Liberty Street Economics

Liberty Street Economics

October 1, 2020

The Impact of the Corporate Credit Facilities

Nina Boyarchenko, Anna Kovner, and Or Shachar

American companies have raised almost $1 trillion in the U.S. corporate bond market since March. Based on Compustat data, these companies employ more than 16 million people, and have spent more than $280 billion on capital expenditures in the first half of 2020, thereby supporting future economic activity. In this post, we document the contribution of the Primary Market and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) to bond market functioning, summarizing a detailed evaluation described in a new working paper. Improvements documented in an earlier blog post on the corporate facilities continued after the initial announcement as purchases began, and can be attributed both to the positive effects of Federal Reserve interventions generally as well as the facilities’ direct impact on eligible issuers in particular.

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Posted at 7:00 am in Financial Institutions, Financial Markets, Pandemic | Permalink | Comments (2)
September 30, 2020

Did Too‑Big‑To‑Fail Reforms Work Globally?

Asani Sarkar

Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to fail, the government would likely bail it out. Following the global financial crisis (GFC) of 2008, the G20 countries agreed on a set of reforms to eliminate the perception of TBTF, as part of a broader package to enhance financial stability. In June 2020, the Financial Stability Board (FSB; a 68-member international advisory body set up in 2009) published the results of a year-long evaluation of the effectiveness of TBTF reforms. In this post, I discuss the main conclusions of the report—in particular, the finding that implicit funding subsidies to global banks have decreased since the implementation of reforms but remain at levels comparable to the pre-crisis period.

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Posted at 7:00 am in Banks, Systemic Risk | Permalink | Comments (2)
September 29, 2020

The New York Fed DSGE Model Forecast—September 2020

William Chen, Marco Del Negro, Keshav Dogra, Shlok Goyal, and Alissa Johnson

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 June 2020.

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Posted at 7:00 am in DSGE, Forecasting, Macroeconomics | Permalink
September 28, 2020

Consumers Expect Modest Increase in Spending Growth and Continued Government Support

Gizem Koşar, Rachel Pomerantz, and Wilbert van der Klaauw

Kosar, Pomerantz, and van der Klauuw highlight key findings from the August 2020 SCE Household Spending Survey and the SCE Public Policy Survey.

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Posted at 11:00 am in Expectations, Fiscal Policy, Household Finance | Permalink

COVID‑19 and the Search for Digital Alternatives to Cash

Rod Garratt, Michael Lee, and Aaron Plesset

This analysis presents evidence on the impact of COVID-19 on consumer payment behavior, finding acceleration in the use of digital payment technology.

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Posted at 7:00 am in Banks, Pandemic | Permalink
September 25, 2020

Investigating the Effect of Health Insurance in the COVID‑19 Pandemic

Rajashri Chakrabarti, Maxim Pinkovskiy, Will Nober, and Lindsay Meyerson

Does health insurance improve health? This question, while apparently a tautology, has been the subject of considerable economic debate. In light of the COVID-19 pandemic, it has acquired a greater urgency as the lack of universal health insurance has been cited as a cause of the profound racial gap in coronavirus cases, and as a cause of U.S. difficulties in managing the pandemic more generally. However, estimating the effect of health insurance is difficult because it is (generally) not assigned at random. In this post, we approach this question in a novel way by exploiting a natural experiment—the adoption of the Affordable Care Act (ACA) Medicaid expansion by some states but not others—to tease out the causal effect of a type of health insurance on COVID-19 intensity.

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Posted at 7:00 am in Demographics, Inequality, Pandemic | Permalink
September 24, 2020

The Official Sector’s Response to the Coronavirus Pandemic and Moral Hazard

Anna Kovner and Antoine Martin

Any time the Federal Reserve or the official sector more broadly provides support to the economy during a crisis, the intervention raises concerns related to moral hazard. Moral hazard can occur when market participants do not bear the negative consequences of the risks they take. This lack of consequences can encourage even greater risks, due to the expectation of future government help. In this post, we consider the potential for moral hazard stemming from the Fed’s response to the coronavirus pandemic and explain why moral hazard concerns were likely more severe in 2008.

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Posted at 7:00 am in Pandemic | Permalink
September 23, 2020

Market Failures and Official Sector Interventions

Anna Kovner and Antoine Martin

In the United States and other free market economies, the official sector typically has minimal involvement in market activities absent a clear rationale to justify intervention, such as a market failure. In this post, we consider arguments for official sector intervention, focusing on the market failure arising from externalities related to business closures. These externalities are likely to be particularly high for closures arising from pandemic-related economic disruptions. We discuss how the official sector, including institutions such as Congress and the Treasury, can increase social welfare by acting to minimize the fixed costs of business start-up and failure, including the costs associated with unemployment, beyond the level set by private markets alone.

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Posted at 7:00 am in Pandemic | Permalink
September 22, 2020

Expanding the Toolkit: Facilities Established to Respond to the COVID‑19 Pandemic

Anna Kovner and Antoine Martin

Anna Kovner and Antoine Martin argue that the “credit” and lending facilities established by the Fed in response to the COVID-19 pandemic, while unprecedented, are a natural extension of the central bank’s existing toolkit.

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Posted at 7:00 am in Central Bank, Crisis, Federal Reserve, Liquidity, Monetary Policy, Pandemic | Permalink
September 21, 2020

How Did State Reopenings Affect Small Businesses?

Rajashri Chakrabarti, Sebastian Heise, Davide Melcangi, Maxim Pinkovskiy, and Giorgio Topa

In our previous post, we looked at the effects that the reopening of state economies across the United States has had on consumer spending. We found a significant effect of reopening, especially regarding spending in restaurants and bars as well as in the healthcare sector. In this companion post, we focus specifically on small businesses, using two different sources of high-frequency data, and we employ a methodology similar to that of our previous post to study the effects of reopening on small business activity along various dimensions. Our results indicate that, much like for consumer spending, reopenings had positive and significant effects in the short term on small business revenues, the number of active merchants, and the number of employees working in small businesses. It is important to stress that we are not expressing any views in this post on the normative question of whether, when, or how states should loosen or tighten restrictions aimed at controlling the COVID-19 pandemic.

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Posted at 7:00 am in Crisis, Employment, Household Finance, Labor Market, Macroeconomics, Pandemic, Unemployment | 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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