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The Dollar’s Imperial Circle
Pelin, Serra; Benigno, Gianluca; Akinci, Ozge; Turek, Jonathan (2022-12-01)
In this paper we highlight a new channel through which dollar fluctuations can become a self-fulfilling pro-cyclical force. We call this mechanism “Imperial Circle” as it makes the dollar the dominant macroeconomic variable in the context of the current international monetary system. At the core of it, there is a fundamental asymmetry between the shrinking exposure of the “real” U.S. economy to global developments versus the growing global role of the U.S. dollar. Dollar appreciation leads to a decline in global economic activity, which in turn benefits, in relative terms, the dollar ...
Staff Reports , Paper 1045

Discussion Paper
Financial Vulnerability and Macroeconomic Fragility
Nourbash, Ethan; Akinci, Ozge; Benigno, Gianluca; Del Negro, Marco; Queraltó, Albert (2023-05-22)
What is the effect of a hike in interest rates on the economy? Building on recent research, we argue in this post that the answer to this question very much depends on how vulnerable the financial system is. We measure financial vulnerability using a novel concept—the financial stability interest rate r** (or “r-double-star”)—and show that, empirically, the economy is more sensitive to shocks when the gap between r** and current real rates is small or negative.
Liberty Street Economics , Paper 20230522

Discussion Paper
Pandemic Wage Pressures
Pelin, Serra; Benigno, Gianluca (2022-08-04)
The recovery since the onset of the pandemic has been characterized by a tight labor market and rising nominal wage growth. In this post, we look at labor market conditions from a more granular, sectoral point of view focusing on data covering the nine major industries. This breakdown is motivated by the exceptionality of the pandemic episode, the way it has asymmetrically affected sectors of the economy, and by the possibility of exploiting sectoral heterogeneities to understand the drivers of recent labor market dynamics. We document that wage pressures are highest in the sectors with the ...
Liberty Street Economics , Paper 20220804

Report
The GSCPI: A New Barometer of Global Supply Chain Pressures
Benigno, Gianluca; di Giovanni, Julian; Groen, Jan J. J.; Noble, Adam I. (2022-05-01)
We propose a novel indicator to capture pressures that arise at the global supply chain level, the Global Supply Chain Pressure Index (GSCPI). The GSCPI provides a new monitoring tool to gauge global supply chain conditions. We assess the index’s capacity to explain inflation outcomes, using the local projection method. Our analysis shows that recent inflationary pressures are closely related to the behavior of the GSCPI, especially at the level of producer price inflation in the United States and the euro area.
Staff Reports , Paper 1017

Report
Optimal Policy for Macro-Financial Stability
Young, Eric R.; Benigno, Gianluca; Otrok, Christopher; Chen, Huigang; Rebucci, Alessandro (2019-10-01)
There is a new and now large literature analyzing government policies for financial stability based on models with endogenous borrowing constraints. These normative analyses build upon the concept of constrained efficient allocation, where the social planner is constrained by the same borrowing limit that agents face. In this paper, we show that the same set of policy tools that implement the constrained efficient allocation can be used by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. The constrained social planner approach may lead to inaccurate ...
Staff Reports , Paper 899

Discussion Paper
Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows
Akinci, Ozge; Benigno, Gianluca; Queraltó, Albert (2020-07-02)
The COVID-19 outbreak has triggered unusually fast outﬂows of dollar funding from emerging market economies (EMEs). These outflows are known as sudden stop episodes, and are typically followed by economic contractions.
FEDS Notes , Paper 2020-07-02

Report
Managing Monetary Policy Normalization
Benigno, Gianluca; Benigno, Pierpaolo (2022-05-01)
We propose a new framework for monetary policy analysis to study monetary policy normalization when exiting a liquidity trap. The optimal combination of reserves and interest rate policy requires an increase in liquidity (reserves) a few quarters after the policy rate is set at the effective lower bound. Removal of accommodation requires that quantitative tightening starts before the liftoff of the policy rate. Moreover, the withdrawal of liquidity takes place at a very slow pace relative to the normalization of the policy rate.
Staff Reports , Paper 1015

Discussion Paper
A New Barometer of Global Supply Chain Pressures
Noble, Adam I.; Benigno, Gianluca; Groen, Jan J. J.; di Giovanni, Julian (2022-01-04)
Supply chain disruptions have become a major challenge for the global economy since the start of the COVID-19 pandemic. Factory shutdowns (particularly in Asia) and widespread lockdowns and mobility restrictions have resulted in disruptions across logistics networks, increases in shipping costs, and longer delivery times. Several measures have been used to gauge these disruptions, although those measures tend to focus on selected dimensions of global supply chains. In this post, we propose a new gauge, the Global Supply Chain Pressure Index (GSCPI), which integrates a number of commonly used ...
Liberty Street Economics , Paper 20220104

Discussion Paper
Is There a Bitcoin–Macro Disconnect?
Benigno, Gianluca; Rosa, Carlo (2023-02-08)
Cryptocurrencies’ market capitalization has grown rapidly in recent years. This blog post analyzes the role of macro factors as possible drivers of cryptocurrency prices. We take a high-frequency perspective, and we focus on Bitcoin since its market capitalization dwarfs that of all other cryptocurrencies combined. The key finding is that, unlike other asset classes, Bitcoin has not responded significantly to U.S. macro and monetary policy news. This disconnect is puzzling, as unexpected changes in discount rates should, in principle, affect the price of Bitcoin.
Liberty Street Economics , Paper 20230208

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