Search Results
Discussion Paper
Discounting the Long-Run
Expectations about the path of interest rates matter for many economic decisions. Three sources for obtaining information about such expectations are available. The first is extrapolation from historical data. The second consists of surveys of expectations. The third are expectations drawn from financial market prices, often referred to as market expectations. The last are usually considered to be model-based expectations, because, generally, a model is needed to reliably extract expectations from current prices. In this post, we explain the need for and usage of term structure models for ...
Discussion Paper
Forecasting Interest Rates over the Long Run
In a previous post, we showed how market rates on U.S. Treasuries violate the expectations hypothesis because of time-varying risk premia. In this post, we provide evidence that term structure models have outperformed direct market-based measures in forecasting interest rates. This suggests that term structure models can play a role in long-run planning for public policy objectives such as assessing the viability of Social Security.
Working Paper
Inequality, inflation, and central bank independence
What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to ...
Working Paper
Improving Child Welfare in Middle Income Countries: The Unintended Consequence of a Pro-Homemaker Divorce Law and Wait Time to Divorce
This study identifies the impact of access to and the speed of divorce on the welfare of children in a middle income largely Catholic country. Using difference-in-difference estimation techniques, I compare school enrollment for children of married and cohabiting parent households before and after the legalization of divorce. Implementing pro-homemaker divorce laws increased school enrollment anywhere from 3.4 to 5.5 percentage points, and the effect was particularly salient on secondary school students. I provide evidence that administrative processes influencing the speed of divorce affect ...
Discussion Paper
Some Options for Addressing Puerto Rico’s Fiscal Problems
Puerto Rico’s economic and fiscal challenges have been an important focus of work done here at the New York Fed, resulting in two reports (2012 and 2014), several blog posts and one paper in our Current Issues series in just the last few years. As the Commonwealth’s problems have deepened, the Obama administration and Congress have begun discussing potential approaches to addressing them. In this post, we update our previous estimates of Puerto Rico’s outstanding debt and discuss the effect that various forms of bankruptcy protection might have on the Commonwealth.
Working Paper
Modeling to Inform Economy-Wide Pandemic Policy: Bringing Epidemiologists and Economists Together
Facing unprecedented uncertainty and drastic trade-offs between public health and other forms of human well-being, policymakers during the Covid-19 pandemic have sought the guidance of epidemiologists and economists. Unfortunately, while both groups of scientists use many of the same basic mathematical tools, the models they develop to inform policy tend to rely on different sets of assumptions and, thus, often lead to different policy conclusions. This divergence in policy recommendations can lead to uncertainty and confusion, opening the door to disinformation, distrust of institutions, and ...
Discussion Paper
Municipal Debt Markets and the COVID-19 Pandemic
In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show that conditions in municipal markets have improved significantly, in part a result of the announcement and implementation of several Federal Reserve facilities. Yields have decreased substantially, mutual funds ...
Working Paper
It's Good Weather for More Government: The Effect of Weather on Fiscal Policy
I show that weather conditions on election day affect future fiscal policy. When it rains during state elections, there is an increase in the relative income of voters, which is followed by an increase in expenditure and debt. The increase in expenditure is directed towards a larger police and safety budget. This result is compatible with a model of complementarity between consumption and public goods. In the model, high-income voters support an increase in safety budget because they benefit more from it than low-income voters.
Discussion Paper
The Rapidly Changing Nature of Japan’s Public Debt
Japan’s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan’s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance ...
Discussion Paper
A History of SOMA Income
Historically, the Federal Reserve has held mostly interest-bearing securities on the asset side of its balance sheet and, up until 2008, mostly currency on its liability side, on which it pays no interest. Such a balance sheet naturally generates income, which is almost entirely remitted to the U.S. Treasury once operating expenses and statutory dividends on capital are paid and sufficient earnings are retained to equate surplus capital to capital paid in. The financial crisis that began in late 2007 prompted a number of changes to the balance sheet. First, the asset side of the balance sheet ...