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February 12, 2020

Reading the Tea Leaves of the U.S. Business Cycle—Part Two

Richard Crump, Domenico Giannone, and David Lucca

In our previous post, we presented evidence suggesting that labor market indicators provide the most reliable information for dating the U.S. business cycle. In this post, we further develop the case. In fact, the unemployment rate has provided an almost perfect record of distinguishing the beginning of recessions in the post-war U.S. economy. We also show that using more granular labor market data, such as by region or industry, also provides valuable information about the state of the business cycle.

Posted by Blog Author at 7:00 AM in Labor Market , Macroecon , Recession , Unemployment | Permalink | Comments ( 1 )

February 11, 2020

Charging into Adulthood: Credit Cards and Young Consumers

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

The New York Fed’s Center for Microeconomic Data today released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2019. Total household debt balances grew by $193 billion in the fourth quarter, marking a $601 billion increase in household debt balances in 2019, the largest annual gain since 2007. The main driver was a $433 billion annual upswing in mortgage balances, also the largest since 2007. Auto loan and credit card balances both increased by a brisk $57 billion last year, while student loan balances climbed by a more muted $51 billion, well below the $114 billion increase recorded in 2013—the fastest pace of growth for the series. The source for the Quarterly Report is the New York Fed’s Consumer Credit Panel—a panel data set that now spans twenty-one years, 1999-2019. The unique panel design allows us to identify new entrants to the credit market: as young people age into having credit reports and using credit products, they are “born” into the panel, enabling us to observe the credit behavior of young borrowers.

Posted by Blog Author at 11:04 AM in Credit , Household Finance | Permalink | Comments ( 0 )

February 10, 2020

Reading the Tea Leaves of the U.S. Business Cycle—Part One

Richard Crump, Domenico Giannone, and David Lucca

The study of the business cycle—fluctuations in aggregate economic activity between times of widespread expansion and contraction—is one of the foremost pursuits in macroeconomics. But even distinguishing periods of expansion and recession can be challenging. In this post, we discuss different conceptual approaches to dating the business cycle, study their past performance for the U.S. economy, and highlight the informativeness of labor market indicators.

Posted by Blog Author at 7:00 AM in Labor Market , Macroecon , Recession | Permalink | Comments ( 0 )

February 05, 2020

The Affordable Care Act and For-Profit Colleges

Rajashri Chakrabarti and Maxim Pinkovskiy

Getting health insurance in America is intimately connected to choosing whether and where to work. Therefore, it should not be surprising that the U.S. health insurance market may influence, and be influenced by, the market for higher education—which itself is closely tied to the labor market. In this post, and the staff report it is based on, we investigate the effects of the largest overhaul of health insurance in the United States in recent decades—the Patient Protection and Affordable Care Act of 2010 (ACA) -- on college enrollment choices.

Posted by Blog Author at 7:00 AM in Education | Permalink | Comments ( 0 )

February 03, 2020

Have the Risk Profiles of Large U.S. Bank Holding Companies Changed?

Ricardo Correa, Linda Goldberg, and Kevin Lai

After the global financial crisis, regulatory changes were implemented to support financial stability, with some changes directly addressing capital and liquidity in bank holding companies (BHCs) and others targeting BHC size and complexity. Although the overall size of the largest U.S. BHCs has not decreased since the crisis, the organizational complexity of these same organizations has declined, with less notable changes being observed in their range of businesses and geographic scope (Goldberg and Meehl, forthcoming). In this post, we explore how different types of BHC risks—risks that can influence the probability that a BHC is stressed, as well as the chance of systemic implications—have changed over time. The results are mixed: Levels of most BHC risks tend to be higher than in the years immediately preceding the crisis, but are markedly lower than the levels seen during and immediately following the crisis.

Posted by Blog Author at 7:00 AM in Banks , Dodd-Frank , Financial Institutions , Financial Intermediation , Regulation , Systemic Risk | Permalink | Comments ( 0 )

January 15, 2020

How Does Tick Size Affect Treasury Market Quality?

Michael Fleming, Giang Nguyen, and Francisco Ruela

The popularity of U.S. Treasury securities as a means of pricing other securities, managing interest rate risk, and storing value is, in part, due to the efficiency and liquidity of the U.S. Treasury market. Any structural changes that might affect these attributes of the market are therefore of interest to market participants and policymakers alike. In this post, we consider how a 2018 change in the minimum price increment, or tick size, for the 2-year U.S. Treasury note affected market quality, following our recently updated New York Fed staff report.

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 2 )

January 13, 2020

How Does Information Affect Liquidity in Over-the-Counter Markets?

Michael Lee and Antoine Martin

A large volume of financial transactions occur in decentralized markets that commonly depend on a network of dealers. Dealers face two impediments to providing liquidity in these markets. First, dealers may face informed traders. Second, they may face costs associated with maintaining large balance sheets, either due to inventory or liquidity costs. In a recent paper, we study a model of over-the-counter (OTC) markets in which liquidity is endogenously determined by dealers who must contend with both asymmetric information and liquidity costs. This post provides an intuitive explanation of our model and the dynamics of interdealer liquidity.

Posted by Blog Author at 7:00 AM in Dealers , Liquidity | Permalink | Comments ( 0 )

January 08, 2020

What’s in A(AA) Credit Rating?

Nina Boyarchenko and Or Shachar

Update: Clarifying text regarding the net leverage chart, as well as an additional chart, have been added to the bottom of this post. (January 10, 10:40 a.m.)

Rising nonfinancial corporate business leverage, especially for riskier “high-yield” firms, has recently received increased public and supervisory scrutiny. For example, the Federal Reserve’s May 2019 Financial Stability Report notes that “growth in business debt has outpaced GDP for the past 10 years, with the most rapid growth in debt over recent years concentrated among the riskiest firms.” At the upper end of the credit spectrum, “investment-grade” firms have also increased their borrowing, while the number of higher-rated firms has decreased. In fact, there are currently only two U.S. companies rated AAA: Johnson & Johnson and Microsoft. In this post, we examine recent trends in the issuance of investment-grade corporate bonds and argue that the combination of increased BAA issuance and virtually nonexistent AAA issuance both reduces the usefulness of the BAA–AAA spread as a credit risk indicator and poses a financial stability concern.

Posted by Blog Author at 7:00 AM in Credit , Fire Sale | Permalink | Comments ( 1 )

January 06, 2020

The Evolving Market for U.S. Sovereign Credit Risk

Nina Boyarchenko and Or Shachar

How should we measure market expectations of the U.S. government failing to meet its debt obligations and thereby defaulting? A natural candidate would be to use the spreads on U.S. sovereign single-name credit default swaps (CDS): since a CDS provides insurance to the buyer for the possibility of default, an increase in the CDS spread would indicate an increase in the market-perceived probability of a credit event occurring. In this post, we argue that aggregate measures of activity in U.S. sovereign CDS mask a decrease in risk-forming transactions after 2014. That is, quoted CDS spreads in this market are based on few, if any, market transactions and thus may be a misleading indicator of market expectations.

Posted by Blog Author at 7:00 AM in Financial Markets , Liquidity | Permalink | Comments ( 1 )

December 20, 2019

The New York Fed DSGE Model Forecast—December 2019

William Chen, Marco Del Negro, Ethan Matlin, Reca Sarfati, and Andrea Tambalotti

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since September 2019. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.

Posted by Blog Author at 7:00 AM in DSGE , Forecasting , Macroecon | Permalink | Comments ( 0 )

About the Blog

Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

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