The authors discuss a common distinction made between “token-based” and “account-based” digital currencies, noting that the distinction is problematic since Bitcoin and many other digital currencies satisfy both definitions.
August 12, 2020
August 10, 2020
Implications of the COVID‑19 Disruption for Corporate Leverage
The COVID-19 pandemic has caused significant economic disruptions among U.S. corporations. In this post, we study the preliminary impact of these disruptions on the cash flow and leverage of public U.S. corporations using public filings through April 2020. We find that the pandemic had a negative impact on cash flow while also reducing corporations’ interest expenses. However, the cash flow shock far outpaced the benefits of lower interest payments, especially in industries that were disproportionately levered. Looking ahead, we find that a sizable share of U.S. corporations have interest expense greater than cash flow, raising concerns about those corporations’ ability to endure further liquidity shocks.
August 7, 2020
Securing Secured Finance: The Term Asset‑Backed Securities Loan Facility
The asset-backed securities (ABS) market, by supporting loans to households and businesses such as credit card and student loans, is essential to the flow of credit in the economy. The COVID-19 pandemic disrupted this market, resulting in higher interest rate spreads on ABS and halting the issuance of most ABS asset classes. On March 23, 2020, the Fed established the Term Asset-Backed Securities Loan Facility (TALF) to facilitate the issuance of ABS backed by a variety of loan types including student loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA), thereby re-enabling the flow of credit to households and businesses of all sizes. In this post, we describe how the TALF works, its impact on market conditions, and how it differs from the TALF that the Fed established in 2009.
August 6, 2020
A Monthly Peek into Americans’ Credit During the COVID‑19 Pandemic
Total household debt was roughly flat in the second quarter of 2020, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. But, for the first time, the dynamics in household debt balances were driven primarily by a sharp decline in credit card balances, as consumer spending plummeted. In an effort to gain greater clarity, the New York Fed and the Federal Reserve System have acquired monthly updates for the New York Fed Consumer Credit Panel, based on anonymized Equifax credit report data. We’ve been closely watching the data as they roll in, and here we present six key takeaways on the consumer balance sheet in the months since COVID-19 hit.
August 5, 2020
Reconsidering the Phase One Trade Deal with China in the Midst of the Pandemic
It may be hard to remember given the pandemic, but trade tensions between the United States and China eased in January 2020 with the inking of the Phase One agreement. Under the deal, China committed to a massive increase in its purchases of U.S. goods and services, with targets set for various types of products. At the time of the pact, the U.S. economy was operating near full capacity, and any increase in U.S. exports stemming from the pact would likely have resulted in only a small boost to growth. The environment is now starkly different, with the U.S. economy operating far below potential. While the promised increase in Chinese purchases seems unlikely to be achieved, any appreciable increase in exports from the agreement could deliver a meaningful boost to the economy.
August 4, 2020
Tracking the COVID‑19 Economy with the Weekly Economic Index (WEI)
At the end of March, we launched the Weekly Economic Index (WEI) as a tool to monitor changes in real activity during the pandemic. The rapid deterioration in economic conditions made it important to assess developments as soon as possible, rather than waiting for monthly and quarterly data to be released. In this post, we describe how the WEI has measured the effects of COVID-19. So far in 2020, the WEI has synthesized daily and weekly data to measure GDP growth remarkably well. We document this performance, and we offer some guidance on evaluating the WEI’s forecasting abilities based on 2020 data and interpreting WEI updates and revisions.
Posted at 2:58 pm in Corporate Finance, Forecasting, Macroeconomics, Pandemic, Recession | Permalink
August 3, 2020
The Federal Reserve’s Large‑Scale Repo Program
The repo market faced extraordinary liquidity strains in March amid broader financial market volatility related to the coronavirus pandemic and uncertainty regarding the path of policy. The strains were particularly severe in the term repo market, in which borrowing and lending arrangements are for longer than one business day. In this post, we discuss the causes of the liquidity disruptions that arose in the repo market as well as the Federal Reserve’s actions to address those disruptions.
July 17, 2020
MBS Market Dysfunctions in the Time of COVID‑19
Haoyang Liu, Asani Sarkar, and coauthors study a particular aspect of MBS market disruptions by showing how a long-standing relationship between cash and forward markets broke down, in spite of dealers increasing the provision of liquidity. The analysis also highlights an innovative response by the Federal Reserve that seemed to have helped to normalize market functioning.
Posted at 7:00 am in Financial Institutions, Financial Markets, Liquidity, Pandemic | Permalink | Comments (2)
July 16, 2020
Federal Reserve Agency CMBS Purchases
On March 23, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York initiated plans to purchase agency commercial mortgage-backed securities (agency CMBS) at the direction of the FOMC in order to support smooth market functioning of the markets for these securities. This post describes the deterioration in market conditions that led to agency CMBS purchases, how the Desk conducts these operations, and how market functioning has improved since the start of the purchase operations.
July 13, 2020
Delaying College During the Pandemic Can Be Costly
Many students are reconsidering their decision to go to college in the fall due to the coronavirus pandemic. Indeed, college enrollment is expected to be down sharply as a growing number of would-be college students consider taking a gap year. In part, this pullback reflects concerns about health and safety if colleges resume in-person classes, or missing out on the “college experience” if classes are held online. In addition, poor labor market prospects due to staggeringly high unemployment may be leading some to conclude that college is no longer worth it in this economic environment. In this post, we provide an economic perspective on going to college during the pandemic. Perhaps surprisingly, we find that the return to college actually increases, largely because the opportunity cost of attending school has declined. Furthermore, we show there are sizeable hidden costs to delaying college that erode the value of a college degree, even in the current economic environment. In fact, we estimate that taking a gap year reduces the return to college by a quarter and can cost tens of thousands of dollars in lost lifetime earnings.
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