Liberty Street Economics
February 7, 2022

The Future of Payments Is Not Stablecoins

Stablecoins, which we define as digital assets used as a medium of exchange that are purported to be backed by assets held specifically for that purpose, have grown considerably in the last two years. They rose from a market capitalization of $5.7 billion on December 1, 2019, to $155.6 billion on January 21, 2022. Moreover, a market that was once dominated by a single stablecoin—Tether (USDT)—now boasts five stablecoins with valuations over $1 billion (as of January 21, 2022; data about the supply of stablecoins can be found here). Analysts have started to pay increased attention to the stablecoin market, and the President’s Working Group (PWG) on Financial Markets released a report on stablecoins on November 1, 2021. In this post, we explain why we believe stablecoins are unlikely to be the future of payments.

February 2, 2022

Housing Returns in Big and Small Cities

Photo: Aerial view of Washington Square in NY

Houses are the largest asset for most households in the United States, as is the case in many other countries as well. Within countries, there is substantial regional variation in house prices—compare real estate values in Manhattan, New York City, with those in Manhattan, Kansas, for example. But what about returns on investment? Are long-run returns on real estate investment—the sum of price appreciation and rental income flows—higher in superstar cities like New York than in the rest of the country? In this blog post, we present new and potentially surprising insights from research comparing long-run returns on residential real estate in a nation’s largest cities to those experienced in the rest of the country (Amaral et al., 2021), covering the U.S. and fourteen other advanced economies over the past century.

Posted at 7:00 am in Household Finance, Housing | Permalink | Comments (0)
January 31, 2022

Pricing Liquidity without Preemptive Runs

Image of drop of water in pool with dollars

Prime money market funds (MMFs) are vulnerable to runs. This was dramatically illustrated in September 2008 and March 2020, when massive outflows from prime MMFs worsened stress in the short-term funding markets and eased only after taxpayer-supported interventions by the Treasury and the Federal Reserve. In this post, we describe how mechanisms like swing pricing that charge a price for liquidity can reduce the vulnerability of prime MMFs without triggering preemptive runs.

January 28, 2022

The Global Supply Side of Inflationary Pressures

Image of international map over a picture of cargo ships in a port.

U.S. inflation has surged as the economy recovers from the COVID-19 recession. This phenomenon has not been confined to the U.S. economy, as similar inflationary pressures have emerged in other advanced economies albeit not with the same intensity. In this post, we draw from the current international experiences to provide an assessment of the drivers of U.S. inflation. In particular, we exploit the link among different measures of inflation at the country level and a number of global supply side variables to uncover which common cross-country forces have been driving observed inflation. Our main finding is that global supply factors are very strongly associated with recent producer price index (PPI) inflation across countries, as well as with consumer price index (CPI) goods inflation, both historically and during the recent bout of inflation acceleration.

January 13, 2022

The Fed’s Latest Tool: A Standing Repo Facility

In July 2021, the Federal Open Market Committee announced a new tool for monetary policy implementation: a domestic standing repurchase agreement facility. In the last post of this series, we explain what this new tool is and how it will support the effective implementation of monetary policy in the floor system through which the Fed implements policy.

January 12, 2022

How the Fed Adjusts the Fed Funds Rate within Its Target Range

At its June 2021 meeting, the FOMC maintained its target range for the fed funds rate at 0 to 25 basis points, while two of the Federal Reserve’s administered rates—interest on reserve balances and the overnight reverse repo (ON RRP) facility offering rate—each were increased by 5 basis points. What do these two simultaneous decisions mean? In today’s post, we look at “technical adjustments”—a tool the Fed can deploy to keep the FOMC’s policy rate well within the target range and support smooth market functioning.

January 11, 2022

How the Fed’s Overnight Reverse Repo Facility Works

Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume.

January 10, 2022

How the Federal Reserve’s Monetary Policy Implementation Framework Has Evolved

In a series of four posts, we review key elements of the Federal Reserve’s monetary policy implementation framework. The framework has changed markedly in the last two decades. Prior to the global financial crisis, the Fed used a system of scarce reserves and fine-tuned the supply of reserves to maintain rate control. However, since then, the Fed has operated in a floor system, where active management of the supply of reserves no longer plays a role in rate control, but rather the Fed’s administered rates influence the federal funds rate. In this first post, we discuss the salient features of the implementation framework in a stylized way.

January 7, 2022

The Effect of Inequality on the Transmission of Monetary and Fiscal Policy

Monetary policy can have a meaningful impact on inequality, as recent theoretical and empirical studies suggest. In light of this, how should policy be conducted? And how does inequality affect the transmission of monetary policy? These are the topics covered in the second part of the recent symposium on “Heterogeneity in Macroeconomics: Implications for Policy,” hosted by the new Applied Macroeconomics and Econometrics Center (AMEC) of the New York Fed on November 12.

January 6, 2022

The Effect of Monetary and Fiscal Policy on Inequality

How does accounting for households’ heterogeneityand in particular inequality in income and wealth—change our approach to macroeconomics? What are the effects of monetary and fiscal policy on inequality, and what did we learn in this regard from the COVID-19 pandemic? What are the implications of inequality for the transmission of monetary policy, and its ability to stabilize the economy? These are some of the questions that were debated at a recent symposium on “Heterogeneity in Macroeconomics: Implications for Policy” organized by the new Applied Macroeconomics and Econometrics Center (AMEC) of the New York Fed on November 12.

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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.

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