ECONOMY
-
The Zero Lower Bound Remains a Medium-Term Risk
Sophia Cho, Thomas M. Mertens, and John C. Williams Interest rates have fluctuated significantly over time. After a period of high inflation in the late 1970s and early 1980s, interest rates entered a decline that lasted for nearly four decades. The federal funds rate—the primary tool for monetary policy in the United States—followed this trend, while also varying with cycles…
Read More » -
How Shadow Banking Reshapes the Optimal Mix of Regulation
Kinda Hachem Decisions that are privately optimal often impose externalities on other agents, giving rise to regulations aimed at implementing socially optimal outcomes. In the banking industry, regulations are particularly heavy, plausibly reflecting a view by regulators that the relevant externalities could culminate in financial crises and destabilize the broader economy. Over time, the toolkit for regulating banks and bank-like…
Read More » -
Who Lends to Households and Firms?
Nina Boyarchenko and Leonardo Elias The financial sector in the U.S. economy is deeply interconnected. In our previous post, we showed that incorporating information about this network of financial claims leads to a substantial reassessment of which financial sectors are ultimately financing the lending to the real sector as a whole (households plus nonfinancial firms). In this post, we delve…
Read More » -
The Rise in Deposit Flightiness and Its Implications for Financial Stability
Kristian Blickle, Jian Li, Xu Lu, and Yiming Ma Deposits are often perceived as a stable funding source for banks. However, the risk of deposits rapidly leaving banks—known as deposit flightiness—has come under increased scrutiny following the failures of Silicon Valley Bank and other regional banks in March 2023. In a new paper, we show that deposit flightiness is not…
Read More » -
The Fed’s Treasury Purchase Prices During the Pandemic
Ellen Correia Golay, Maximilian Dunn, Michael J. Fleming, Peter Johansson, Isabel Krogh, Or Shachar, and Joshua Younger In March 2020, the Federal Reserve commenced purchases of U.S. Treasury securities to address the market disruptions caused by the pandemic. This post assesses the execution quality of those purchases by comparing the Fed’s purchase prices to contemporaneous market prices. Although past work has…
Read More » -
New Dataset Maps Losses from Natural Disasters to the County Level
Matteo Crosignani and Martin Hiti The Federal Reserve’s mission and regional structure ask that it always work to better understand local and regional economic activity. This requires gauging the economic impact of localized events, including natural disasters. Despite the economic significance of natural disasters—flowing often from their human toll—there are currently no publicly available data on the damages they cause…
Read More » -
Financial Intermediaries and the Changing Risk Sensitivity of Global Liquidity Flows
Stefan Avdjiev and Linda S. Goldberg Global risk conditions, along with monetary policy in major advanced economies, have historically been major drivers of cross-border capital flows and the global financial cycle. So what happens to these flows when risk sentiment changes? In this post, we examine how the sensitivity to risk of global financial flows changed following the global financial…
Read More » -
Reserves and Where to Find Them
Gara Afonso, Marco Cipriani, JC Martinez, and Matthew Plosser Banks use central bank reserves for a multitude of purposes including making payments, managing intraday liquidity outflows, and meeting regulatory and internal liquidity requirements. Data on aggregate reserves for the U.S. banking system are readily accessible, but information on the holdings of individual banks is confidential. This makes it difficult to…
Read More » -
The New York Fed DSGE Model Forecast—June 2025
Marco Del Negro, Ibrahima Diagne, Pranay Gundam, Donggyu Lee, and Brian Pacula This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe our forecast and its change since March 2025. To summarize, the model points to a marked weakening in real GDP growth across the…
Read More » -
Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers?
Jaison R. Abel, Richard Deitz, Sebastian Heise, Ben Hyman, and Nick Montalbano U.S. import tariffs increased to historically high rates in recent months, raising the costs of many imported inputs businesses use. Businesses subject to these higher costs have been faced with difficult and complex decisions about whether to absorb the tariffs through lower profits, raise their prices to recover…
Read More »