Liberty Street Economics

July 6, 2022

Did Changes to the Paycheck Protection Program Improve Access for Underserved Firms?

Nathan Kaplan, Claire Kramer Mills, and Asani Sarkar

Photo: African American woman business owner with COVID mask putting up sign for business reopening

Prior research has shown that many small and minority-owned businesses failed to receive Paycheck Protection Program (PPP) loans in 2020. To increase program uptake to underserved firms, several changes were made to the PPP in 2021. Using data from the Federal Reserve Banks’ 2021 Small Business Credit Survey, we argue that these changes were effective in improving program access for nonemployer firms (that is, businesses with no employees other than the owner(s)). The changes may also have encouraged more applications from minority-owned firms, but they do not appear to have reduced disparities in approval rates between white- and minority-owned firms.

Posted at 7:00 am in COVID-19 Facilities, Credit, Financial Institutions, Pandemic | Permalink

July 5, 2022

The Fed’s Inaugural Conference on the International Roles of the U.S. Dollar

Ricardo Correa, Linda S. Goldberg, Robert Lerman, and Bo Sun

The U.S. dollar has played a preeminent role in the global economy since the second World War. It is used as a reserve currency and the currency of denomination for a large fraction of global trade and financial transactions. The status of the U.S. dollar engenders important considerations for the effectiveness of U.S. policy instruments and the functioning of global financial markets. These considerations include understanding potential factors that may alter the dominance of the U.S. dollar in the future, such as changes in the macroeconomic and policy environments or the development of new technologies and payment systems.

Posted at 8:02 am in Financial Intermediation, Financial Markets, International Economics | Permalink | Comments (2)

The U.S. Dollar’s Global Roles: Revisiting Where Things Stand

Linda S. Goldberg, Robert Lerman, and Dan Reichgott

Will developments in technology, geopolitics, and the financial market reduce the dollar’s important roles in the global economy? This post updates prior commentary [here, here, and here], with insights about whether recent developments, such as the pandemic and the sanctions on Russia, might change the roles of the dollar. Our view is that the evidence so far points to the U.S. dollar maintaining its importance internationally. A companion post reports on the Inaugural Conference on the International Roles of the U.S. Dollar jointly organized by the Federal Reserve Board and Federal Reserve Bank of New York and held on June 16-17.

Posted at 8:00 am in Financial Intermediation, Financial Markets, International Economics | Permalink

June 30, 2022

Was the 2021‑22 Rise in Inflation Equitable?

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

Illustration: Prices: Who's paying more? shopping cart with dollar sign and up arrow.

In our previous post, we discussed how the labor market recovery—the “maximum employment” half of the Federal Reserve System’s dual mandate—featured not only a return of overall employment rates to pre-pandemic levels, but also a narrowing of racial and ethnic gaps in employment rates. In this post, we take up the second half of the dual mandate—price stability—and discuss heterogeneity in inflation rates faced by different demographic groups during the rise in inflation in
2021-22. We find that, in contrast to inequalities in employment rates, disparities in inflation rates have widened during the recent inflationary episode, with Black and Hispanic Americans experiencing more inflation.

Posted at 7:02 am in Equitable Growth, Inequality, Inflation, Pandemic | Permalink | Comments (1)

How Equitable Has the COVID Labor Market Recovery Been?

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

Illustration: Jobs: Did the employment rat differ by race? two figures with briefcases, one white, one black

One of the two monetary policy goals of the Federal Reserve System— one-half of our dual mandate—is to aim for “maximum employment.” However, labor market outcomes are not monolithic, and different demographic and economic groups experience different labor market outcomes. In this post, we analyze heterogeneity in employment rates by race and ethnicity, focusing on the COVID-19 recession of March-April 2020 and its aftermath. We find that the demographic employment gaps temporarily increased during the onset of the pandemic but narrowed back by spring 2022 to close to where they were in 2019. In the second post of this series, we will focus on heterogeneity in inflation rates, the second part of our dual mandate.

Posted at 7:00 am in Equitable Growth, Labor Market, Pandemic | Permalink | Comments (1)

June 29, 2022

What Is Corporate Bond Market Distress?

Nina Boyarchenko, Richard Crump, Anna Kovner, and Or Shachar

Photo: Ticker sign with the word Bond lit up.

Corporate bonds are a key source of funding for U.S. non-financial corporations and a key investment security for insurance companies, pension funds, and mutual funds. Distress in the corporate bond market can thus both impair access to credit for corporate borrowers and reduce investment opportunities for key financial sub-sectors. In a February 2021 Liberty Street Economics post, we introduced a unified measure of corporate bond market distress, the Corporate Bond Market Distress Index (CMDI), then followed up in early June 2022 with a look at how corporate bond market functioning evolved over 2022 in the wake of the Russian invasion of Ukraine and the tightening of U.S. monetary policy. Today we are launching the CMDI as a regularly produced data series, with new readings to be published each month. In this post, we describe what constitutes corporate bond market distress, motivate the construction of the CMDI, and argue that secondary market measures alone are insufficient to capture market functioning.

Posted at 10:00 am in Corporate Finance, Credit, Financial Markets, Systemic Risk | Permalink | Comments (4)

June 27, 2022

The First Global Credit Crisis

Stein Berre, Paul Kosmetatos, and Asani Sarkar

Photo: Amsterdam stock exchange in 17 and 18 centuries; source Wikimedia

June 2022 marks the 250^th anniversary of the outbreak of the 1772-3 credit crisis. Although not widely known today, this was arguably the first “modern” global financial crisis in terms of the role that private-sector credit and financial products played in it, in the paths of financial contagion that propagated the initial shock, and in the way authorities intervened to stabilize markets. In this post, we describe these developments and note the parallels with modern financial crises.

Posted at 7:00 am in Credit, Crisis, Economic History, Liquidity, Systemic Risk | Permalink | Comments (2)

June 24, 2022

How Could Oil Price and Policy Rate Hikes Affect the Near‑Term Inflation Outlook?

Jan J. J. Groen and Adam I. Noble

Photo: Oil pump on a sunset background. World Oil Industry

Since the start of the year, oil prices have risen sharply owing to worsening expectations regarding global oil supply. We’ve also had an acceleration of inflation in the United States and the euro area, as well as a sharp steepening of the expected paths of policy rates in both economies. These factors, combined with the potential for a slowdown in growth, have made the inflation outlook quite uncertain. In this post, we combine the demand and supply oil price decomposition from the New York Fed’s Oil Price Dynamics Report with yield curve data to quantify the likely path of inflation in the United States and the euro area over the next twelve months. Based on our analysis, we anticipate that inflation will likely remain elevated through the second quarter of 2023, despite payback for the inflationary impact of current negative oil supply shocks during the second half of 2022 and the disinflationary effects of tighter monetary policy.

Posted at 7:00 am in Forecasting, Inflation, Macroeconomics, Monetary Policy | Permalink | Comments (2)

June 21, 2022

Will the U.S. Dollar Continue to Dominate World Trade?

Mary Amiti, Oleg Itskhoki, and Jozef Konings

photo: cargo ship with dollar bills in the background

There are around 180 currencies in the world, but only a very small number of them play an outsized role in international trade, finance, and central bank foreign exchange reserves. In the modern era, the U.S. dollar has a dominant international presence, followed to a lesser extent by the euro and a handful of other currencies. Although the use of specific currencies is remarkably stable over time, with the status of dominant currencies remaining unchanged over decades, there have been decisive shifts in the international monetary system over long horizons. For example, the British pound only lost its dominant currency status in the 1930s, well after Britain stopped being the leading world economy. In a new study, we show that the currency that is used in international trade transactions is an active firm-level decision rather than something that is just fixed. This finding raises the question of what factors could augment or reduce the U.S. dollar’s dominance in world trade.

Posted at 7:00 am in Exchange Rates, Exports, International Economics, Macroeconomics | Permalink | Comments (2)

June 17, 2022

The New York Fed DSGE Model Forecast—June 2022

Marco Del Negro, Aidan Gleich, Shlok Goyal, Alissa Johnson, and Andrea Tambalotti

photo: line chart over an aqua background with some numbers

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 March 2022.

Posted at 9:00 am in DSGE, Forecasting, Inflation, Macroeconomics | Permalink

Markets & Policy Implementation

Liberty Street Economics

Did Changes to the Paycheck Protection Program Improve Access for Underserved Firms?

The Fed’s Inaugural Conference on the International Roles of the U.S. Dollar

The U.S. Dollar’s Global Roles: Revisiting Where Things Stand

Was the 2021‑22 Rise in Inflation Equitable?

How Equitable Has the COVID Labor Market Recovery Been?

What Is Corporate Bond Market Distress?

The First Global Credit Crisis

How Could Oil Price and Policy Rate Hikes Affect the Near‑Term Inflation Outlook?

Will the U.S. Dollar Continue to Dominate World Trade?

The New York Fed DSGE Model Forecast—June 2022

Economic Inequality

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