ECONOMY
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The New York Fed DSGE Model Forecast—September 2024
Sophia Cho, 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 very briefly our forecast and its change since June 2024. As usual, we wish to remind our readers that the DSGE…
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Are Professional Forecasters Overconfident? – Liberty Street Economics
Marco Del Negro The post-COVID years have not been kind to professional forecasters, whether from the private sector or policy institutions: their forecast errors for both output growth and inflation have increased dramatically relative to pre-COVID (see Figure 1 in this paper). In this two-post series we ask: First, are forecasters aware of their own fallibility? That is, when they…
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Can Professional Forecasters Predict Uncertain Times?
Marco Del Negro Economic surveys are very popular these days and for a good reason. They tell us how the folks being surveyed—professional forecasters, households, firm managers—feel about the economy. So, for instance, the New York Fed’s Survey of Consumer Expectations (SCE) website displays an inflation uncertainty measure that tells us households are more uncertain about inflation than they were…
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AI and the Labor Market: Will Firms Hire, Fire, or Retrain?
Jaison R. Abel, Richard Deitz, Natalia Emanuel, and Benjamin Hyman The rapid rise in Artificial Intelligence (AI) has the potential to dramatically change the labor market, and indeed possibly even the nature of work itself. However, how firms are adjusting their workforces to accommodate this emerging technology is not yet clear. Our August regional business surveys asked manufacturing and service…
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The DeFi Intermediation Chain – Liberty Street Economics
Pablo D. Azar, Adrian G. Casillas, and Maryam Farboodi Decentralized Finance, or DeFi, is a rapidly growing ecosystem of financial applications built on blockchain technology, primarily on the Ethereum network. These applications aim to recreate traditional financial instruments and services, such as lending, borrowing, trading, and insurance. The DeFi intermediation chain connects a series of intermediaries who find arbitrage opportunities, aggregate…
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An Update on the Reservation Wages in the SCE Labor Market Survey
Gizem Kosar, Davide Melcangi, and Sasha Thomas The Federal Reserve Bank of New York’s July 2024 SCE Labor Market Survey shows a year-over-year increase in the average reservation wage—the lowest wage respondents would be willing to accept for a new job—to $81,147, but a decline from a series’ high of $81,822 in March 2024. In this post, we investigate how…
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The Disparate Outcomes of Bank- and Nonbank-Financed Private Credit Expansions
Nina Boyarchenko and Leonardo Elias Long-run trends in increased access to credit are thought to improve real activity. However, “rapid” credit expansions do not always end well and have been shown in the academic literature to predict adverse real outcomes such as lower GDP growth and an increased likelihood of crises. Given these financial stability considerations associated with rapid credit…
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When Are Central Bank Reserves Ample?
Gara Afonso, Domenico Giannone, Gabriele La Spada, and John C. Williams The Federal Reserve (Fed) implements monetary policy in a regime of ample reserves, whereby short-term interest rates are controlled mainly through the setting of administered rates. To do so, the quantity of reserves in the banking system needs to be large enough that everyday changes in reserves do not…
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A New Set of Indicators of Reserve Ampleness
Gara Afonso, Kevin Clark, Brian Gowen, Gabriele La Spada, JC Martinez, Jason Miu, and Will Riordan The Federal Reserve (Fed) implements monetary policy in a regime of ample reserves, where short-term interest rates are controlled mainly through the setting of administered rates, and active management of the reserve supply is not required. In yesterday’s post, we proposed a methodology to…
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Reallocating Liquidity to Resolve a Crisis
Kinda Hachem Shortly after the collapse of Silicon Valley Bank (SVB) in March 2023, a consortium of eleven large U.S. financial institutions deposited $30 billion into First Republic Bank to bolster its liquidity and assuage panic among uninsured depositors. In the end, however, First Republic Bank did not survive, raising the question of whether a reallocation of liquidity among financial institutions can…
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