ECONOMY
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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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The Anatomy of Labor Demand Pre- and Post-COVID
Richard Audoly, Miles Guerin, Giorgio Topa, and Roshie Xing Has labor demand changed since the COVID-19 pandemic? In this post, we leverage detailed data on the universe of U.S. online job listings to study the dynamics of labor demand pre- and post-COVID. We find that there has been a significant shift in listings out of the central cities and into…
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Mortgage Lock-In Spurs Recent HELOC Demand
Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle W. Scally, and Wilbert van der Klaauw Mortgage balances, the largest component of U.S. household debt, grew by only $77 billion (0.6 percent) in the second quarter of 2024, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. This modest increase reflects…
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Wage Insurance: A Potential Policy for Displaced Workers
Ben Hyman, Brian Kovak, and Adam Leive Despite the existing safety net, worker displacement continues to have severe consequences that motivate the consideration of new social insurance programs. Wage insurance is a novel policy that temporarily provides additional income to workers who lose their job and become re-employed at a lower wage. In this post, we draw on evidence from…
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What Was Up with Grocery Prices?
Thomas Klitgaard The consumer price index for groceries has risen more than the overall price index since the start of the pandemic, with a particularly large jump in 2022. In looking for explanations, a starting place is the behavior of raw commodity prices, which surged from early 2021 to mid-2022. In addition, wages for low-paid grocery workers have gone up…
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