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 December 2019. 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.
Look for our next post on September 19.
June 19, 2020
June 18, 2020
Bitcoin Is Not a New Type of Money
Bitcoin, and more generally, cryptocurrencies, are often described as a new type of money. In this post, we argue that this is a misconception. Bitcoin may be money, but it is not a new type of money. To see what is truly new about Bitcoin, it is useful to make a distinction between “money,” the asset that is being exchanged, and the “exchange mechanism,” that is, the method or process through which the asset is transferred. Doing so reveals that monies with properties similar to Bitcoin have existed for centuries. However, the ability to make electronic exchanges without a trusted party—a defining characteristic of Bitcoin—is radically new. Bitcoin is not a new class of money, it is a new type of exchange mechanism, and this type of exchange mechanism can support a variety of forms of money as well as other types of assets.
June 17, 2020
Did State Reopenings Increase Social Interactions?
Social distancing—avoiding nonessential movement and largely staying at home—is seen as key to limiting the spread of COVID-19. To promote social distancing, over forty states imposed shelter-in-place or stay-at-home orders, closing nonessential businesses, banning large gatherings, and encouraging citizens to stay home. Over the course of the last month, virtually all of these states have reopened. However, these reopenings were preceded by a spontaneous increase in mobility and decline in social distancing. Did the reopenings decrease social distancing, or did it ratify ex post what was already going to take place? In this post, we will investigate this question using an event study methodology and demonstrate that reopenings probably have caused a large decline in social distancing, even after accounting for the trends already in place at the time of reopening.
June 16, 2020
Finally, Some Signs of Improvement in the Regional Economy
The Federal Reserve Bank of New York’s June business surveys show some signs of improvement in the regional economy. Following two months of unprecedented decline due to the coronavirus pandemic, indicators of business activity point to a slower pace of contraction in the service sector and signs of a rebound in the manufacturing sector. Even more encouraging, as the regional economy has begun to reopen, many businesses have started to recall workers who were laid off or put on furlough since the start of the pandemic. Some have even hired new workers. Moreover, businesses expect to recall even more workers over the next month. Looking ahead, firms have become increasingly optimistic that conditions will improve in the coming months.
Posted at 8:30 am in Employment, Human Capital, Labor Market, New Jersey, New York, Pandemic, Regional Analysis, Unemployment | Permalink
Outflows from Bank‑Loan Funds during COVID‑19
The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of the loan-fund industry to the COVID-19 crisis (and to negative shocks more generally) seems to be even greater than that of high-yield bond funds, which also invest in high-risk debt securities and have received much attention because of their possible exposure to run-like behavior by investors and their implications for financial stability.
Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Liquidity, Pandemic | Permalink | Comments (2)
June 15, 2020
Distribution of COVID‑19 Incidence by Geography, Race, and Income
In this post, we study whether (and how) the spread of COVID-19 across the United States varied by geography, race, income, and population density. Were urban areas more affected by COVID-19 than rural areas? Did population density matter in the spread? Were certain races and income groups affected more by the spread of this deadly coronavirus? Our analysis uncovers stark demographic trends among places affected most severely by the pandemic thus far.
June 12, 2020
How Fed Swap Lines Supported the U.S. Corporate Credit Market amid COVID‑19 Strains
The onset of the COVID-19 shock in March 2020 brought large changes to the balance sheets of the U.S. branches of foreign banking organizations (FBOs). Most of these branches saw sizable usage of committed credit lines by U.S.-based clients, resulting in increased funding needs. In this post, we show that branches of FBOs from countries whose central banks used standing swap lines with the Federal Reserve (“standing swap central banks”—SSCBs) met their increased funding needs by accessing dollars that flowed into the United States through their foreign parent banks. This volume of dollar inflows accounted for at least half of the late March aggregate take-up at SSCB dollar operations.
Posted at 9:19 am in Credit, Crisis, Federal Reserve, Financial Institutions, Liquidity, Pandemic | Permalink
May 29, 2020
Which Workers Bear the Burden of Social Distancing Policies?
This analysis identifies the types of workers bearing the highest cost from social distancing practices–an issue of great relevance for policymakers trying to address the fallout from the COVID-19 pandemic.
Treasury Market Liquidity and the Federal Reserve during the COVID‑19 Pandemic
This analysis zeroes in on the Treasury market in early 2020 to better understand how the Fed’s actions regarding the COVID-19 pandemic evolved in relation to day-to-day market developments.
May 28, 2020
The Investment Cost of the U.S.‑China Trade War
Starting in early 2018, the U.S. government imposed tariffs on over $300 billion of U.S. imports from China, increasing the average tariff rate from 2.7 percent to 17.5 percent. Much of the escalation in tariffs occurred in the second and third quarters of 2019. In response, the Chinese government retaliated, increasing the average tariff applied on U.S. exports from 5.7 percent to 20.4 percent. Our new study finds that the trade war reduced U.S. investment growth by 0.3 percentage points by the end of 2019, and is expected to shave another 1.6 percentage points off of investment growth by the end of 2020. In this post, we review our study of the trade war’s effect on U.S. investment.
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