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Discussion Paper
A New Perspective on Low Interest Rates
Giannoni, Marc; Del Negro, Marco; Tambalotti, Andrea; Giannone, Domenico (2018-02-05)
Interest rates in the United States have remained at historically low levels for many years. This series of posts explores the forces behind the persistence of low rates. We briefly discuss some of the explanations advanced in the academic literature, and propose an alternative hypothesis that centers on the premium associated with safe and liquid assets. Our argument, outlined in a paper we presented at the Brookings Conference on Economic Activity last March, suggests that the increase in this premium since the late 1990s has been a key driver of the decline in the real return on U.S. ...
Liberty Street Economics , Paper 20180205

Discussion Paper
Global Trends in Interest Rates
Bok, Brandyn; Del Negro, Marco; Qian, Eric; Giannone, Domenico; Giannoni, Marc; Tambalotti, Andrea (2019-02-27)
Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.
Liberty Street Economics , Paper 20190227

Discussion Paper
A Time-Series Perspective on Safety, Liquidity, and Low Interest Rates
Giannoni, Marc; Tambalotti, Andrea; Giannone, Domenico; Bok, Brandyn; Del Negro, Marco (2018-02-06)
The previous post in this series discussed several possible explanations for the trend decline in U.S. real interest rates since the late 1990s. We noted that while interest rates have generally come down over the past two decades, this decline has been more pronounced for Treasury securities. The conclusion that we draw from this evidence is that the convenience associated with the safety and liquidity embedded in Treasuries is an important driver of the secular (long-term) decline in Treasury yields. In this post and the next, we provide an overview of the two complementary empirical ...
Liberty Street Economics , Paper 20180206

Discussion Paper
Drivers of Inflation: The New York Fed DSGE Model’s Perspective
Del Negro, Marco; Gleich, Aidan; Goyal, Shlok; Johnson, Alissa; Tambalotti, Andrea (2022-03-01)
After a sharp decline in the first few months of the COVID-19 pandemic, inflation rebounded in the second half of 2020 and surged through 2021. This post analyzes the drivers of these developments through the lens of the New York Fed DSGE model. Its main finding is that the recent rise in inflation is mostly accounted for by a large cost-push shock that occurred in the second quarter of 2021 and whose inflationary effects persist today. Based on the model’s reading of historical data, this shock is expected to fade gradually over the course of 2022, returning quarterly inflation to close to ...
Liberty Street Economics , Paper 20220301

Report
Global trends in interest rates
Tambalotti, Andrea; Del Negro, Marco; Giannone, Domenico; Giannoni, Marc (2018-09-01)
The trend in the world real interest rate for safe and liquid assets fluctuated close to 2 percent for more than a century, but has dropped significantly over the past three decades. This decline has been common among advanced economies, as trends in real interest rates across countries have converged over this period. It was driven by an increase in the convenience yield for safety and liquidity and by lower global economic growth.
Staff Reports , Paper 866

Report
Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms
Ajello, Andrea; Boyarchenko, Nina; Gourio, François; Tambalotti, Andrea (2022-02-01)
This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit ...
Staff Reports , Paper 1002

Working Paper
Investment shocks and business cycles
Justiniano, Alejandro; Tambalotti, Andrea; Primiceri, Giorgio E. (2008)
Shocks to the marginal efficiency of investment are the most important drivers of business cycle fluctuations in US output and hours. Moreover, these disturbances drive prices higher in expansions, like a textbook demand shock. We reach these conclusions by estimating a DSGE model with several shocks and frictions. We also find that neutral technology shocks are not negligible, but their share in the variance of output is only around 25 percent, and even lower for hours. Labor supply shocks explain a large fraction of the variation of hours at very low frequencies, but not over the business ...
Working Paper Series , Paper WP-08-12

Discussion Paper
Credit Supply and the Housing Boom
Justiniano, Alejandro; Tambalotti, Andrea; Primiceri, Giorgio E. (2015-04-20)
There is no consensus among economists as to what drove the rise of U.S. house prices and household debt in the period leading up to the recent financial crisis. In this post, we argue that the fundamental factor behind that boom was an increase in the supply of mortgage credit, which was brought about by securitization and shadow banking, along with a surge in capital inflows from abroad. This argument is based on the interpretation of four macroeconomic developments between 2000 and 2006 provided by a general equilibrium model of housing and credit.
Liberty Street Economics , Paper 20150420

Journal Article
The housing drag on core inflation
Hobijn, Bart; Tambalotti, Andrea; Eusepi, Stefano (2010)
Some analysts have raised the question of whether the unprecedented declines in house values, which have been the hallmark of the recent recession, might be artificially dampening core inflation readings. However, a close examination of recent inflation data shows that the weakness in housing costs is representative of a broad pattern of subdued price increases across most consumption goods and services and is not distorting the broad downward trend in core inflation measures.
FRBSF Economic Letter

Working Paper
The Effects of the Saving and Banking Glut on the U.S. Economy
Justiniano, Alejandro; Tambalotti, Andrea; Primiceri, Giorgio E. (2013-11-29)
We use a quantitative equilibrium model with houses, collateralized debt and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one fourth and one third of the increase in U.S. house prices and household debt that preceded the financial crisis. The key to these findings is that the model generates the sustained low level of interest rates observed over that period.
Working Paper Series , Paper WP-2013-17

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