Liberty Street Economics

July 8, 2020

Inequality in U.S. Homeownership Rates by Race and Ethnicity

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

Homeownership has historically been an important means for Americans to accumulate wealth—in fact, at more than $15 trillion, housing equity accounts for 16 percent of total U.S. household wealth. Consequently, the U.S. homeownership cycle has triggered large swings in Americans’ net worth over the past twenty-five years. However, the nature of those swings has varied significantly by race and ethnicity, with different demographic groups tracing distinct trajectories through the housing boom, the foreclosure crisis, and the subsequent recovery. Here, we look into the dynamics underlying these divergences and explore some potential explanations.

Posted at 7:00 am in Equitable Growth, Household Finance, Housing, Inequality | Permalink

July 7, 2020

Introduction to Heterogeneity Series III: Credit Market Outcomes

Rajashri Chakrabarti

Following up series on heterogeneity and inequality broadly and in labor market outcomes specifically, we turn our focus to further documenting heterogeneity in credit market outcomes, looking at disparities in home ownership rates, varying exposure to evictions, differing gains from tuition support and Medicare programs, and more.

Posted at 8:00 am in Education, Household Finance, Housing, Inequality, Student Loans | Permalink

A New Reserves Regime? COVID‑19 and the Federal Reserve Balance Sheet

Gara Afonso, Marco Cipriani, Gabriele La Spada, and Will Riordan

Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve dramatically expanded its balance sheet, both directly, through outright purchases and repurchase agreements, and indirectly, as a consequence of the facilities to support market functioning and the flow of credit to the real economy. In this post, we characterize the increase in reserves between March and June 2020, describing changes to the distribution and concentration of reserves.

Posted at 7:00 am in Fed Funds, Federal Reserve, Fiscal Policy, Liquidity, Monetary Policy, Pandemic | Permalink

July 1, 2020

How Liquid Is the New 20‑Year Treasury Bond?

Michael Fleming and Francisco Ruela

Fleming and Ruela take a first look at the U.S. government’s new 20-year bond, using a short sample of available data to describe its trading activity and liquidity.

Posted at 7:00 am in Financial Markets, Pandemic, Treasury | Permalink

June 30, 2020

Leverage Ratio Arbitrage All Over Again

Donald P. Morgan, Dong Beom Choi, and Michael R. Holcomb

Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect in 2018. This post discusses new findings in our revised paper on when and how banks arbitraged.

Posted at 7:00 am in Banks, Crisis, Regulation | Permalink | Comments (1)

June 29, 2020

Municipal Debt Markets and the COVID‑19 Pandemic

Marco Cipriani, Andrew Haughwout, Ben Hyman, Anna Kovner, Gabriele La Spada, Matthew Lieber, and Shawn Nee

In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show that conditions in municipal markets have improved significantly, in part a result of the announcement and implementation of several Federal Reserve facilities. Yields have decreased substantially, mutual funds have received significant inflows, and issuance has rebounded. These improvements in municipal market conditions help ensure that state and local governments have better access to funding for critical capital investments.

Posted at 10:02 am in Federal Reserve, Fiscal Policy | Permalink

June 25, 2020

Insider Networks

Selman Erol and Michael Lee

Erol and Lee consider the cat-and-mouse game played between financial regulators and those attempting to trade on inside information, including how insiders might form networks in order to circumvent restrictions, and how regulators might cope with insiders’ tactics.

Posted at 7:00 am in Bank Capital, Banks, Central Bank, Financial Institutions, Financial Intermediation, Financial Markets, Regulation | Permalink

June 22, 2020

Japan’s Experience with Yield Curve Control

Matthew Higgins and Thomas Klitgaard

In September 2016, the Bank of Japan (BoJ) changed its policy framework to target the yield on ten-year government bonds at “around zero percent,” close to the prevailing rate at the time. The new framework was announced as a modification of the Bank’s earlier policy of rapid monetary base expansion via large-scale asset purchases—a policy that market participants increasingly regarded as unsustainable. While the BoJ announced that the rapid pace of government bond purchases would not change, it turned out that the yield target approach allowed for a dramatic scaling back in purchases. In Japan’s case, the commitment to purchase whatever was needed to keep the ten-year rate near zero has meant that very little in the way of asset purchases have been required.

Posted at 7:00 am in International Economics, Monetary Policy | Permalink | Comments (2)

June 19, 2020

The New York Fed DSGE Model Forecast—June 2020

William Chen, Marco Del Negro, Ethan Matlin, and Reca Sarfati

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. 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 7:02 am in DSGE, Forecasting, Macroeconomics | Permalink | Comments (2)

The New York Fed DSGE Model Forecast—March 2020

Ozge Akinci, William Chen, Marco Del Negro, Ethan Matlin, and Reca Sarfati

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.

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

Markets & Policy Implementation

Liberty Street Economics

Inequality in U.S. Homeownership Rates by Race and Ethnicity

Introduction to Heterogeneity Series III: Credit Market Outcomes

A New Reserves Regime? COVID‑19 and the Federal Reserve Balance Sheet

How Liquid Is the New 20‑Year Treasury Bond?

Leverage Ratio Arbitrage All Over Again

Municipal Debt Markets and the COVID‑19 Pandemic

Insider Networks

Japan’s Experience with Yield Curve Control

The New York Fed DSGE Model Forecast—June 2020

The New York Fed DSGE Model Forecast—March 2020

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