Liberty Street Economics

June 16, 2023

2023 State‑of‑the‑Field Conference on Cyber Risk to Financial Stability

Nitansha Bansal, Jason Healey, Anna Kovner, Michael Lee, Patricia Mosser, and Virpratap Vikram Singh

Decorative image: hand holding mobile device with cyber risk icon image overlay.

The Federal Reserve Bank of New York and Columbia University’s School of International and Public Affairs (SIPA) co-organized the fourth annual State-of-the-Field Conferences on Cyber Risk to Financial Stability, on April 14, 2023. The conference builds on joint activity by the New York Fed and SIPA since 2017. Each year, the conference convenes panels to confront the same three questions: What are we learning about cyber risk to financial stability? What are we doing to improve resilience and stability? And what’s next? This blog post reviews some of these conversations from the 2023 conference.

Posted at 7:00 am in Financial Institutions, Systemic Risk | Permalink

June 2, 2023

How Do Firms Adjust Prices in a High Inflation Environment?

Wändi Bruine de Bruin, Keshav Dogra, Sebastian Heise, Edward S. Knotek II, Brent H. Meyer, Robert W. Rich, Raphael S. Schoenle, Giorgio Topa, and Wilbert van der Klaauw

How do firms set prices? What factors do they consider, and to what extent are cost increases passed through to prices? While these are important questions in general, they become even more salient during periods of high inflation. In this blog post, we highlight preliminary results from ongoing research on firms’ price-setting behavior, a joint project between researchers at the Federal Reserve Banks of Atlanta, Cleveland, and New York. We use a combination of open-ended interviews and a quantitative survey in our analysis. Firms reported that the strength of demand was the most important factor affecting pricing decisions in recent years, while labor costs and maintaining steady profit margins were also highly important. Using three methodological approaches, we consistently estimate a rate of cost-price passthrough in the range of 60 percent for the representative firm over 2022-23—with considerable heterogeneity in this number across firms.

Posted at 10:00 am in Inflation | Permalink

MCT Update: Inflation Persistence Declined Significantly in April

Martin Almuzara, Babur Kocaoglu, and Argia Sbordone

Decorative photo: Closeup of sales receipt

This post presents an updated estimate of inflation persistence, following the release of personal consumption expenditure (PCE) price data for April 2023. The estimates are obtained by the Multivariate Core Trend (MCT), a model we introduced on Liberty Street Economics last year and covered most recently in a May post. The MCT is a dynamic factor model estimated on monthly data for the seventeen major sectors of the PCE price index. It decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory shock. The trend in PCE inflation is constructed as the sum of the common and the sector-specific trends weighted by the expenditure shares.

Posted at 7:00 am in Inflation, Macroeconomics | Permalink

June 1, 2023

What Drove Racial Disparities in the Paycheck Protection Program?

Sergey Chernenko, Nathan Kaplan, Asani Sarkar, and David S. Scharfstein

Decorative Image: Ethnic female shop owner handing over food order in brown shopping bags by ethnic customer in red and white baseball cap and green shirt.

Numerous studies of the Paycheck Protection Program (PPP), which provided loans to small businesses during the COVID-19 pandemic, have documented racial disparities in the program. Because publicly available PPP data only include information on approved loans, prior work has largely been unable to assess whether these disparities were driven by borrower application behavior or by lender approval decisions. In this post, which is based on a related Staff Report and NBER working paper, we use the Federal Reserve’s 2020 Small Business Credit Survey to examine PPP application behavior and approval decisions and to study the strengths and limitations of fintech lenders in enhancing access to credit for Black-owned businesses.

Posted at 7:00 am in Credit, Inequality | Permalink | Comments (2)

May 31, 2023

Do Economic Crises in Europe Affect the U.S.? Some Lessons from the Past Three Decades

Ozge Akinci and Paolo Pesenti

decorative photo: flags of U.S. and Euro

In this post we summarize the main results of our contribution to a recent e-book, “The Making of the European Monetary Union: 30 years since the ERM crisis,” on the economic and financial crises in Europe since 1992-93, and focus on the spillovers of those crises onto the United States and the global economy. We find that the answer to the question in the title of this post is a (moderate) yes.

Posted at 7:00 am in Credit, Crisis, DSGE, Euro Area, Exchange Rates, Exports, International Economics, Macroeconomics | Permalink

May 25, 2023

Do Veterans Face Disparities in the Labor Market—And What Accounts for Them?

Rajashri Chakrabarti, Dan Garcia, and Maxim Pinkovskiy

Illustration of veteran reading the jobs listings in a newspaper.

We continue our series on military service and consider veterans’ earnings and labor market outcomes. We find that veterans earn more than 12 percent less and are 4 percentage points (18 percent) more likely to be out of the labor force than comparable nonveterans. Interestingly, accounting for veterans’ differences from comparable nonveterans in terms of education and disability status largely explains these labor market differences.

Posted at 11:02 am in Equitable Growth, Inequality, Labor Market, Unemployment | Permalink

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.

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.

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.

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.

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

Markets & Policy Implementation

Liberty Street Economics

2023 State‑of‑the‑Field Conference on Cyber Risk to Financial Stability

How Do Firms Adjust Prices in a High Inflation Environment?

MCT Update: Inflation Persistence Declined Significantly in April

What Drove Racial Disparities in the Paycheck Protection Program?

Do Economic Crises in Europe Affect the U.S.? Some Lessons from the Past Three Decades

Do Veterans Face Disparities in the Labor Market—And What Accounts for Them?

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

Measuring the Financial Stability Real Interest Rate, r**

Financial Stability and Interest Rates

Financial Vulnerability and Macroeconomic Fragility

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