265 posts on "Liberty Street Economics"
April 17, 2024
The New York Fed Consumer Credit Panel: A Foundational CMD Data Set
As the Great Financial Crisis and associated recession were unfolding in 2009, researchers at the New York Fed joined colleagues at the Board of Governors and Philadelphia Fed to create a new kind of data set. Household liabilities, particularly mortgages, had gone from being a quiet little corner of the financial system to the center of the worst financial crisis and sharpest recession in decades. The new data set was designed to provide fresh insights into this part of the economy, especially the behavior of mortgage borrowers. In the fifteen years since that effort came to fruition, the New York Fed Consumer Credit Panel (CCP) has provided many valuable insights into household behavior and its implications for the macro economy and financial stability.
The CCP was one of the first data sets drawn from credit bureau data, one of the earliest features of the Center for Microeconomic Data (CMD), and the primary source material for some of the CMD’s most important contributions to policy and research. Here we review a few of the main household debt themes over the past fifteen years, and how our analyses contributed to their understanding.
April 12, 2024
The Anatomy of Export Controls
Governments increasingly use export controls to limit the spread of domestic cutting-edge technologies to other countries. The sectors that are currently involved in this geopolitical race include semiconductors, telecommunications, and artificial intelligence. Despite their growing adoption, little is known about the effect of export controls on supply chains and the productive sector at large. Do export controls induce a selective decoupling of the targeted goods and sectors? How do global customer-supplier relations react to export controls? What are their effects on the productive sector? In this post, which is based on a related staff report, we analyze the supply chain reconfiguration and associated financial and real effects following the imposition of export controls by the U.S. government.
April 10, 2024
A Retrospective on the Life Insurance Sector after the Failure of Silicon Valley Bank
Following the Silicon Valley Bank collapse, the stock prices of U.S banks fell amid concerns about the exposure of the banking sector to interest rate risk. Thus, between March 8 and March 15, 2023, the S&P 500 Bank index dropped 12.8 percent relative to S&P 500 returns (see right panel of the chart below). The stock prices of insurance companies tumbled as well, with the S&P 500 Insurance index losing 6.4 percent relative to S&P 500 returns over the same time interval (see the center panel below). Yet, insurance companies’ direct exposure to the three failed banks (Silicon Valley Bank, Silvergate, and Signature Bank) through debt and equity was modest. In this post, we examine the possible factors behind the reaction of insurance investors to the failure of Silicon Valley Bank.
April 8, 2024
Internal Liquidity’s Value in a Financial Crisis
A classic question for U.S. financial firms is whether to organize themselves as entities that are affiliated with a bank-holding company (BHC). This affiliation brings benefits, such as access to liquidity from other affiliated entities, as well as costs, particularly a larger regulatory burden. This post highlights the results from a recent Staff Report that sheds light on this tradeoff. This work uses confidential data on the population of broker-dealers to study the benefits of being affiliated with a BHC, with a focus on the global financial crisis (GFC). The analysis reveals that affiliation with a BHC makes broker-dealers more resilient to the aggregate liquidity shocks that prevailed during the GFC. This results in these broker-dealers being more willing to hold riskier securities on their balance sheet relative to broker-dealers that are not affiliated with a BHC.
April 3, 2024
Physical Climate Risk and Insurers
As the frequency and severity of natural disasters increase with climate change, insurance—the main tool for households and businesses to hedge natural disaster risks—becomes increasingly important. Can the insurance sector withstand the stress of climate change? To answer this question, it is necessary to first understand insurers’ exposure to physical climate risk, that is, risks coming from physical manifestations of climate change, such as natural disasters. In this post, based on our recent staff report, we construct a novel factor to measure the aggregate physical climate risk in the financial market and discuss its applications, including the assessment of insurers’ exposure to climate risk and the expected capital shortfall of insurers under climate stress scenarios.
Posted at 7:00 am in Corporate Finance, Financial Institutions, Financial Markets | Permalink | Comments (0)
March 27, 2024
Deposits and the March 2023 Banking Crisis—A Retrospective
In this post, we evaluate how deposits have evolved over the latter portion of the current monetary policy tightening cycle. We find that while deposit betas have continued to rise, they did not accelerate following the bank runs in March 2023. In addition, while overall deposit funding has remained stable, we find that the banks most affected by the March 2023 events are offering higher deposit rates and are growing their deposit funding relative to the broader banking industry.
March 26, 2024
What Happens to U.S. Activity and Inflation if China’s Property Sector Leads to a Crisis?
A previous post explored the potential implications for U.S. growth and inflation of a manufacturing-led boom in China. This post considers spillovers to the U.S. from a downside scenario, one in which China’s ongoing property sector slump takes another leg down and precipitates an economic hard landing and financial crisis.
March 8, 2024
Stablecoins and Crypto Shocks
In a previous post, we described the rapid growth of the stablecoin market over the past few years and then discussed the TerraUSD stablecoin run of May 2022. The TerraUSD run, however, is not the only episode of instability experienced by a stablecoin. Other noteworthy incidents include the June 2021 run on IRON and, more recently, the de-pegging of USD Coin’s secondary market price from $1.00 to $0.88 upon the failure of Silicon Valley Bank in March 2023. In this post, based on our recent staff report, we consider the following questions: Do stablecoin investors react to broad-based shocks in the crypto asset industry? Do the investors run from the entire stablecoin industry, or do they engage in a flight to safer stablecoins? We conclude with some high-level discussion points on potential regulations of stablecoins.
March 7, 2024
Will the Moderation in Wage Growth Continue?
Wage growth has moderated notably following its post-pandemic surge, but it remains strong compared to the wage growth prevailing during the low-inflation pre-COVID years. Will the moderation continue, or will it stall? And what does it say about the current state of the labor market? In this post, we use our own measure of wage growth persistence – called Trend Wage Inflation (TWIn in short) – to look at these questions. Our main finding is that, after a rapid decline from 7 percent at its peak in late 2021 to around 5 percent in early 2023, TWin has changed little in recent months, indicating that the moderation in nominal wage growth may have stalled. We also show that our measure of trend wage inflation and labor market tightness comove very closely. Hence, the recent behavior of TWIn is consistent with a still-tight labor market.
March 4, 2024
Global Supply Chains and U.S. Import Price Inflation
Inflation around the world increased dramatically with the reopening of economies following COVID-19. After reaching a peak of 11 percent in the second quarter of 2021, world trade prices dropped by more than five percentage points by the middle of 2023. U.S. import prices followed a similar pattern, albeit with a lower peak and a deeper trough. In a new study, we investigate what drove these price movements by using information on the prices charged for products shipped from fifty-two exporters to fifty-two importers, comprising more than twenty-five million trade flows. We uncover several patterns in the data: (i) From 2021:Q1 to 2022:Q2, almost all of the growth in U.S. import prices can be attributed to global factors, that is, trends present in most countries; (ii) at the end of 2022, U.S. import price inflation started to be driven by U.S. demand factors; (iii) in 2023, foreign suppliers to the U.S. market caught up with demand and account for the decline in import price inflation, with a significant role played by China.
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