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Discussion Paper
Real Inventory Slowdowns
Lucca, David O.; McQuillan, Casey; Crump, Richard K. (2019-11-18)
Inventory investment plays a central role in business cycle fluctuations. This post examines whether inventory investment amplifies or dampens economic fluctuations following a tightening in financial conditions. We find evidence supporting an amplification mechanism. This analysis suggests that inventory accumulation will be a drag on economic activity this year but provide a boost in 2020.
Liberty Street Economics , Paper 20191118

Report
A unified approach to measuring u*
Eusepi, Stefano; Giannoni, Marc; Sahin, Aysegul; Crump, Richard K. (2019-05-01)
This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators, such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach, which employs reduced-form models and DSGE models, relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a ...
Staff Reports , Paper 889

Journal Article
Review of New York Fed studies on the effects of post-crisis banking reforms
Crump, Richard K.; Santos, Joao A. C. (2018-24-02)
In 2017, the Federal Reserve Bank of New York initiated a project to examine the effects of post-crisis reforms on bank performance and vulnerability. The project, which was completed in June 2018, consisted of twelve studies evaluating a wide set of regulatory changes. The primary focus was how these regulatory changes affected the risk taking, funding costs, and profitability of banks, as well as their impact on liquidity. In this article, the authors survey the twelve papers that make up the project and place the principal findings in the context of the current academic and policymaking ...
Economic Policy Review , Issue 24-2 , Pages 71-90

Working Paper
Corporate Bond Market Distress
Boyarchenko, Nina; Crump, Richard K.; Kovner, Anna; Shachar, Or (2024-09)
We link bond market functioning to future economic activity through a new measure, the Corporate Bond Market Distress Index (CMDI). The CMDI coalesces metrics from primary and secondary markets in real time, offering a unified measure to capture access to debt capital markets. The index correctly identifies periods of distress and predicts future realizations of commonly used measures of market functioning, while the converse is not the case. We show that disruptions in access to corporate bond markets have an economically material, statistically significant impact on the real economy, even ...
Working Paper , Paper 24-09

Report
Changing Risk-Return Profiles
Hundtofte , Sean; Giannone, Domenico; Crump, Richard K.; Everaert, Miro (2018-06-01)
We show that realized volatility in market returns and financial sector stock returns have strong predictive content for the future distribution of market returns. This is a robust feature of the last century of U.S. data and, most importantly, can be exploited in real time. Current realized volatility has the most information content on the uncertainty of future returns, whereas it has only limited content about the location of the future return distribution. When volatility is low, the predicted distribution of returns is less dispersed and probabilistic forecasts are sharper.
Staff Reports , Paper 850

Discussion Paper
How Is the Corporate Bond Market Functioning as Interest Rates Increase?
Kovner, Anna; Boyarchenko, Nina; Crump, Richard K.; Shachar, Or (2022-11-30)
The Federal Open Market Committee (FOMC) has increased the target interest rate by 3.75 percentage points since March 17, 2022. In this post we examine how corporate bond market functioning has evolved along with the changes in monetary policy through the lens of the U.S. Corporate Bond Market Distress Index (CMDI). We compare this evolution to the 2015 tightening cycle for context on how bond market conditions have evolved as rates increase. The overall CMDI has deteriorated but remains close to historical medians. The investment-grade CMDI index has deteriorated more than the high-yield, ...
Liberty Street Economics , Paper 20221130

Report
Deconstructing the yield curve
Gospodinov, Nikolay; Crump, Richard K. (2019-04-01)
We introduce a novel nonparametric bootstrap for the yield curve which is agnostic to the true factor structure of interest rates. We deconstruct the yield curve into primitive objects, with weak cross-sectional and time-series dependence, that serve as building blocks for resampling the data. We analyze the properties of the bootstrap for mimicking salient features of the data and conducting valid inference. We demonstrate the benefits of our general method by revisiting the predictability of bond returns based on slow-moving fundamentals. We find that trend inflation, but not the ...
Staff Reports , Paper 884

Report
The Unemployment-Inflation Trade-off Revisited: The Phillips Curve in COVID Times
Crump, Richard K.; Eusepi, Stefano; Giannoni, Marc; Sahin, Aysegul (2024-03-01)
Using a New Keynesian Phillips curve, we document the rapid and persistent increase in the natural rate of unemployment, ut*, in the aftermath of the pandemic and characterize its implications for inflation dynamics. While the bulk of the inflation surge is attributed to temporary supply factors, we also find an important role for current and expected negative unemployment gaps. Through the lens of the model, the 2022-23 disinflation was driven by the expectation that the unemployment gap will close through a progressive decline in ut* and a rise in the unemployment rate. This implies that ...
Staff Reports , Paper 1086

Discussion Paper
Is U.S. Monetary Policy Seasonal?
Lucca, David O.; Crump, Richard K. (2012-10-01)
Many economic time series display periodic and predictable patterns within each calendar year, generally referred to as seasonal effects. For example, retail sales tend to be higher in December than in other months. These patterns are well-known to economists, who apply statistical filters to remove seasonal effects so that the resulting series are more easily comparable across months. Because policy decisions are based on seasonally adjusted series, we wouldn’t expect the decisions to exhibit any seasonal behavior. Yet, in this post we find that the Federal Reserve has been much more ...
Liberty Street Economics , Paper 20121001

Discussion Paper
Fundamental Disagreement: How Much and Why?
Eusepi, Stefano; Crump, Richard K. (2016-01-13)
Everyone disagrees, even professional forecasters, especially about big economic questions. Has potential output growth changed since the financial crisis? Are we bound for a period of “secular stagnation”? Will the European economy rebound? When is inflation getting back to mandate-consistent level? In this post, we document to what degree professional forecasters disagree and discuss potential reasons why. In a recent working paper, we document a set of novel facts about disagreement among professional forecasters over the last thirty years. We focus on the “trinity” of U.S. output ...
Liberty Street Economics , Paper 20160113

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