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 ...
Helping State and Local Governments Stay Liquid
On April 9, the Federal Reserve announced up to $2.3 trillion in new support for the economy in response to the coronavirus pandemic. Among the initiatives is the Municipal Liquidity Facility (MLF), intended to support state and local governments. The details of the facility are described in the term sheet. The state and local sector is a unique but very important part of the economy. This post lays out some of the economics of the sector and the needs that the facility intends to satisfy.
We study the urban structure of the City of Detroit. Following many decades of decline, the city?s current urban structure is clearly not optimal for its size, with a business district immediately surrounded by a ring of largely vacant neighborhoods. We propose a model with residential externalities that features multiple equilibria at the neighborhood level. In particular, developing a residential area requires the coordination of developers and residents, without which it may remain vacant even if its fundamentals are sound. We embed this mechanism in a quantitative spatial economics model ...
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 ...
Fiscal Policy during a Pandemic
I study the effects of the 2019-20 coronavirus outbreak in the United States and subsequent fiscal policy response in a nonlinear DSGE model. The pandemic is a shock to the utility of contact-intensive services that propagates to other sectors via general equilibrium, triggering a deep recession. I use a calibrated version of the model to analyze different types of fiscal policies. I find that UI benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit, while savers may favor unconditional transfers. Liquidity assistance programs are effective if the ...
Responding to COVID-19: A Note
We consider several epidemiological simulations of the COVID-19 pandemic using the textbook SIR model and discuss the basic implications of these results for crafting an adequate response to the ensuing economic crisis. Our simulations are meant to be illustrative of the ﬁndings reported in the epidemiological literature using more sophisticated models (e.g., Ferguson et al. (2020)). The key observation we stress is that moderating the epidemiological response of social distancing according to the models may come at a steep price of extending the duration of the pandemic and hence the time ...
We study the urban structure of the city of Detroit. Following several decades of decline, the city's current urban structure is clearly not optimal for its size, with a business district immediately surrounded by a ring of largely vacant neighborhoods. We propose a model with residential externalities that features multiple equilibria at the neighborhood level. In particular, developing a residential area requires the coordination of developers and residents, without which it may remain vacant even if its fundamentals are sound. We embed this mechanism in a quantitative spatial economics ...
The Debt Ceiling as a “Fiscal Rule”
A few months ago, the federal government was once again confronted with the need to raise the statutory limit on the amount of debt issued by the Treasury. As in the past, the protracted stalemate and associated uncertainty led to calls to eliminate the debt ceiling. In this post, I make the counterargument. Likely because of its straightforwardness, the debt ceiling has been an effective “fiscal rule.” The reduction of the federal deficit from the mid-1980s to the mid-1990s was due in large part to a series of budget compromises, all of which were accompanied by the need to raise the ...
Transparency and Sources of Information on the Federal Reserve’s Operations, Income, and Balance Sheet
This week-long series examined the evolution of the Federal Reserve's securities portfolio and its performance over time. While the intent has been to enhance understanding of the Fed's activities, the Federal Reserve has long maintained a commitment to transparency and accountability. The historical information presented in these posts represents the work of New York Fed staff to collect portfolio-related information from annual statements and reports, most of which are public. To enhance public access, the resulting time series we compiled are being provided in downloadable Excel files ...
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 ...