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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
On binscatter
Cattaneo, Matias D.; Crump, Richard K.; Farrell, Max H.; Feng , Yingjie (2019-02-01)
Binscatter, or a binned scatter plot, is a very popular tool in applied microeconomics. It provides a flexible, yet parsimonious way of visualizing and summarizing mean, quantile, and other nonparametric regression functions in large data sets. It is also often used for informal evaluation of substantive hypotheses such as linearity or monotonicity of the unknown function. This paper presents a foundational econometric analysis of binscatter, offering an array of theoretical and practical results that aid both understanding current practices (that is, their validity or lack thereof) as well ...
Staff Reports , Paper 881

Discussion Paper
A Look at the Accuracy of Policy Expectations
Moench, Emanuel; Eusepi, Stefano; Crump, Richard K. (2011-08-22)
Since the 1980s, the primary policy tool of the Federal Reserve has been the federal funds rate. Because expectations of the future path of the funds rate play a central role in the term structure of interest rates and thus the monetary transmission mechanism, it is important to know how accurate these expectations are in predicting the funds rate. In this post, we investigate this issue using a well-known survey of private sector forecasters. We find that forecasts tend to over-predict the funds rate in easing cycles and under-predict it in tightening cycles. In addition, while forecasts ...
Liberty Street Economics , Paper 20110822

Report
A Large Bayesian VAR of the United States Economy
Crump, Richard K.; Eusepi, Stefano; Giannone, Domenico; Qian, Eric; Sbordone, Argia M. (2021-08-01)
We model the United States macroeconomic and financial sectors using a formal and unified econometric model. Through shrinkage, our Bayesian VAR provides a flexible framework for modeling the dynamics of thirty-one variables, many of which are tracked by the Federal Reserve. We show how the model can be used for understanding key features of the data, constructing counterfactual scenarios, and evaluating the macroeconomic environment both retrospectively and prospectively. Considering its breadth and versatility for policy applications, our modeling approach gives a reliable, reduced form ...
Staff Reports , Paper 976

Discussion Paper
Interest Rate Derivatives and Monetary Policy Expectations
Raskin, Matthew; Moench, Emanuel; Rosa, Carlo; Stowe, Lisa; Boyle, Jeremiah P.; Crump, Richard K. (2014-12-05)
Market expectations of the path of future policy rates can have important implications for financial markets and the economy. Because interest rate derivatives enable market participants to hedge against or speculate on potential changes in various short-term U.S.interest rates, they are a rich and timely source of information on market expectations. In this post, we describe how information about market expectations can be derived from interest rate futures and forwards, focusing on three main instruments: federal funds futures, overnight index swaps (OIS), and Eurodollar futures. We also ...
Liberty Street Economics , Paper 20141205b

Journal Article
The Commercial Paper Funding Facility
Kovner, Anna; Boyarchenko, Nina; Crump, Richard K.; Leonard, Deborah (2022-07-01)
The Federal Reserve reestablished the Commercial Paper Funding Facility (CPFF 2020) in response to the disruptions in the commercial paper market triggered by the COVID-19 pandemic and subsequent economic shutdowns. The CPFF 2020 was designed to support market functioning and provide a liquidity backstop for the commercial paper market. This article provides an overview of the CPFF 2020, including detailing the facility’s design, documenting its usage, and describing its impact on commercial paper markets. In addition, the authors compare the market conditions and facility design in CPFF ...
Economic Policy Review , Volume 28 , Issue 1

Discussion Paper
Reading the Tea Leaves of the U.S. Business Cycle—Part One
Crump, Richard K.; Giannone, Domenico; Lucca, David O. (2020-02-10)
The study of the business cycle—fluctuations in aggregate economic activity between times of widespread expansion and contraction—is one of the foremost pursuits in macroeconomics. But even distinguishing periods of expansion and recession can be challenging. In this post, we discuss different conceptual approaches to dating the business cycle, study their past performance for the U.S. economy, and highlight the informativeness of labor market indicators.
Liberty Street Economics , Paper 20200210

Discussion Paper
Connecting “The Dots”: Disagreement in the Federal Open Market Committee
Moench, Emanuel; Eusepi, Stefano; Davig, Troy A.; Crump, Richard K. (2014-09-25)
People disagree, and so do the members of the Federal Open Market Committee (FOMC). How much do they disagree? Why do they disagree? We look at the FOMC’s projections of the federal funds rate (FFR) and other variables and compare them with those in the New York Fed’s Survey of Primary Dealers (SPD). We show that the members of the FOMC tend to disagree more than the primary dealers and offer some potential explanations.
Liberty Street Economics , Paper 20140925a

Discussion Paper
The Commercial Paper Funding Facility
Boyarchenko, Nina; Kovner, Anna; Crump, Richard K. (2020-05-15)
In mid-March, the Federal Reserve announced a slew of credit and liquidity facilities aimed at supporting credit provision to U.S. households and businesses. Among the initiatives is the Commercial Paper Funding Facility (CPFF) which aims to support market functioning and provide a liquidity backstop for the commercial paper market. The domestic commercial paper market provides a venue for short-term financing for companies which employ more than 6 million Americans. Securities in the commercial paper market represent a key asset class for money market mutual funds. This post documents the ...
Liberty Street Economics , Paper 20200515

Discussion Paper
The Persistent Compression of the Breakeven Inflation Curve
Crump, Richard K.; Volker, Desi; Gospodinov, Nikolay (2021-03-22)
Breakeven inflation, defined as the difference in the yield of a nominal Treasury security and a Treasury Inflation-Protected Security (TIPS) of the same maturity, is closely watched by market participants and policymakers alike. Breakeven inflation rates provide a signal about the expected path of inflation as perceived by market participants although they are also affected by risk and liquidity premia. In this post, we scrutinize the dynamics of breakeven inflation, highlighting some intriguing behavior which has persisted for a number of years and even through the pandemic. In particular, ...
Liberty Street Economics , Paper 20210333

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