Liberty Street Economics

Liberty Street Economics


May 13, 2011

Historical Echoes: Two Out of Three Ain’t Bad

New York Fed Research Library

Joseph Schumpeter (February 8, 1883–January 8, 1950) was an Austrian-born economist famous for his contributions to many fields in economics, including growth theory and entrepreneurship. He is perhaps most famous for his theory of growth as a consequence of “creative destruction.” Schumpeter was also ambitious, as this recollection by Paul Samuelson, an even more famous economist, suggests:

“I have retold Schumpeter’s story about his three wishes in life—to be the greatest lover in Austria, the best horseman in Europe, and the greatest economist in the world—and his regret of having failed to fulfil the second wish.”

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Posted at 10:00 am in Historical Echoes | Permalink
May 11, 2011

Why Are Adjustable Rate Mortgages So Rare These Days?

James Vickery

The fraction of mortgage borrowers who choose an adjustable-rate loan has fallen significantly over the past five years or so. Although the fraction edged up slightly in 2010, it remains close to historic lows, with less than 10 percent of mortgage originations since 2009 featuring an adjustable interest rate. What explains the striking decline? And what are its implications for borrowers and policymakers?

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Posted at 10:00 am in Crisis, Household Finance, Housing | Permalink
May 9, 2011

The Great Recession and Recovery in the Tri‑State Region

Jason Bram and James A. Orr

In 2008, as the financial crisis unfolded and the U.S. economy tumbled into a sharp recession, the outlook for the tri-state region (New York, New Jersey, and Connecticut) and especially New York City—the heart of the nation’s financial industry—looked grim. Regional economists feared an economic downturn as harsh as the one in 2001, or the even deeper recession of the early 1990s. Now, as the recovery takes hold, we can report that although the economic downturn was severe in the region, with the unemployment rate surging above 9 percent in many places, it was less severe than many had anticipated. This post—which is based on the New York Fed’s May 6 Regional Economic Press Briefing—recaps how the Great Recession affected employment across the region, how the ensuing recovery has progressed, and what the prospects are for job growth as we go forward.

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Posted at 10:01 am in Employment, New Jersey, New York, Recession | Permalink

Just Released: Household Debt and Credit Developments in the Nation and the Region in 2011:Q1

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

This post gives our summary of the 2011:Q1 Quarterly Report on Household Debt and Credit, released today by the New York Fed. The report shows signs of healing in household balance sheets in the United States and the region, as measured by consumer debt levels, delinquency rates, foreclosure starts, and bankruptcies— although the regional data are somewhat mixed. The report captures the debt and credit activity of an anonymous, nationally representative panel of U.S. households.

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Posted at 10:00 am in Credit, Household Finance, New Jersey | Permalink
May 6, 2011

Historical Echoes: New York City’s Economy – That Was Now, This Is Then

New York Fed Research Library

Discussions of New York City’s economy that focus on declining employment, a shrinking securities industry, and a reduction in municipal jobs might suggest the present. These concerns, however, are not new. In the 1970s, New York City faced many of the same problems it does now in the aftermath of the Great Recession. Back then, some observers doubted that the city could ever recover its former glory.

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Posted at 10:00 am in Employment, Historical Echoes, New York | Permalink
May 4, 2011

How Much Will the Second Round of Large‑Scale Asset Purchases Affect Inflation and Unemployment?

Vasco Cúrdia and Andrea Ferrero

With the federal funds rate at the zero lower bound, the Fed’s large-scale purchase of Treasury securities provides an alternative tool to boost the economy. In November 2010, the Federal Open Market Committee (FOMC) announced a second round of large-scale asset purchases (LSAP2) with the goal of accelerating the recovery. In this post, we analyze the impact of LSAP2 on the two variables that fall under the Fed’s dual mandate: inflation and unemployment. Our point estimates suggest that the effects will be moderate and delayed, although there is considerable uncertainty attached to these estimates.

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Posted at 10:00 am in Exchange Rates, Fed Funds, Inflation, Macroeconomics, Monetary Policy, Treasury, Unemployment | Permalink
May 2, 2011

New York City’s Economic Recovery—Main Street Gets the Jump on Wall Street

Jason Bram and James A. Orr

After bottoming out in late 2009, New York City’s economy has been on the road to recovery. In this post, we call attention to an unprecedented feature of the current economic recovery: overall employment in the city began to rebound from the recession well before Wall Street started adding jobs. We also consider some questions that this development naturally raises: What took Wall Street employment so long to recover? What’s been driving job generation on Main Street? What does the recent pickup in Wall Street employment suggest about the outlook for the city’s economy?

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Posted at 10:00 am in New York, Recession | Permalink
April 18, 2011

What Is Driving the Recent Rise in Consumer Inflation Expectations?

Giorgio Topa, Wilbert van der Klaauw, Olivier Armantier, and Basit Zafar

The Thomson Reuters/University of Michigan Survey of Consumers (the “Michigan Survey” hereafter) is the main source of information regarding consumers’ expectations of future inflation in the United States. The most recent release of the Michigan Survey on March 25 drew considerable attention because it showed a large spike in year-ahead expectations for inflation: as shown in the chart below, the median rose from 3.4 to 4.6 percent and the other quartiles of responses showed similar increases. What may have caused this rise in inflation expectations and what lessons should be taken from it? In this post, we draw upon the findings of an ongoing New York Fed research project to shed some light on the possible sources of the recent increase and to gauge its significance. While our research spans both short- and medium-term inflation expectations, this blog post discusses movements in short-term measures only and does not discuss medium-term expectations.

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Posted at 10:00 am in Expectations, Inflation | Permalink | Comments (1)
April 15, 2011

Historical Echoes: Popular Science Meets Liquidity Hoarding

New York Fed Research Library

In times of economic uncertainty, most people’s natural response is to cling to cash in the interest of self-preservation. As the recent financial crisis demonstrated, financial institutions may hoard cash as well, creating a credit freeze.

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Posted at 10:00 am in Historical Echoes | Permalink
April 13, 2011

Why Did U.S. Branches of Foreign Banks Borrow at the Discount Window during the Crisis?

Linda S. Goldberg and David R. Skei

To help contain the economic damage caused by the recent financial crisis, the Federal Reserve extended large amounts of liquidity to financial firms through traditional lending facilities such as the discount window as well as through newly designed facilities. Recently released Federal Reserve data on discount window borrowing show that some U.S. branches and agencies of foreign banks were among the most active users of the window. In this post, we explain why U.S. branches borrow at the discount window. We also discuss two main reasons why these branches had a large need for dollars during the crisis and how discount window loans to them helped stabilize the financial system and the real economy in the United States.

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Posted at 10:00 am in Banks, Fed Funds, Financial Institutions, Monetary Policy | Permalink | Comments (2)
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