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The Macro Effects of the Recent Swing in Financial Conditions
Credit conditions tightened considerably in the second half of 2015 and U.S. growth slowed. We estimate the extent to which tighter credit conditions last year were responsible for the slowdown using the FRBNY DSGE model. We find that growth would have slowed substantially more had the Federal Reserve not delayed liftoff in the federal funds rate.
The Financial Market Effects of Unwinding the Federal Reserve’s Balance Sheet
For the second time in the brief 12-year period between 2008 and 2020, central banks have once again turned to asset purchase programs to combat a global economic downturn. While balance sheet expansions have become familiar, balance sheet normalization has proven more elusive. Nevertheless, an understanding of the consequences of unwinding asset purchases is necessary for well-informed decisions over the deployment of these unconventional policy tools. This paper provides a first analysis of the financial market effects of balance sheet normalization based on the U.S. experience between 2017 ...
The Persistent Effects of the Temporary Tightening in Financial Conditions
Market-based measures of uncertainty, a common proxy for broader financial conditions, rose sharply in the fourth quarter of 2018 but have retreated to more normal levels over the last few months. While the recent increase in uncertainty was brief, the temporary tightening in financial conditions will likely have longer-lasting effects on economic activity and prices.