Liberty Street Economics

Liberty Street Economics

May 25, 2023

Do Veterans Face Disparities in Higher Education, Health, and Housing?

Rajashri Chakrabarti, Dan Garcia, and Maxim Pinkovskiy

Illustration of "how do veterans fare?" of veteran saluting with house, medical sign and college cap.

Veterans are an understudied group that forms an important part of the fabric of American society and that constitutes a significant segment of the population. In the first post of this two-part series, we will investigate how the outcomes of veteran men–in educational attainment, health, and housing–differ from those of comparable men who did not serve in the military. Looking only at men, for reasons described below, we find that relative to nonveteran men with a high school degree and a similar distribution of demographic and geographic characteristics, veterans are 7 percentage points less likely to have a college degree and are over 50 percent more likely to experience a disability. Veterans are also somewhat likelier to rent a home than to own and, as renters, pay a lower average rent, suggesting they experience lower quality housing or live in worse neighborhoods.

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Posted at 11:00 am in Equitable Growth, Housing, Inequality | Permalink | Comments (1)
May 24, 2023

Measuring the Financial Stability Real Interest Rate, r**

Ozge Akinci, Gianluca Benigno, Marco Del Negro, Ethan Nourbash, and Albert Queralto

Decorative photo: gold image of coins with bar and line chart super imposed.

Comparing our financial stability real interest rate, r** (“r-double-star”) with the prevailing real interest rate gives a measure of how vulnerable the economy is to financial instability. In this post, we first explain how r** can be measured, and then discuss its evolution over the last fifty years and how to interpret the recent banking turmoil within this framework.

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Posted at 7:00 am in Bank Capital, Banks, Crisis, Financial Markets, Monetary Policy | Permalink | Comments (2)
May 23, 2023

Financial Stability and Interest Rates

Ozge Akinci, Gianluca Benigno, Marco Del Negro, Ethan Nourbash, and Albert Queralto

Decorative photo: green image of coins with bar and line chart super imposed.

In a recent research paper we argue that interest rates have very different consequences for current versus future financial stability. In the short run, lower real rates mean higher asset prices and hence higher net worth for financial institutions. In the long run, lower real rates lead intermediaries to shift their portfolios toward risky assets, making them more vulnerable over time. In this post, we use a model to highlight the challenging trade-offs faced by policymakers in setting interest rates.

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Posted at 7:00 am in Inflation, Macroeconomics, Systemic Risk | Permalink
May 22, 2023

Financial Vulnerability and Macroeconomic Fragility

Ozge Akinci, Gianluca Benigno, Marco Del Negro, Ethan Nourbash, and Albert Queralto

Decorative photo: blue image of coins with bar and line chart super imposed.

What is the effect of a hike in interest rates on the economy? Building on recent research, we argue in this post that the answer to this question very much depends on how vulnerable the financial system is. We measure financial vulnerability using a novel concept—the financial stability interest rate r** (or “r-double-star”)—and show that, empirically, the economy is more sensitive to shocks when the gap between r** and current real rates is small or negative.

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Posted at 7:00 am in Banks, Credit, Financial Intermediation, Systemic Risk | Permalink | Comments (1)
May 18, 2023

Banks’ Balance‑Sheet Costs and ON RRP Investment

Gara Afonso, Marco Cipriani, Catherine Huang, and Gabriele La Spada

Daily investment at the Federal Reserve’s  Overnight Reverse Repo (ON RRP) facility increased from a few billion dollars in March 2021 to more than $2.3 trillion in June 2022 and has stayed above $2 trillion since then. In this post, which is based on a recent staff report, we discuss two channels—a deposit channel and a wholesale short-term debt channel—through which banks’ balance-sheet costs have increased investment by money market mutual funds (MMFs) in the ON RRP facility.

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Posted at 8:16 am in Banks, Financial Institutions, Financial Markets | Permalink | Comments (1)
May 17, 2023

Look Out for Outlook‑at‑Risk

Nina Boyarchenko, Richard Crump, Leonardo Elias, and Ignacio Lopez Gaffney

Decorative image:

The timely characterization of risks to the economic outlook plays an important role in both economic policy and private sector decisions. In a February 2023 Liberty Street Economics post, we introduced the concept of “Outlook-at-Risk”—that is, the downside risk to real activity and two-sided risks to inflation. Today we are launching Outlook-at-Risk as a regularly updated data product, with new readings for the conditional distributions of real GDP growth, the unemployment rate, and inflation to be published each month. In this post, we use the data on conditional distributions to investigate how two-sided risks to inflation and downside risks to real activity have evolved over the current and previous five monetary policy tightening cycles.

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Posted at 10:00 am in Central Bank, Financial Markets, Forecasting, Macroeconomics, Monetary Policy | Permalink
May 15, 2023

The Great Pandemic Mortgage Refinance Boom

Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw

Decorative photo: play house with gray roof and red brick exterior, sitting on top of a spread out pile of $20 bills.

Total debt balances grew by $148 billion in the first quarter of 2023, a modest increase after 2022’s record growth. Mortgages, the largest form of household debt, grew by only $121 billion, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data.  The increase was tempered by a sharp reduction in both purchase and refinance mortgage originations. The pandemic boom in purchase originations was driven by many factors – low mortgage rates, strong household balance sheets, and an increased demand for housing. Homeowners who refinanced in 2020 and 2021 benefitted from historically low interest rates and will be enjoying low financing costs for decades ­to come. These “rate refinance” borrowers have lowered their monthly mortgage payments, improving their cash flow, while other “cash-out” borrowers extracted equity from their real estate assets, making more cash available for consumption. Here, we explore the refi boom of 2020-21–who refinanced, who took out cash, and how much potential consumption support these transactions provided. In this analysis, as well as the Quarterly Report, we use our Consumer Credit Panel (CCP), which is based on anonymized credit reports from Equifax.

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Posted at 11:00 am in Credit, Household Finance, Housing | Permalink | Comments (1)

First‑Time Buyers Did Not Drive Strong House Price Appreciation in 2021

Donghoon Lee and Joseph S. Tracy

Photo of family moving into their first home; taking boxes out of a truck. Parents and two daughters.

In May 2022, Sam Khater—chief economist for Freddie Mac—argued that a surge in first-time buyers had been an important driver of the housing market the previous year. In contrast, using data from the New York Fed Consumer Credit Panel, we find that the share of home purchases by first-time buyers fell in 2021. This suggests that other factors were important to the rapid increase in house prices in 2021. 

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Posted at 7:00 am in Equitable Growth, Housing, Inflation | Permalink
May 12, 2023

Banks Runs and Information

By Haelim Anderson and Adam Copeland

Decorative photo: outside doors of Signature Bank building with bank name over the doors.

The collapse of Silicon Valley Bank (SVB) and Signature Bank (SB) has raised questions about the fragility of the banking system. One striking aspect of these bank failures is how the runs that preceded them reflect risks and trade-offs that bankers and regulators have grappled with for many years. In this post, we highlight how these banks, with their concentrated and uninsured deposit bases, look quite similar to the small rural banks of the 1930s, before the creation of deposit insurance. We argue that, as with those small banks in the early 1930s, managing the information around SVB and SB’s balance sheets is of first-order importance.

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Posted at 7:00 am in Banks, Crisis, Financial Institutions | Permalink
May 11, 2023

Bank Funding during the Current Monetary Policy Tightening Cycle

Stephan Luck, Matthew Plosser, and Josh Younger

decorative photo: image of the outside of a silicon valley bank building.

Recent events have highlighted the importance of understanding the distribution and composition of funding across banks. Market participants have been paying particular attention to the overall decline of deposit funding in the U.S. banking system as well as the reallocation of deposits within the banking sector. In this post, we describe changes in bank funding structure since the onset of monetary policy tightening, with a particular focus on developments through March 2023.

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Posted at 7:00 am in Bank Capital, Banks, Federal Reserve, Financial Institutions | Permalink | Comments (1)
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