As financial markets have become increasingly globalized, banks have developed growing networks of branches and subsidiaries in foreign countries. This expansion of banking across borders is changing the way banks manage their balance sheets, and the ways home markets and foreign markets respond to disturbances to financial markets. Based on our recent research, this post shows how global banks used their foreign affiliates for accessing scarce dollars during the financial crisis—a liquidity strategy that helped transmit shocks internationally while reducing some of the consequences in the stressed locations.
July 11, 2011
July 8, 2011
Historical Echoes: One Giant Step for Banking
“Lamar Pioneers in Space, the New Frontier” is the headline of an advertisement that appeared in the April 1985 issue of Texas Monthly magazine. The ad indicates that Texas-chartered savings and loan “Lamar Savings now is making plans for a full service branch on the moon.”
Posted at 10:00 am in Historical Echoes | Permalink
July 6, 2011
Discretionary Services Expenditures in This Business Cycle
The pronounced weakness in personal consumption expenditures (PCE) for services has been an unusual feature of the 2007-09 recession and the slow recovery from it. Even in 2010:Q4, when real PCE increased at a relatively robust 4.1 percent annual rate, real PCE on services rose at only a 1.4 percent rate. This weakness has been especially evident in “discretionary” services (to be defined below), which fell more in the recent recession than in previous recessions and since have rebounded more sluggishly. In this post, I suggest that the continued sluggishness in these expenditures lends a note of caution regarding the sustainability of recent PCE strength. Because consumption accounts for about 70 percent of output, this in turn raises some concern about the future strength of the recovery.
July 1, 2011
Just Released: Marking the End of LSAP 2
Yesterday, the Federal Reserve concluded its second Large-Scale Asset Purchase (LSAP) program. Liberty Street Economics is marking the end of the program—through which the Fed purchased $600 billion in Treasury securities—by providing a variety of resources (research, directives, and other information) on LSAP 2.
Posted at 10:00 am in Monetary Policy | Permalink
June 29, 2011
Did Trade Finance Contribute to the Global Trade Collapse?
The financial crisis of 2008-09 brought about one of the largest collapses in world trade since the end of World War II. Between the first quarter of 2008 and the first quarter of 2009, the value of real global GDP fell 4.6 percent while exports plummeted 17 percent, as can be seen in the chart below. The dramatic decline in world trade—a loss of $761 billion in nominal exports—came through two channels: decreased demand for imports and supply effects, most likely arising from financial constraints. In this post, we look at evidence that supply effects, including curtailed funding for export-related activities, played a key role in the trade collapse—and thus in the transmission of the financial crisis from Wall Street to “Main Street,” here and abroad.
Posted at 10:00 am in Crisis, Exports, Financial Markets, International Economics, Unemployment | Permalink | Comments (2)
June 27, 2011
How Easy Is It to Forecast Commodity Prices?
Over the last decade, unprecedented spikes and drops in commodity prices have been a recurrent source of concern to both policymakers and the general public. Given all the recent attention, have economists and analysts made any progress in their ability to predict movements in commodity prices? In this post, we find there is no easy answer. We consider different strategies to forecast near-term commodity price inflation, but find that no particular approach is systematically more accurate and robust. Additionally, the results warn against interpreting current forecasts of commodity prices upswings as reliable and dependable signals of future inflationary pressure.
Posted at 10:00 am in Exchange Rates, Exports, Forecasting, Inflation, International Economics, Macroeconomics | Permalink | Comments (2)
June 13, 2011
Lower Income Households’ Vulnerability to the Recent Commodity Price Surge
In a previous post, I discussed the impact of changing commodity prices on the discretionary income of households and concluded that these effects generally were relatively modest except in cases of extreme swings in commodity prices. As many people know, there was a large surge in energy prices during the first quarter of 2011, and it appears to have had a significant effect on discretionary income and consumer spending. (See recent speeches by Federal Reserve Chairman Bernanke and New York Fed President Dudley; for views outside the Fed, see FT Alphaville, Tim Duy, and James Hamilton.)
June 10, 2011
Historical Echoes: Lights, Camera, Action! The Board’s New Headquarters
During the 1930s, major events were often announced by newsreels shown in movie theaters before feature films. This is how the Fed’s new headquarters made its film debut in 1937.
Posted at 10:00 am in Historical Echoes | Permalink
June 8, 2011
Will “Quantitative Easing” Trigger Inflation?
The Federal Reserve announced on November 3, 2010, that in the interest of stimulating economic recovery, it would purchase $600 billion of longer-term Treasury securities. The announcement led some commentators to conjecture that the Fed’s large-scale asset purchase (LSAP) program—popularly known as “quantitative easing”—is more likely to trigger inflation than stimulate recovery. This post discusses why those concerns may be misplaced, and also why they are not without some basis. A recent Liberty Street Economics post by James J. McAndrews—“Will the Federal Reserve’s Asset Purchases Lead to Higher Inflation?” addressed the same issue from a broader perspective and came to a substantially similar conclusion.
June 6, 2011
A Closer Look at the Recent Pickup in Inflation
Inflation has picked up in the last few months. Between June and November 2010, the twelve-month change in the seasonally adjusted consumer price index (CPI) was stable, at slightly above 1 percent, but it jumped to 3.1 percent as of last April. Higher food and energy prices have been an important factor behind this pickup in “headline” inflation. However, core inflation has also increased; the year-over-year core CPI (excluding volatile food and energy prices) moved from a record low of 0.6 percent in October 2010 to 1.3 percent in April.
RSS Feed
Follow Liberty Street Economics
