Research Topics

Banking and Financial Markets

The History and Rationale for a Separate Bank Resolution Process
Everyone recognizes the need to have a credible resolution regime in place for financial companies whose failure could harm the entire financial system, but people disagree about which regime is best. The emergence of the parallel banking system has led policymakers to reconsider the dividing line between firms that should be resolved in bankruptcy and firms that should be subject to a special resolution regime. A look at the history of insolvency resolution in this country suggests that a blended approach is worth considering. Activities that have potential systemic impact might be best handled administratively, while all other claims could be dealt with under a court-supervised resolution. ()

Consumer Economics

Economic Modeling

Macroeconomic Models, Forecasting, and Policymaking
Models of the macroeconomy have gotten quite sophisticated, thanks to decades of development and advances in computing power. Such models have also become indispensable tools for monetary policymakers, useful both for forecasting and comparing different policy options. Their failure to predict the recent financial crisis does not negate their usefulness, it only points to some areas that can be improved. ()
  • Peter Zadrozny (Bureau of Labor Statistics) ()
  • A Medium Scale Forecasting Model for Monetary Policy ()
  • Tests of Equal Forecast Accuracy for Overlapping Models ()
  • See all Economic Modeling

Economy in Perspective

Sticky prices signal subdued inflation
Some prices are "sticky," meaning they don't respond to changing market conditions as quickly as other, more "flexible" prices. According to Federal Reserve researchers Michael Bryan and Brent Meyer, these sticky prices are useful when trying to discern where inflation is heading. Looking at the "sticky price" components of the Consumer Price Index (CPI), the researchers say that "subdued for some time" -- language from the last FOMC statement -- sums up expected price trends nicely. They note that while a core flexible-price measure of the CPI has risen recently, the growth rate of the core sticky-price CPI continues to decline.

Education

The Growing Difference in College Attainment between Women and Men
Workers with more education typically earn more than those with less education, and the difference has been growing in recent decades. Not surprisingly, the percentage of the population going after and getting a college degree has been rising as well. Since the late 1970s, though, the increase in college attainment has stalled for men and gathered steam for women. Among college-age individuals, more women now graduate than men. Changes in labor market incentives appear to explain the increased investment in education made by women. But men's investments in education have been much less responsive to the same incentives. ()

Financial Stability

Stripdowns and Bankruptcy: Lessons from Agricultural Bankruptcy Reform
One type of financial reform being proposed to deal with the aftermath of the housing crisis is allowing bankruptcy judges the authority to modify residential mortgages in a way referred to as a stripdown. The reform is seen by some as a partial solution to the rise in foreclosures and as a Pandora’s box by others. But the debate is not new one. The 1980s farm foreclosure crisis sparked similar proposals and concerns. Congress decided to enact legislation that contained a stripdown provision, resulting in the creation of Chapter 12 in the bankruptcy code. The effects of Chapter 12 stripdown authority after its enactment shed light on the efficacy of allowing bankruptcy judges similar authority for housing loans. ()

Foreclosure

Foreclosure-Related Vacancy Rates

The national foreclosure crisis has caused there to be millions more vacancies in our housing stock than before. Vacant homes lower their community’s property values and quality of life. Neighbors and public officials know foreclosed homes sit empty for months, but precise measures of foreclosure-related vacancy are rare. Using data from Cuyahoga County, Ohio, I trace the rise and fall in the vacancy rates of homes during the 18 months following their foreclosure. Ominously, the data suggest that foreclosure may permanently scar some homes. Foreclosed homes still have higher vacancy rates than neighboring houses two to five years after a sheriff’s sale.

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  • The Impact of Recovery Efforts on Residential Vacancies ()
  • The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes ()
  • Inter-Regional Home Price Dynamics through the Foreclosure Crisis ()
  • See all Foreclosure

Growth and Production

Behind the Decline in Labor’s Share of Income
Labor income, which includes wages, salaries, and benefits, has been declining as a share of total income earned in the U.S. Here, we look at the cyclical and long-run factors behind this development.

Households and Consumers

Household Financial Position
In the years preceding the stock market and housing bubbles, household wealth grew faster than incomes, leading Americans to believe that they were getting richer. As the bubbles burst, the wealth-to-income ratio took a dive and returned to its long-term trend. The adjustment took place as households constrained their spending and reduced their debt. After peaking in 2008, household consumption expenditures dropped slightly (1.69 percent), hitting a trough in 2009. Yet since then, the wealth ratio has stabilized, and consumption expenditures have resumed growth, already climbing 2.2 percent beyond the pre-recession peak.
  • Assessing the Evidence on Neighborhood Effects from Moving to Opportunity ()
  • The Impact of Recovery Efforts on Residential Vacancies ()
  • Homeownership for the Long Run: An Analysis of Homeowner Subsidies ()
  • See all Households and Consumers

Industrial Organization

Inflation and Prices

Short- and Long-term Inflation Expectations
Annual inflation as measured by the Consumer price index (CPI) has declined in each month since September, following decreases in food and energy prices. As of November, the annual inflation rate is 3.4 percent. Despite this reassuring signal in the wake of the first half of the year, when the CPI was increasing, some households and market participants are still worried about an impending inflationary period. Here we review various measures of inflation expectations, because expectations about future inflation are both an important predictor and a factor in future inflation.
  • Salem Abo-Zaid (Ben-Gurion University) ()
  • The Term Structure of Inflation Compensation in the Nominal Yield Curve ()
  • A Bayesian Evaluation of Alternative Models of Trend Inflation ()
  • See all Inflation and Prices

International Markets and Foreign Exchange

Pass-Through and the Renminbi’s Appreciation
Since mid-2010, the Chinese renminbi has steadily appreciated against the dollar. Many here hope that a more expensive renminbi will induce a proportional rise in the prices of Chinese goods and take some of the sting out of China’s competitive bite. They may, however, be disappointed. The relationship between exchange—rate changes and import prices is often loose—more like a swing dance than a tango.

Labor Markets, Unemployment, and Wages

Job Creation by Small and Large Firms over the Business Cycle
The Great Recession caused establishments of all sizes to make significant cuts in their employment. To get a picture of those losses, we turn to the Business Employment Dynamics (BED) data collected by the Bureau of Labor Statistics (BLS). BED data provides gross job gains and losses at the establishment level going back to the early 1990s and breaks down the data to several size categories. We aggregate those categories into three classes to simplify our analysis: small firms (1-49 employees), medium size firms (50-499), and large firms (500 and more employees).

Monetary Policy

More Transparency, But Not a Crystal Ball
On January 3, the Fed released the minutes from the December Federal Open Market Committee (FOMC) meeting and revealed that it will begin publishing the Committee’s interest rate projections. The goal of this action is to provide more transparency in the policymaking process. However, there are limitations to the information these types of projections provide. Examining the experiences of some foreign central banks illustrates what conclusions might and might not be drawn from the new data.
  • Privately Optimal Contracts and Suboptimal Outcomes in a Model of Agency Costs ()
  • Taisuke Nakata (New York University) ()
  • How Inflationary Is an Extended Period of Low Interest Rates? ()
  • See all Monetary Policy

Payment Systems

The Check Is Dead! Long Live the Check! A Check 21 Update
Check 21 legislation has enabled the check clearing system to transform from paper to electronics, and much more rapidly than some had predicted. As a result of competition with other payment methods, check use has been declining since the mid-1990s, but because of the rapid adoption of electronic payment methods, checks are evolving and are unlikely to disappear anytime soon. Checks are still a convenient way to initiate some payments, and electronic processing has only made them more competitive with all types of electronic payments. ()

Regional Economics

Trends in Housing Prices per Square Foot
To attract job candidates and firms to a region like the Fourth District, recruiters routinely point out the affordability of living in their area, especially the cost of housing. The pitch that “you can get more house for your dollar here,” is aimed especially at growing families with mid-range incomes. The states and metro areas of the Fourth District still enjoy an advantage over places like San Francisco and New York on a price-per-square-foot basis. However, the post-boom prices in formerly expensive cities like Tampa and Las Vegas are now below those of Columbus and Cleveland.

US Economy

An Immoderate Inventory Cycle
The final estimate of fourth-quarter real GDP growth was substantially higher than the 2.2 percent pace recorded in the third quarter. To better understand the apparent strength in fourth quarter activity, it is instructive to split GDP into two basic components: final sales of gross domestic product and the change in private inventories.