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Discussion Paper
The Post-Pandemic r*
The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures, with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The whole term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This two-post series covers the evolution of both in the aftermath of the pandemic, with today’s post focusing especially ...
Discussion Paper
Spending Down Pandemic Savings Is an “Only-in-the-U.S.” Phenomenon
Household saving soared in the United States and other high-income economies during the pandemic, as consumers cut back on spending while government policies supported incomes. More recently, saving behavior has diverged, with the U.S. saving rate dropping below its pre-pandemic average while saving rates elsewhere have remained above their pre-pandemic averages. As a result, U.S. consumers have been spending down the “excess savings” built up during the pandemic while the excess savings abroad remain untapped. This divergent behavior helps explain why U.S. GDP has returned to its ...
Discussion Paper
How Did New York City’s Economy Weather the Pandemic?
When COVID-19 first struck the U.S. in early 2020, New York City was the epicenter of the pandemic. By early April, there was an unthinkable scale of suffering, with massive hospitalizations and roughly 800 fatalities per day, accounting for nearly half of the nationwide total. The rapid spread was facilitated by the city’s extraordinarily high population density and widespread use of mass transit. What followed was a quick and massive shutdown of restaurants, retail stores, personal services, offices, and more. And the shutdowns, of course, led to widespread job losses. Between February ...
Discussion Paper
The Evolution of Short-Run r* after the Pandemic
This post discusses the evolution of the short-run natural rate of interest, or short-run r*, over the past year and a half according to the New York Fed DSGE model, and the implications of this evolution for inflation and output projections. We show that, from the model’s perspective, short-run r* has increased notably over the past year, to some extent outpacing the large increase in the policy rate. One implication of these findings is that the drag on the economy from recent monetary policy tightening may have been limited, rationalizing why economic conditions have remained relatively ...