Liberty Street Economics

Look for our next post on December 20, 2024.

June 24, 2024

Deciphering the Disinflation Process

Sebastian Heise and Ayşegül Şahin

Photo: stacked shipping containers with a few worked in hard hats walking along side.

U.S. inflation surged in the early post-COVID period, driven by several economic shocks such as supply chain disruptions and labor supply constraints. Following its peak at 6.6 percent in September 2022, core consumer price index (CPI) inflation has come down rapidly over the last two years, falling to 3.6 percent recently. What explains the rapid shifts in U.S. inflation dynamics? In a recent paper, we show that the interaction between supply chain pressures and labor market tightness amplified the inflation surge in 2021. In this post, we argue that these same forces that drove the nonlinear rise in inflation have worked in reverse since late 2022, accelerating the disinflationary process. The current episode contrasts with periods where the economy was hit by shocks to either imported inputs or to labor alone.

Posted at 7:00 am in Inflation, Supply Chain | Permalink | Comments (1)

June 20, 2024

The Growing Risk of Spillovers and Spillbacks in the Bank‑NBFI Nexus

Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman

Decorative image: View of high rise glass building and dark steel in London

Nonbank financial institutions (NBFIs) are growing, but banks support that growth via funding and liquidity insurance. The transformation of activities and risks from banks to a bank-NBFI nexus may have benefits in normal states of the world, as it may result in overall growth in (especially, credit) markets and widen access to a wide range of financial services, but the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes. In this post, we consider the systemic implications of the observed build-up of bank-NBFI connections associated with the growth of NBFIs.

Posted at 7:00 am in Banks, Financial Intermediation, Nonbank (NBFI), Systemic Risk | Permalink

June 18, 2024

Banks and Nonbanks Are Not Separate, but Interwoven

Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman

In our previous post, we documented the significant growth of nonbank financial institutions (NBFIs) over the past decade, but also argued for and showed evidence of NBFIs’ dependence on banks for funding and liquidity support. In this post, we explain that the observed growth of NBFIs reflects banks optimally changing their business models in response to factors such as regulation, rather than banks stepping away from lending and risky activities and being substituted by NBFIs. The enduring bank-NBFI nexus is best understood as an ever-evolving transformation of risks that were hitherto with banks but are now being repackaged between banks and NBFIs.

Posted at 7:00 am in Banks, Nonbank (NBFI) | Permalink

June 17, 2024

Nonbanks Are Growing but Their Growth Is Heavily Supported by Banks

Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman

Traditional approaches to financial sector regulation view banks and nonbank financial institutions (NBFIs) as substitutes, one inside and the other outside the perimeter of prudential regulation, with the growth of one implying the shrinking of the other. In this post, we argue instead that banks and NBFIs are better described as intimately interconnected, with NBFIs being especially dependent on banks both for term loans and lines of credit.

Posted at 7:00 am in Credit, Nonbank (NBFI) | Permalink

June 14, 2024

The New York Fed DSGE Model Forecast—June 2024

Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula

decorative illustration: chart and stock prices background.

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 2024. 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 at 9:00 am in DSGE | Permalink

May 31, 2024

Can Discount Window Stigma Be Cured?

Olivier Armantier

close up photo of the federal reserve building

One of the core responsibilities of central banks is to act as “lender of last resort” to the financial system. In the U.S., the Federal Reserve has been operating as a lender of last resort through its “discount window” (DW) for more than a century. Historically, however, the DW has been plagued by stigma—banks’ reluctance to use the DW, even for benign reasons, out of concerns that it could be interpreted as a sign of financial weakness. In this post, we report on new research showing that once a DW facility is stigmatized, removing that stigma is difficult.

Posted at 9:00 am in Central Bank, Monetary Policy | Permalink

Thinking of Pursuing a PhD in Economics? Info on Graduate School and Beyond

Kasey Chatterji-Len and Anna Kovner

Photo of three young students writing a formula on a green blackboard with white chalk.

Becoming a PhD economist can provide a fulfilling and financially secure career path. However, getting started in the field can be daunting if you don’t know much about the preparation you’ll need and the available job opportunities. If you’re wondering what it means to be an economics researcher or how to become one, please read on. We’ll review how to prepare for a career in economics research, what an economics PhD program entails, and what types of opportunities it might bring. Economic education is a core component of the Federal Reserve Bank of New York’s mission to serve the community. To empower would-be economists, this post provides information for students who seek a career in economics research. We hope this information will be helpful to students interested in economics, regardless of their background and economic situation.  This information is most applicable to students applying to programs in the United States.

Posted at 7:00 am in Education | Permalink

May 29, 2024

Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves

Patrick Douglass, Linda S. Goldberg, and Oliver Z. Hannaoui

Editor's note: Since this post was first published the note on the final chart has been corrected to reflect that as depicted gold shares are calculated based on national valuation. (June 3, 2024, 9:00 am)

Close-up of a 20-dollar banknote (figuring president Jackson) and a gold bullion

Global central banks and finance ministries held nearly $12 trillion of foreign exchange reserves as of the end of 2023, with nearly $7 trillion composed of U.S. dollar assets. Nevertheless, a narrative has emerged that an observed decline in the share of dollar assets in official reserve portfolios represents the leading edge of the dollar’s loss of status in the international monetary system. Some market participants have similarly linked the apparent increase in official demand for gold in recent years to a desire to diversify away from the U.S. dollar. Drawing on recent research and analytics, this post questions these narratives, arguing that these observed aggregate trends largely reflect the behavior of a small number of countries and do not represent a widespread effort by central banks to diversify away from dollars.

Posted at 7:00 am in Central Bank, International Economics | Permalink | Comments (1)

May 28, 2024

Do Exchange‑Traded Products Improve Bitcoin Trading?

Ken Armstrong, Asani Sarkar, and Leslie Conner Warren

Decorative photo: Close-up financial trading chart on digital LCD display of BTC bitcoin.

Spot bitcoin exchange-traded products (ETPs) began trading in the U.S. on January 11, 2024. For investors, these ETPs purport improved liquidity and price efficiency, and more convenient access to bitcoin trading compared to other means of trading bitcoin in spot markets. Proponents also cite bitcoin holdings as a portfolio diversification opportunity due to historically low correlation with traditional financial securities. Others argue that bitcoin remains a speculative asset and that ETPs increase its interconnections with the traditional financial system. In this post, we examine the initial performance, trading costs, and price efficiency of spot bitcoin ETPs in the U.S.

Posted at 7:00 am in Cryptocurrencies, Nonbank (NBFI) | Permalink

May 22, 2024

Veterans in the Labor Market: 2024 Update

Rajashri Chakrabarti, Dan Garcia, and Maxim Pinkovskiy

Photo: people in army fatigues lined up single file looking at their backs with the hands clasped behind them.

Veterans constitute a significant segment of the male labor force, and understanding labor market disparities between veterans and non‑veterans is an important component of studying disparities in the economy as a whole. In a previous Liberty Street Economics post, we have shown that even relative to a group of comparable non-veterans, veterans have lower employment and labor force participation rates. One year later, we see that veterans continue to experience lower labor market attachment and the employment gap has widened, though the earnings gap has closed.

Posted at 9:30 am in Labor Market | Permalink | Comments (2)

Markets & Policy Implementation

Liberty Street Economics

Deciphering the Disinflation Process

The Growing Risk of Spillovers and Spillbacks in the Bank‑NBFI Nexus

Banks and Nonbanks Are Not Separate, but Interwoven

Nonbanks Are Growing but Their Growth Is Heavily Supported by Banks

The New York Fed DSGE Model Forecast—June 2024

Can Discount Window Stigma Be Cured?

Thinking of Pursuing a PhD in Economics? Info on Graduate School and Beyond

Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves

Do Exchange‑Traded Products Improve Bitcoin Trading?

Veterans in the Labor Market: 2024 Update

Economic Inequality

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