Address the Island’s Fiscal Stress
An Update on the Competitiveness of Puerto Rico’s Economy, released today, offers six steps that the Island’s government should consider taking to restore its fiscal health.
July 21, 2014
Becoming More Alike? Comparing Bank and Federal Reserve Stress Test Results
Stress tests have become an important method of assessing whether financial institutions have enough capital to operate in bad economic conditions.
July 18, 2014
Historical Echoes: The Worst Bank Robbers in Mendham, New Jersey
There are many methods by which financial institutions can ready themselves for worst-case scenarios: they acquire FDIC insurance, they follow a variety of banking regulations, and they prepare for natural disasters, for starters.
July 16, 2014
Risk Aversion and the Natural Interest Rate
One way to assess the stance of monetary policy is to assert that there is a natural interest rate (NIR), defined as the rate consistent with output being at its potential. Broadly speaking, monetary policy can be seen as expansionary if the policy rate is below the NIR with the gap between the rates measuring the extent of the policy stimulus. Of course, there are many challenges in defining and measuring the NIR, with various factors driving its value over time. A key factor that needs to be considered is the effect of uncertainty and risk aversion on households’ savings decisions. Households’ tolerance for risk tends to be lower during downturns, putting upward pressure on precautionary savings, and thereby downward pressure on the natural interest rate. In addition, uncertainty dictates how much precautionary savings responds to changes in risk aversion. So policymakers need to be aware that rate moves to offset adverse economic conditions that are appropriate in tranquil times may not be sufficient in times of high uncertainty.
July 15, 2014
Just Released: July Empire State Manufacturing Survey Shows Strength
Jason Bram and Richard Deitz The July 2014 Empire State Manufacturing Survey, released today, points to some notable strengthening in New York’s manufacturing sector. The survey’s headline general business conditions index and the new orders and shipments indexes all climbed to their highest levels in more than four years. The employment measure also moved up in […]
Posted at 8:45 am in Regional Analysis | Permalink
July 14, 2014
High Unemployment and Disinflation in the Euro Area Periphery Countries
Thomas Klitgaard and Richard Peck
Economists often model inflation as dependent on inflation expectations and the level of economic slack, with changes in expectations or slack leading to changes in the inflation rate. The global slowdown and the subsequent sovereign debt crisis caused the greatest divergence in unemployment rates among euro area member countries since the monetary union was founded in 1999. The pronounced differences in economic performances of euro area countries since 2008 should have led to significant differences in price behavior. That turned out to be the case, with a strong correlation evident between disinflation and labor market deterioration in euro area countries
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