Understanding Recent Fluctuations in Short-Term Interest Rates
In mid-September 2019, there were sudden, large fluctuations in short-term interest rates. Why did these fluctuations happen, and what do they tell us about the Federal Reserve?s monetary policy toolkit?
How Do the Fed's MBS Holdings Affect the Economy?
In our previous post, we discussed the meaning of the term “credit allocation” and how it relates to the Federal Reserve’s holdings of agency mortgage-backed securities (MBS). We concluded that the Fed’s MBS holdings do not pose significant credit risk but that the Fed does influence the relative market price of credit when it purchases agency MBS, and this indirectly influences decisions by investors. Today, we take the next step and discuss how the Fed’s MBS purchases affect the U.S. economy and, in particular, how the effect of MBS purchases can differ from the effect of ...
Expanded central clearing would increase Treasury market resilience
The smooth functioning of markets for Treasury securities is critically important to the U.S. economy. The federal government relies on the sale of Treasuries to finance essential services, and the Federal Reserve uses Treasury markets to implement monetary policy.
The age-time-cohort problem and the identification of structural parameters in life-cylce models
The standard approach to estimating structural parameters in life-cycle models imposes sufficient assumptions on the data to identify the ?age profile? of outcomes, then chooses model parameters so that the model?s age profile matches this empirical age profile. I show that the standard approach is both incorrect and unnecessary: incorrect, because it generally produces inconsistent estimators of the structural parameters, and unnecessary, because consistent estimators can be obtained under weaker assumptions. I derive an estimation method that avoids the problems of the standard approach. I ...
Migration, congestion externalities, and the evaluation of spatial investments
Evaluations of new infrastructure in developing countries typically focus on direct effects, such as the impact of an electrification program on household energy use. But if new infrastructure induces people to move into an area, other local publicly provided goods may become congested, offsetting the benefit of the infrastructure. We use a simple model to show how to measure the net benefit of a place-based program without data on land prices?an indicator that is commonly used to measure congestion in developed countries but that often cannot be used in poor countries because land markets ...
Bank Exposure to Commercial Real Estate and the Covid-19 Pandemic
The Covid-19 pandemic had an immediate and substantial impact on the commercial real estate (CRE) market—emptying workplaces, shopping centers, and hotels, thus affecting the cash flows of businesses occupying commercial space and in turn the ability of commercial space owners to meet their debt obligations.Delinquent CRE loans began to surface soon after the pandemic started and remain elevated in 2021. Broad loan delinquencies would represent a potential threat to bank capitalization and solvency, particularly for smaller banks that tend to have higher concentrations in CRE lending. ...
Monetary Policy Implementation with an Ample Supply of Reserves
We offer a parsimonious model of reserve demand to study the trade-offs associated with various monetary policy implementation frameworks. Prior to the 2007-09 financial crisis, many central banks supplied scarce reserves to execute their interest rate policies. In response to the crisis, central banks undertook quantitative easing policies that greatly expanded their balance sheets and, by extension, the amount of reserves they supplied. When the crisis and its aftereffects passed, central banks were in a position to choose a framework that has reserves that are: (1) abundant—by keeping ...
Worker Betas: Five Facts About Systematic Earnings Risk
The magnitude of and heterogeneity in systematic earnings risk has important implications for various theories in macro, labor, and financial economics. Using administrative data, we document how the aggregate risk exposure of individual earnings to GDP and stock returns varies across gender, age, the worker?s earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, males, younger workers, and those in construction and durable manufacturing are more exposed to aggregate risk. At the top of the earnings ...
Interstate migration has fallen less than you think: consequences of hot deck imputation in the Current Population Survey
We show that much of the recent reported decrease in interstate migration is a statistical artifact. Before 2006, the Census Bureau?s imputation procedure for dealing with missing data in the Current Population Survey inflated the estimated interstate migration rate. An undocumented change in the procedure corrected the problem starting in 2006, thus reducing the estimated migration rate. The change in imputation procedures explains 90 percent of the reported decrease in interstate migration between 2005 and 2006, and 42 percent of the decrease between 2000 (the recent high-water mark) and ...
Do newspapers matter? Short-run and long-run evidence from the closure of The Cincinnati Post
The Cincinnati Post published its last edition on New Year?s Eve 2007, leaving the Cincinnati Enquirer as the only daily newspaper in the market. The next year, fewer candidates ran for municipal office in the Kentucky suburbs most reliant on the Post, incumbents became more likely to win re-election, and voter turnout and campaign spending fell. These changes happened even though the Enquirer at least temporarily increased its coverage of the Post?s former strongholds. Voter turnout remained depressed through 2010, nearly three years after the Post closed, but the other effects diminished ...