Liberty Street Economics

July 17, 2019

How Do Large Banks Manage Their Cash?

Jeffrey Levine and Asani Sarkar

As the aggregate supply of reserves shrinks and large banks implement liquidity regulations, they may follow a variety of liquidity management strategies depending on their business models and the interest rate differences between alternative liquid instruments. For example, the banks may continue to hold large amounts of excess reserves or shift to Treasury or agency securities or shrink their balance sheets. In this post, we provide new evidence on how large banks have managed their cash, which is the largest component of reserves, on a daily basis since the implementation of liquidity regulations.

Posted at 7:00 am in Banks, Federal Reserve, Liquidity, Regulation, Repo, Treasury | Permalink | Comments (2)

July 15, 2019

Large Bank Cash Balances and Liquidity Regulations

Jeffrey Levine and Asani Sarkar

Jeffrey Levine and Asani Sarkar discuss the recent evolution of large bank cash balances, the effect of liquidity regulations on these balances, and how banks might react to the Federal Reserve’s changes in the supply of reserves.

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

July 12, 2019

Just Released: Historical Reconstruction of the New York Fed Staff Nowcast, 2002‑15

Patrick Adams, Domenico Giannone, Eric Qian, and Argia Sbordone

The New York Fed Staff Nowcast has been running for over three years. Each Friday at 11:15 a.m., we publish our updated predictions for real GDP growth based on the data released each week. When the Bureau of Economic Analysis (BEA) releases the first estimate of GDP growth, we stop updating our nowcast and archive it. We maintain these archives as part of our Nowcasting Report on the New York Fed’s public website to allow users to study the features of the nowcast and its accuracy. Now, to better understand the model and its performance during different cyclical episodes, we are publishing extended historical archives of the nowcast. Doing so provides fourteen additional years of forecasts that can be used not only to evaluate our nowcast model, but also to explore daily U.S. economic history through the model’s lens.

Posted at 11:27 am in Forecasting, Recession | Permalink

July 10, 2019

Did the Value of a College Degree Decline during the Great Recession?

Rajashri Chakrabarti, Michelle Jiang, and William Nober

In an earlier post, we studied how educational attainment affects labor market outcomes and earnings inequality. In this post, we investigate whether these labor market effects were preserved across the last business cycle: Did students with certain types of educational attainment weather the recession better?

Posted at 7:00 am in Education, Human Capital, Inequality, Labor Market, Recession | Permalink | Comments (5)

July 8, 2019

From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market

Gara Afonso, Fabiola Ravazzolo, and Alessandro Zori

How do changes in the rate that the Federal Reserve pays on reserves held by depository institutions affect rates in money markets in which the Fed does not participate? Through which channels do changes in the so-called administered rates reach rates in onshore and offshore U.S. dollar money markets? In this post, we answer these questions with the help of an interactive map that guides us through the web of interconnected relationships between the Fed, key market players, and the various instruments in the U.S. dollar funding market, highlighting the linkages across the short-term financial products that form this market.

Posted at 7:00 am in Banks, Central Bank, Fed Funds, Federal Reserve, Monetary Policy, Repo | Permalink | Comments (5)

June 26, 2019

How Large Are Default Spillovers in the U.S. Financial System?

Fernando M. Duarte, Collin Jones, and Francisco Ruela

When a financial firm suffers sufficiently high losses, it might default on its counterparties, who may in turn become unable to pay their own creditors, and so on. This “domino” or “cascade” effect can quickly propagate through the financial system, creating undesirable spillovers and unnecessary defaults. In this post, we use the framework that we discussed in “Assessing Contagion Risk in a Financial Network,” the first part of this two-part series, to answer the question: How vulnerable is the U.S. financial system to default spillovers?

Posted at 7:00 am in Banks, Crisis, Financial Institutions, Financial Intermediation, Systemic Risk | Permalink | Comments (1)

June 24, 2019

Just Released: New Regional Employment Data Now Available

Richard Deitz and Jonathan Hastings

Regional employment data provided by the U.S. Bureau of Labor Statistics (BLS) are a critically important tool used to track and assess local economic conditions on a timely basis. However, the primary data used for this purpose are monthly survey-based estimates that are revised once per year, and these revisions can sometimes be substantial and surprising. As a result, initial readings of these data can lead to conclusions about employment trends that may later change. It is possible to anticipate these revisions in advance of their release using a second publicly available data set released by the BLS. Like some of our colleagues at other Federal Reserve Banks, the Federal Reserve Bank of New York is now performing an “early benchmark” of initial monthly employment releases throughout the year and making these benchmarked data available to the public on a monthly basis. Our early benchmarked estimates tend to more closely track revised data than the initial releases do, and can help policymakers and the public better monitor regional economic conditions on a timely basis.

Posted at 10:00 am in Labor Market, New Jersey, New York, Regional Analysis | Permalink

Assessing Contagion Risk in a Financial Network

Fernando M. Duarte, Collin Jones, and Francisco Ruela

Duarte, Jones, and Ruela describe how stress can propagate through the financial system and sketch out an approach for quantifying economic losses stemming from default cascades.

Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Financial Markets, Systemic Risk | Permalink | Comments (1)

June 21, 2019

The New York Fed DSGE Model Forecast—June 2019

Sushant Acharya, Michael Cai, Marco Del Negro, Ethan Matlin, and Reca Sarfati

The June model forecast for 2019-22 is summarized in the table below, alongside the January forecast, and in the following charts. The model uses quarterly macroeconomic data released through the first quarter of 2019, and financial data and staff forecasts available through May 31, 2019.

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

June 5, 2019

Despite Rising Costs, College Is Still a Good Investment

Jaison R. Abel and Richard Deitz

In our last post, we showed that the cost of college has increased sharply in recent years due to the rising opportunity cost of attending school and the steady rise in tuition. This steep increase in the cost of college has once again raised questions about whether college is “worth it.” In this post, we weigh the economic benefits of a bachelor’s degree against the costs to estimate the return to college, providing an update to our 2014 study. We find that the average rate of return for a bachelor’s degree has edged down slightly in recent years due to rising costs, but remains high at around 14 percent, easily surpassing the threshold for a good investment. Thus, while the rising cost of college appears to have eroded the value of a bachelor’s degree somewhat, college remains a good investment for most people.

Posted at 7:00 am in Education, Human Capital | Permalink | Comments (10)

Markets & Policy Implementation

Liberty Street Economics

How Do Large Banks Manage Their Cash?

Large Bank Cash Balances and Liquidity Regulations

Just Released: Historical Reconstruction of the New York Fed Staff Nowcast, 2002‑15

Did the Value of a College Degree Decline during the Great Recession?

From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market

How Large Are Default Spillovers in the U.S. Financial System?

Just Released: New Regional Employment Data Now Available

Assessing Contagion Risk in a Financial Network

The New York Fed DSGE Model Forecast—June 2019

Despite Rising Costs, College Is Still a Good Investment

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