Liberty Street Economics

Liberty Street Economics

March 25, 2021

Reasonable Seasonals? Seasonal Echoes in Economic Data after COVID‑19

David Lucca and Jonathan Wright

Seasonal adjustment is a key statistical procedure underlying the creation of many economic series. Large economic shocks, such as the 2007-09 downturn, can generate lasting seasonal echoes in subsequent data. In this Liberty Street Economics post, we discuss the prospects for these echo effects after last year’s sharp economic contraction by focusing on the payroll employment series published by the U.S. Bureau of Labor Statistics (BLS). We note that seasonal echoes may lead the official numbers to overstate actual changes in payroll employment modestly between March and July of this year after which distortions flip the other way.

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Posted at 7:00 am in Economic History, Employment, Pandemic | Permalink
March 24, 2021

Did Dealers Fail to Make Markets during the Pandemic?

Jiakai Chen, Haoyang Liu, David Rubio, Asani Sarkar, and Zhaogang Song

Sarkar and coauthors liquidity provision by dealers in several important financial markets during the COVID-19 pandemic: how much was provided, possible causes of any shortfalls, and the effects of the Federal Reserve’s actions to support the economy.

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Posted at 7:00 am in Financial Markets, Liquidity, Pandemic, Treasury | Permalink
March 22, 2021

The Persistent Compression of the Breakeven Inflation Curve

Richard K. Crump, Nikolay Gospodinov, and Desi Volker

Breakeven inflation, defined as the difference in the yield of a nominal Treasury security and a Treasury inflation protected security (TIPS) of the same maturity, is closely watched by market participants and policymakers alike. Breakeven inflation rates provide a signal about the expected path of inflation as perceived by market participants although they are also affected by risk and liquidity premia. In this post, we scrutinize the dynamics of breakeven inflation, highlighting some intriguing behavior which has persisted for a number of years and even through the pandemic. In particular, we document a substantial downward shift in the level of breakeven inflation as well as a marked flattening of the breakeven inflation curve.

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Posted at 7:00 am in Expectations, Financial Markets, Inflation | Permalink
March 19, 2021

Looking Back at 10 Years of Liberty Street Economics

Beverly Hirtle

This month the Liberty Street Economics blog is celebrating its tenth anniversary. We first welcomed readers to Liberty Street on March 21, 2011 and since then our annual page views have grown from just over 260,000 to more than 3.3 million.

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Posted at 7:00 am in Federal Reserve, Pandemic | Permalink
March 1, 2021

Will Capital Flows through Global Banks Support Economic Recovery?

Claudia M. Buch, Matthieu Bussière, and Linda S. Goldberg

Liberty Street Economics authors ask whether, based on precedent, global banks are likely to provide additional support to the economic recovery following COVID-19 in the locations they serve.

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Posted at 7:00 am in Bank Capital, Banks, Credit, Financial Institutions, Pandemic | Permalink | Comments (1)
February 24, 2021

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

Jennifer Gennaro, Jason Healey, Anna Kovner, Michael Lee, and Patricia Mosser

The Federal Reserve Bank of New York partnered with Columbia University’s School of International and Public Affairs (SIPA) for the second annual State-of-the-Field Conference on Cyber Risk to Financial Stability on December 14-15, 2020. Hosted virtually due to the COVID-19 pandemic, the conference took place amidst the unfolding news of a cyberattack against a major cybersecurity vendor and software vendor, underscoring vulnerabilities from cyber risk.

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Posted at 7:00 am in Financial Institutions, Financial Markets, Systemic Risk | Permalink
February 22, 2021

Measuring the Forest through the Trees: The Corporate Bond Market Distress Index

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

With more than $6 trillion outstanding, the U.S. corporate bond market is a significant source of funding for most large U.S. corporations. While prior literature offers a variety of measures to capture different aspects of corporate bond market functioning, there is little consensus on how to use those measures to identify periods of distress in the market as a whole. In this post, we describe the U.S. Corporate Bond Market Distress Index (CMDI), which offers a single measure to quantify joint dislocations in the primary and secondary corporate bond markets. As detailed in a new working paper, the index provides more salient information about the state of the corporate bond market relative to common measures of financial stress, thereby more accurately identifying periods of widespread dislocation in the market.

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Posted at 7:00 am in Corporate Finance, Liquidity | Permalink | Comments (3)
February 18, 2021

How Competitive are U.S. Treasury Repo Markets?

Adam Copeland, R. Jay Kahn, Antoine Martin, Matthew McCormick, William Riordan, Kevin Clark, and Tim Wessel

The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding portion of the repo market is competitive by demonstrating that trading is not concentrated overall and explaining how the pricing of inter-dealer repo trades is available to a wide-range of market participants. By extension, rate-indexes based on repo trades, such as SOFR, reflect a deep market with a broad set of participants.

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Posted at 7:00 am in Bank Capital, Banks, Financial Institutions, Financial Markets, Liquidity, Repo, Treasury | Permalink
February 17, 2021

Mortgage Rates Decline and (Prime) Households Take Advantage

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

Today, the New York Fed’s Center for Microeconomic Data reported that household debt balances increased by $206 billion in the fourth quarter of 2020, marking a $414 billion increase since the end of 2019. But the COVID pandemic and ensuing recession have marked an end to the dynamics in household borrowing that have characterized the expansion since the Great Recession, which included robust growth in auto and student loans, while mortgage and credit card balances grew more slowly. As the pandemic took hold, these dynamics were altered. One shift in 2020 was a larger bump up in mortgage balances. Mortgage balances grew by $182 billion, the biggest uptick since 2006, boosted by historically high volumes of originations. Here, we take a close look at the composition of mortgage originations, which neared $1.2 trillion in the fourth quarter of 2020, the highest single-quarter volume seen since our series begins in 2000. The Quarterly Report on Household Debt and Credit and this analysis are based on the New York Fed’s Consumer Credit Panel, which is itself based on anonymized Equifax credit data.

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Posted at 11:00 am in Credit, Household Finance, Housing, Pandemic, Recession, Student Loans | Permalink

February Regional Business Surveys Find Widespread Supply Disruptions

Jason Bram and Richard Deitz

Business activity increased in the region’s manufacturing sector in recent weeks but continued to decline in the region’s service sector, continuing a divergent trend seen over the past several months, according to the Federal Reserve Bank of New York’s February regional business surveys. Looking ahead, however, businesses expressed widespread optimism about the near-term outlook, with service firms increasingly confident that the business climate will be better in six months. The surveys also found that supply disruptions were widespread, with manufacturing firms reporting longer delivery times and rising input costs, a likely consequence of such disruptions. Many firms also noted that minimum wage hikes implemented in January in both New York and New Jersey had affected their employment or compensation decisions.

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Posted at 8:30 am in Labor Market, New Jersey, New York, Regional Analysis | Permalink
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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.

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