Timothy Bianco |

(Former) Economic Analyst


Timothy Bianco, (Former) Economic Analyst

Timothy Bianco is a former economic analyst in the Supervision and Regulation Department of the Federal Reserve Bank of Cleveland.

  • Fed Publications
Title Date Publication Author(s) Type

 

July, 2013 Timothy Bianco; Amanda Janosko; Economic Trends
Abstract: The Cleveland Financial Stress Index (CFSI) has remained within a “normal stress” level since the index was revised in April 2013.

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April, 2013 Timothy Bianco; Economic Trends
Abstract: The CFSI monitors stress in the overall financial system by tracking conditions in different types of financial markets. Two new markets have just been incorporated into the index, making it more sensitive to potential instability. And because early detection is critical, the CFSI will now be updated daily. In recent months, the CFSI has remained low, as key financial conditions continued to improve.

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January, 2013 Timothy Bianco; Economic Trends
Abstract: In recent months, the Cleveland Financial Stress Index (CFSI) has remained low as conditions in key financial markets continued to improve.

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December, 2012 Federal Reserve Bank of Cleveland, working paper no. 12-37 Timothy Bianco; Dieter Gramlich; Mikhail V Oet; Stephen J Ong; Working Papers
Abstract: This paper develops a new financial stress measure (Cleveland Financial Stress Index, CFSI) that considers the supervisory objective of identifying risks to the stability of the financial system. The index provides a continuous signal of financial stress and broad coverage of the areas that could indicate it. The construction methodology uses daily public market data collected from different sectors of financial markets. A unique feature of the index is that it employs a dynamic weighting method that captures the changing relative importance of the different sectors of the financial system. This study shows how the index can be applied to monitoring and analyzing financial system conditions.

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November, 2012 Timothy Bianco; Economic Trends
Abstract: In early 2012, the Federal Reserve Bank of Cleveland began a monthly release of the Cleveland Financial Stress Index (CFSI). The CFSI was created to monitor stability and identify emerging risks in a complex and dynamic financial system.

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2012-04 Timothy Bianco; Mikhail V Oet; Stephen J Ong; Economic Commentary
Abstract: To promote stability in a dynamic financial system, supervisors must monitor the system for risks at all times. The Cleveland Fed has developed an index of financial stress, the CFSI, which is designed to track distress in the financial system as it is building. The CFSI will help financial system supervisors monitor and understand the state of financial markets on a real-time basis, and take appropriate regulatory or supervisory action as necessary.

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November, 2011 Federal Reserve Bank of Cleveland, working paper no. 11-30 Timothy Bianco; Ryan Eiben; Dieter Gramlich; Mikhail V Oet; Stephen J Ong; Working Papers
Abstract: This paper develops a financial stress index for the United States, the Cleveland Financial Stress Index (CFSI), which provides a continuous signal of financial stress and broad coverage of the areas that could indicate it. The index is based on daily public-market data collected from four sectors of the financial markets—the credit, foreign exchange, equity, and interbank markets. A dynamic weighting method is employed to capture changes in the relative importance of these four sectors as they occur. In addition, the design of the index allows the origin of the stress to be identified. We compare the CFSI to alternative indexes, using a detailed benchmarking methodology, and show how the CFSI can be applied to systemic stress monitoring and early warning system design. To that end, we investigate alternative stress-signaling thresholds and frequency regimes and then establish optimal frequencies for filtering out market noise and idiosyncratic episodes. Finally, we quantify a powerful CFSI-based rating system that assigns a probability of systemic stress to ranges of CFSI outcomes.

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November, 2011 Federal Reserve Bank of Cleveland, working paper no. 11-29 Timothy Bianco; Ryan Eiben; Dieter Gramlich; Mikhail V Oet; Stephen J Ong; Jing Wang; Working Papers
Abstract: This paper builds on existing microprudential and macroprudential early warning systems (EWSs) to develop a new, hybrid class of models for systemic risk, incorporating the structural characteristics of the financial system and a feedback amplification mechanism. The models explain financial stress using both public and proprietary supervisory data from systemically important institutions, regressing institutional imbalances using an optimal lag method. The Systemic Assessment of Financial Environment (SAFE) EWS monitors microprudential information from the largest bank holding companies to anticipate the buildup of macroeconomic stresses in the financial markets. To mitigate inherent uncertainty, SAFE develops a set of medium-term forecasting specifications that gives policymakers enough time to take ex-ante policy action and a set of short-term forecasting specifications for verification and adjustment of supervisory actions. This paper highlights the application of these models to stress testing, scenario analysis, and policy.

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June, 2011 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: Over the past month, the yield curve dropped and flattened slightly as both long rates and short rates dropped. The three-month Treasury bill rate dropped to 0.02 percent (for the week ending June 24), and the ten-year rate dropped to 2.94 percent. The slope decreased 16 basis points to end at 294 basis points, its lowest level since last November. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.1 percent rate over the next year, and based on calculations using the yield curve, we estimate that the chance of the economy being in a recession next June is 1.7 percent.

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June, 2011 Timothy Bianco; Filippo Occhino; Economic Trends
Abstract: The behavior of private investment in structures, both residential and nonresidential, has been very unusual in this business cycle. Investment declined more during the past recession than ever before in the last 60 years, and it still remains depressed this far into the recovery. The main reason behind the ongoing low investment in structures seems to be the weak and uncertain profitability of new investment projects.

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May, 2011 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: Over the past month, the yield curve became flatter, as long rates dropped, reversing their previous increase. Short rates edged down yet again. The three-month Treasury bill rate moved further into the single-digit range, to 0.05 percent (for the week ending May 20).The slope decreased 25 basis points—a full quarter of a percent—and is below the levels for both March and April. It stands now at 310 basis points. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, and based on calculations using the yield curve, we estimate that the chance of the economy being in a recession next May is 1.3 percent.

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May, 2011 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: Over the past month, the yield curve became steeper, as long rates increased, resuming a trend that had been broken in the previous month. Short rates edged down yet again. The three-month Treasury bill rate moved to 0.06 percent (for the week ending April 22), down from March’s 0.09 percent, and February’s 0.11 percent. The slope increased 15 basis points and now stands at 335 basis points. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, and based on calculations using the yield curve, we estimate that the chance of the economy being in a recession next April is 0.9 percent.

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2011-05 Timothy Bianco; Filippo Occhino; Economic Commentary
Abstract:

Falling home and financial asset prices have combined to weaken the average household’s balance sheet, and this has helped to slow down the current recovery. We examine the role that household balance sheets have typically played in postwar business cycles and assess their importance in explaining why some recoveries, including the current one, have been weaker than others.


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March, 2011 Timothy Bianco; Filippo Occhino; Economic Trends
Abstract: One reason for the striking severity of the last recession is the double whammy that struck household and corporate balance sheets. Balance sheets deteriorated sharply when the values of both financial and real estate assets plunged. The resulting increase in leverage (the ratio of assets to net worth) was much larger than in any of the previous eight recessions. Weak balance sheets depress real activity in a number of ways: they raise the cost of credit, they reduce its availability, and they constrain consumption and investment demand.

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January, 2011 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: The yield curve became even steeper over the past month, as long rates increased nearly 0.2 percent, and short rates inched up. The slope rose 17 basis points and stayed above 300 basis points. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, and based on calculations using the yield curve, we estimate that the chance of the economy being in a recession next January is 1.5 percent.

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December, 2010 Timothy Bianco; Filippo Occhino; Economic Trends
Abstract: In the past, deep recessions have been followed by rapid recoveries. Not this time. Real GDP has been growing at a 2.9 percent rate since the end of the recession. The current level of GDP is still below its 2007 peak, after almost three years.

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October, 2010 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: The yield curve flattened over the past month, as long rates dropped while short rates stayed level. The slope of the curve dropped 19 basis points to 236. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year.

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October, 2010 Timothy Bianco; Mehmet Pasaogullari; Economic Trends
Abstract: A persistent downward trend in prices has created some concern about whether there will be further disinflation or even a deflation in the future. Here we review what inflation expectations foretell for the future inflation. Since people consider the future level of general prices when they set their own prices, inflation expectations reflect not only their perceptions about the future but they are also an important determinant of future inflation. In addition, there is some empirical evidence showing that the expectations are among the best predictors of future inflation.

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September, 2010 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: Long rates took a turn higher over the past month, adding a bit of steepness to the yield curve, as short rates stayed level. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year—a bit more pessimistic than other forecasts. Using the yield curve to estimate the probability of recession in the future, we estimate the expected chance of the economy being in a recession next September at 2.9 percent, well below our August estimate of 18.5 percent. The change reflects the NBER’s placing the official end of the recession at June 2009 and thus adding another year of nonrecession data to our calculations, rather than any massive improvement in the economy.

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August, 2010 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: As long rates continue their steep slide, the yield curve has flattened, as short rates stayed level. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.00 percent rate over the next year. This comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year. Using the yield curve to predict whether or not the economy will be in recession in the future, we estimate that the expected chance of the economy being in a recession next August rises to 18.5 percent.

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August, 2010 Timothy Bianco; Filippo Occhino; Economic Trends
Abstract: Information from various sources suggests that the number of loans that banks are making to businesses continues to fall. The contraction appears to be driven by both supply and demand; banks are extending less credit, and businesses are asking for less. The restriction of credit may be one important factor that is constraining the current recovery, since businesses, especially small ones, rely on bank loans and access to credit to finance their operations, capital expenditures, and growth.

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August, 2010 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: The Yield Curve has a new look and location! We hope you find the new format better. Since last month, the yield curve has flattened, as long rates dropped and short rates edged up. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.14 percent rate over the next year, just up from June?s prediction of 1.00 percent. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year.

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July, 2010 Timothy Bianco; Mehmet Pasaogullari; Economic Trends
Abstract: As the economy recovers, interest has turned to the Fed’s strategy for exiting from the accommodative policy it adopted to deal with the crisis. Owing to the Fed’s dual mandate (maximum sustainable employment and price stability), the exit strategy will depend on the developments in prices as well as the real economy. Price statistics suggest that we are in a period of disinflation,and inflation expectations reveal no significant threat of inflation is anticipated.

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2010-5 Timothy Bianco; Joseph G Haubrich; Economic Commentary
Abstract: The most frequently cited measures of inflation expectations, from TIPS-derived indicators to survey-based estimates like Blue Chip forecasts, have some inherent limitations when it comes to applying them to questions of monetary policy. Recently, researchers developed a model that takes information from a number of sources and produces estimates of inflation expectations that are superior to these popular measures in a number of respects. This Commentary explains how these estimates are better and what they imply for current monetary policy.

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April, 2010 Timothy Bianco; Mehmet Pasaogullari; Economic Trends
Abstract: There are two sources of data on inflation expectations. One is derived from market prices of various financial securities; the other is surveys of the general public and professional forecasters and economists. Recent trends in survey-based measures show that there was substantial disagreement about future inflation expectations early in the recession, reflecting opposite concerns among survey participants: some fear deflation or disinflation and others fear higher inflation. The longer-term inflation expectations are currently around their historical levels, and the dispersion for these expectations also reflects a better anchoring of inflation rates over the longer-term.

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March, 2010 Timothy Bianco; Kent Cherny; Ben R Craig; John Lindner; Economic Trends
Abstract: On March 16, the Federal Open Market Committee released a statement saying it would hold the Federal Funds target rate at 0 to 1/4 percent, and that “low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Was the market surprised by anything in this statement?

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December, 2009 Timothy Bianco; Mehmet Pasaogullari; Economic Trends
Abstract: The financial crisis has brought into focus the importance of financial markets to a properly functioning economy. One important financial market is the corporate bond market. A look at current conditions in it can shed some light on ongoing financial market stabilization.

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November, 2009 Timothy Bianco; Andrea Pescatori; Economic Trends
Abstract: Inflation expectations play a crucial role in monetary policy making. Not only do they tell policymakers something about the real expected cost of borrowing and hence the viability of investment plans, they also help policymakers gauge the public?s perception of the central bank’s commitment to maintaining a low and stable rate of inflation. Especially in the current policy environment, where the Fed has been forced by events to take unconventional actions, it is more important than ever to make sure that long-run inflation expectations are well anchored and that the policy message is well understood by the public.

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November, 2009 Timothy Bianco; Mehmet Pasaogullari; Economic Trends
Abstract: Measures of the external finance premium—the difference between the cost of external funds and the opportunity cost of internal funds—may contain valuable information about future economic activity. The high-yield corporate bond spread is probably a good measure of this premium. There is a theoretical underpinning for this connection, and empirically, the high-yield spread seems a good predictor of future economic activity. A simple empirical model of GDP and the high-yield spread predicts that real GDP will grow 2.8 percent in 2010.

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August, 2009 Timothy Bianco; Joseph G Haubrich; Economic Trends
Abstract: The current crisis has brought a lot of attention to the sometimes obscure role that bank capital plays in lending levels. One concern is that bank capital, which is intended to serve as a buffer against losses, tends instead to accentuate booms and busts. We check for a procyclical pattern in a variety of measures of capital.

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July, 2009 Timothy Bianco; John Lindner; Andrea Pescatori; Economic Trends
Abstract: During slowdowns in economic activity and periods of inflation, the optimal response is to lower the real rate. Traditionally, the Federal Reserve achieved this by reducing the target fed funds rate. In general (but with notable exceptions), this reduction has an effect also on yields of longer maturity, which can be thought of as a combination of current and future expected short-term rates, thus stimulating the economy. However, when short-term rates are close to zero the traditional tool is no longer feasible.

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July, 2009 Timothy Bianco; Ozgur Emre Ergungor; Economic Trends
Abstract: Signs so far suggest that Fed programs designed to revive consumer credit markets are having a positive impact. The market for consumer asset-backed securities (ABS), which effectively shut down in September 2008, has returned to pre-crisis levels after the Fed lent $25 billion to investors against their ABS portfolios. With the Fed’s purchase of mortgage-backed securities (MBS) and Treasury bonds, Treasury yields as well as the spread between Fannie Mae MBS and Treasury securities have declined in recent months.

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