The emerging market economies in times of taper-talk and actual tapering
The emerging market economies (EME) experienced financial distress during two recent periods, both linked to the prospect of the Federal Reserve starting to slow its asset purchases. This policy change was expected to reverse the capital flows directed to the EME. Despite this aggregate effect, a closer analysis shows that there were significant differences across the EME during the time when talk of the upcoming taper began and the period when the policy was implemented. The author makes use of the literature on currency crises to analyze the different cross-country responses and to identify ...
Let's talk about it: what policy tools should the Fed \\"normally\\" use?
During the onset of a very severe financial and economic crisis in 2008, the federal funds rate reached the zero lower bound (ZLB). With this primary monetary policy tool therefore rendered ineffective, in November 2008 the Federal Reserve started to use its balance sheet as an alternative policy tool when it began the large-scale asset purchases. Now attention is turning to how the Fed should transition back to a more conventional monetary policy stance. Largely missing from these discussions about the Fed's "exit strategy" is a consideration that perhaps it should retain, not discard, ...
Informal work in the United States: evidence from survey responses
"Informal" work refers to temporary or occasional side jobs from which earnings are presumably not reported in full to the Internal Revenue Service and which typically do not constitute a dominant or complete source of income. Perhaps the most important reason for undertaking informal work is to offset negative income and employment shocks, such as reduced hours in a formal job, stagnant wages, or involuntary unemployment. Such negative shocks affected many Americans during the Great Recession, so it is important to determine the extent to which people engaged in informal work during this ...
The equilibrium real policy rate through the lens of standard growth models
The long-run equilibrium real policy rate is a key concept in monetary economics and an important input into monetary policy decision-making. It has gained particular prominence lately as the Federal Reserve continues to normalize monetary policy. In this study, we assess the evolution, current level, and prospective values of this equilibrium rate within the framework of standard growth models. Our analysis considers as a baseline the single-sector Solow model, but it places more emphasis on the multi-sector neoclassical growth model, which better fits the data over the past three decades. ...
Tight credit conditions continue to constrain the housing recovery
The expansion of Federal Housing Administration lending has let households with imperfect credit or the inability to make a large down payment maintain access to mortgage borrowing. Rather than excluding such households, lenders have been applying strict underwriting conditions on all borrowers. Clarifying what constitutes approved lending may help relax credit conditions with minimal increase in risk.
Evaluating the Benefits of a Streamlined Refinance Program
Mortgage borrowers who have experienced employment disruptions as a result of the COVID-19 pandemic are unable to refinance their loans to take advantage of historically low market rates. In this article, we analyze the effects of a streamlined refinance (“refi”) program for government-insured loans that would allow borrowers to refinance without needing to document employment or income. In addition, we consider a cash-out component that would allow borrowers to extract some of the substantial housing equity that many have accumulated in recent years.
Uncovering covered interest parity: the role of bank regulation and monetary policy
We analyze the factors underlying the recent deviations from covered interest parity. We show that these deviations can be explained by tighter post-crisis bank capital regulations that made the provision of foreign exchange swaps more costly. Moreover, the recent monetary policy and related interest rate divergence between the United States and other major foreign countries has led to a surge in demand for swapping low interest rate currencies into the U.S. dollar. Given the higher bank balance sheet costs resulting from these regulatory changes, the increased demand for U.S. dollars in the ...
Credit supply disruptions: from credit crunches to financial crisis
Events that transpired during the recent financial crisis highlight the important role that financial intermediaries still play in the economy, especially during economic downturns. While the breadth and severity of the financial crisis took most observers by surprise, it has renewed academic interest in understanding the effects on the real economy of both financial shocks and the changing nature of financial intermediation. This interest in the real effects of financial shocks highlights a literature that began more than 20 years ago associated with the bank credit crunch of the early ...
SNAP: should we be worried about a sudden, sharp rise from low, long-term rates?
Despite the expectations of FOMC and market participants at the beginning of 2014 to the contrary, the yield on 10-year U.S. Treasury debt declined by about 50 basis points from 2.72 percent at the beginning of 2014 to 2.17 percent as of December 22, 2014. This raises the worrisome possibility that we might observe a sudden change in longer-term yields once the Federal Reserve announces an increase in short-term rates. In other words, longer-term rates could snap, very much as they did in the summer of 2013 after the tapering announcement, once the Fed announces its first short-term rate hike ...
The effects of a stronger dollar on U.S. prices
Since 2014:Q3, the U.S. dollar has experienced the third-fastest appreciation in over 30 years, with its nominal exchange and real exchange rate rising 15 percent against almost all foreign currencies (as measured by the Major Currencies Dollar Index). This sudden and rapid gain has engendered concerns about how a stronger dollar will affect U.S. export and import prices and ultimately, consumer prices and inflation in the United States. This paper assembles a rich database, spanning the period from 1985:Q1 through 2014:Q4, that combines several measures of prices and exchange rates in order ...