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The 2013 Federal Reserve Payments Study — Recent and Long-Term Trends in the United States: 2000–2012

July 28, 2014 Comments off

The 2013 Federal Reserve Payments Study — Recent and Long-Term Trends in the United States: 2000–2012 (PDF)
Source: Federal Reserve Board

Underlying the net economic output of the country are billions of transactions between buyers and sellers of goods and services (such as consumers and merchants, factories and suppliers, employers and employees), as well as various financial transactions (such as transfers of balances between accounts, loan originations, and loan payments). The 2013 Federal Reserve Payments Study attempts to measure the number and value of all such transactions conducted over noncash payment systems—including general-purpose and private-label card systems, automated clearinghouse (ACH), and checks. The study builds on the triennial Federal Reserve Payments Study series, conducted since 2001, to paint a more comprehensive picture of the U.S. payments system.

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Impact of Fed Tapering Announcements on Emerging Markets

July 21, 2014 Comments off

Impact of Fed Tapering Announcements on Emerging Markets
Source: International Monetary Fund

This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals.

Labor Market Upheaval, Default Regulations, and Consumer Debt

July 7, 2014 Comments off

Labor Market Upheaval, Default Regulations, and Consumer Debt
Source: Federal Reserve Bank of St. Louis

In 2005, bankruptcy laws were reformed significantly, making personal bankruptcy substantially more costly to file than before. Shortly after, the US began to experience its most severe recession in seventy years. While personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment, perhaps as a consequence of the reform. Moreover, in the subsequent recovery, households have been widely viewed as “develeraging” (Mian and Sufi (2011), Krugman and Eggertson (2012)), an interpretation consistent with the largest reduction in the volume of unsecured debt in the past three decades. In this paper, we aim to measure the role jointly played by recent bankruptcy reforms and labor market risks during the Great Recession in accounting for the use of consumer credit and debt default. We use a setting that features high-frequency life-cycle consumption-savings decisions, defaultable debt, search frictions, and aggregate risk. Our results suggest that the 2005 bankruptcy reform likely prevented a substantial increase in bankruptcy filings, but had only limited effect on the observed path of delinquencies. Thus, the reform appears to have “worked.” We also find that fluctuations in the job separation rate observed over the Great Recession did not significantly affect the dynamics of default; all of the work is done, instead, by the large decline in the job-finding rate.

The Energy Boom and Manufacturing in the United States

June 30, 2014 Comments off

The Energy Boom and Manufacturing in the United States
Source: Federal Reserve Board

This paper examines the response of U.S. manufacturers to changes in competitiveness brought about by movements in the price of natural gas. I estimate the response of various measures of manufacturing activity using panel regression methods across roughly 80 industries that allow each industry’s response to vary with its energy intensity. These estimates suggest that the fall in the price of natural gas since 2006 is associated with a 2 to 3 percent increase in activity for the entire manufacturing sector, with much larger effects of 30 percent or more for the most energy intensive industries.

Home Hours in the United States and Europe

June 26, 2014 Comments off

Home Hours in the United States and Europe
Source: Federal Reserve Bank of Atlanta

Using data from the Multinational Time Use Study, this paper documents the trends and levels of time allocation, with a focus on home hours, for a relatively large set of industrialized countries during the past 50 years. Three patterns emerge. First, home hours have decreased in both the United States and European countries. Second, female time allocation contributes more to the cross-country difference in both the trends and the levels of market hours and home hours per person. Third, time allocations between the United States and Europe are more similar for the prime-age group than for the young and old groups.

The Economic Plight of Millenials

June 16, 2014 Comments off

The Economic Plight of Millenials (PDF)
Source: Federal Reserve Bank of Atlanta

A demographic cohort is never monolithic, but the group that recently entered the labor force had one trait in common: they watched as the Great Recession dramatically reshaped the landscape of employment, housing, and, in general, their expectations. How profoundly will the economic downturn and its associated effects mark this generation?

Bank Failure, Relationship Lending, and Local Economic Performance

June 10, 2014 Comments off

Bank Failure, Relationship Lending, and Local Economic Performance
Source: Federal Reserve Board

Whether bank failures have adverse effects on local economies is an important question for which there is conflicting and relatively scarce evidence. In this study, I use county-level data to examine the effect of bank failures and resolutions on local economies. Using quasi-experimental techniques as well as cross-sectional variation in bank failures, I show that recent bank failures lead to lower income and compensation growth, higher poverty rates, and lower employment. Additionally, I find that the structure of bank resolution appears to be important. Resolutions that include loss-sharing agreements tend to be less deleterious to local economies, supporting the notion that the importance of bank failure to local economies stems from banking and credit relationships. Finally, I show that markets with more inter-bank competition are more strongly affected by bank failure.

Middle-Skill Jobs Lost in U.S. Labor Market Polarization

June 9, 2014 Comments off

Middle-Skill Jobs Lost in U.S. Labor Market Polarization (PDF)
Source: Federal Reserve Bank of Dallas

Employment in the United States is becoming increasingly polarized, growing ever more concentrated in the highest- and lowest-paying occupations and creating growing income inequality. The causes and consequences of this trend are often considered in the context of what has been a relatively “jobless” recovery from the Great Recession.

Market changes involving middle-skill jobs in the U.S. are hastening labor market polarization. The distribution of jobs by skill level has shifted dramatically since 1980 (Chart 1). The number of jobs requiring medium levels of skill has shrunk, while the number at both ends of the distribution— those requiring high and low skill levels—has expanded.

Federal Reserve Board — Beige Book – June 4, 2014

June 6, 2014 Comments off

Beige Book – June 4, 2014
Source: Federal Reserve Board

All twelve Federal Reserve Districts report that economic activity expanded during the current reporting period. The pace of growth was characterized as moderate in the Boston, New York, Richmond, Chicago, Minneapolis, Dallas, and San Francisco Districts, and modest in the remaining regions. Compared with the previous report, the pace of growth picked up in the Cleveland and St. Louis Districts but slowed slightly in the Kansas City District.
Consumer spending expanded across almost all Districts, to varying degrees. Non-auto retail sales grew at a moderate pace across most of the country: Although improved weather generally gave a boost to business, lingering wintry weather in the Northeast continued to weigh on sales in parts of the Boston and New York Districts. Increasingly strong new vehicle sales were reported by more than half the Districts, with most other regions seeing steady sales; demand was generally reported to be less robust for used vehicles than for new vehicles. Tourism was steady to stronger across most of the country–particularly in most of the eastern seaboard Districts.

Activity in the service sector, excluding finance, grew across most reporting Districts, though New York and San Francisco reported a mixed performance. Boston, Kansas City, and San Francisco noted particular strength among technology firms. Transportation activity strengthened in most Districts reporting on that sector, with Richmond and Atlanta observing brisk growth in port activity, and Cleveland noting a rebound from weather-related weakness in the prior report. Manufacturing activity expanded throughout the nation, and at an increasingly strong pace in a number of Districts–notably along the East Coast, as well as in the St. Louis and Kansas City Districts.

Residential real estate activity was mixed across the country, with some reports of low inventories constraining sales–specifically in the Boston, New York, and Kansas City Districts. Still, home prices continued to increase across most of the country, while the markets for both condos and apartment rentals were mostly robust. Residential construction activity was mixed, with half the Districts reporting increases but a few indicating some weakening in activity; multi-family construction remained particularly robust. Both non-residential construction activity and commercial real estate markets were generally steady to stronger since the last report.

Was the Fed a Good Idea?

June 2, 2014 Comments off

Was the Fed a Good Idea? (Spring/Summer 2014 Issue of Cato Journal)
Source: Cato Institute

The Federal Reserve System today is very different than a century ago when it was created. So how well has the Fed performed? Was the Fed a good idea? Can we do better? To address those and related questions, the Cato Institute brought together some of the most respected monetary scholars and policymakers at its Annual Monetary Conference in November 2013. The papers from that conference are featured in the latest volume of Cato Journal.

An In-depth Look at Large and Complex Banks

May 29, 2014 Comments off

An In-depth Look at Large and Complex Banks
Source: Federal Reserve Bank of New York

The Federal Reserve Bank of New York today released a special Economic Policy Review series on large and complex banks. The 11 research papers that make up this series provide analysis in several key areas, including bank size, complexity and resolution. The papers, which are written by New York Fed economists, aim to further study and debate of these topics and to help inform policymakers.

Among the papers’ key findings:
Bank size has benefits and costs: the upside is the potential for economies of scale and lower operating costs; the downside is the “too-big-to-fail” problem and associated funding advantages and moral hazard.
Banks have become less bank-centric and more organizationally complex. Furthermore, the increase in bank complexity may be a natural response to an evolving intermediation technology.
Bail-in regimes, where the claims of creditors of the parent company are converted to equity in resolution, are an efficient and superior process for resolving the failure of a large financial firm. Requiring systemically important bank holding companies to issue “bail-inable” long-term debt that converts to equity in resolution would make large bank failures more orderly.

Minutes of the Federal Open Market Committee, April 29-30, 2014

May 22, 2014 Comments off

Minutes of the Federal Open Market Committee, April 29-30, 2014
Source: Federal Reserve Board

The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached minutes of the Committee meeting held on April 29-30, 2014.

The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board’s Annual Report. The descriptions of economic and financial conditions contained in these minutes are based solely on the information that was available to the Committee at the time of the meeting.

See also: Speech by Chair Yellen at New York University’s commencement

Black–white differences in intergenerational economic mobility in the United States

May 15, 2014 Comments off

Black–white differences in intergenerational economic mobility in the United States (PDF)
Source: Federal Reserve Bank of Chicago

The large and persistent gap in economic status between blacks and whites in the United States has been a topic of considerable interest among social scientists and policymakers for many decades. The historical legacy of slavery and segregation raises the question of how long black Americans are likely to remain a disadvantaged minority. Despite the enormous literature on black–white inequality and its historical trends, few studies have directly measured black–white differences in rates of intergenerational mobility, that is, the ability of families to improve their position in the income distribution from one generation to the next. Estimates of rates of intergenerational mobility by race can pro – vide insight on whether racial differences in the United States are likely to be eliminated and, if so, how long it might take. Furthermore, they might also help inform policymakers as to whether there are lingering racial differences in equality of opportunity and, if so, what the underlying sources for these differences are.

More generally, the relatively low rate of inter – generational mobility in the United States compared with other industrialized countries has been a growing concern to policymakers across the political spectrum. 1 Understanding the sources of racial differences in intergenerational mobility might also shed light on the mechanisms behind the relatively high degree of intergenerational persistence of inequality in the United States.

How We Pay: Results from the Federal Reserve’s Latest Payments Study

May 8, 2014 Comments off

How We Pay: Results from the Federal Reserve’s Latest Payments Study
Source: Federal Reserve Bank of Atlanta

Every three years, the Federal Reserve payments study presents a snapshot of the rapidly evolving U.S. payments system. The latest issue of the Atlanta Fed’s EconSouth magazine highlights the preliminary results of the 2013 study.

Since 2003, when Congress passed the Check Clearing for the 21st Century Act (commonly known as Check 21), the U.S. payments system has shifted dramatically. For instance, paper checks, which once comprised nearly half of noncash payments, accounted for only 15 percent in 2012. Checks are down, but not out, however. Although they made up a smaller share of the payments pie, they are declining from a dominant position. “As check writing continued to decline, the number of checks that could be converted declined as well,” the story notes. As a result, automated clearinghouse (ACH) transactions—many of which originate from the conversion of paper checks to ACH— decelerated, growing just 5.1 percent from 2009 to 2012, compared to 10.9 percent growth during the 2003 to 2012 period.

Meanwhile, payment cards continued to grow, accounting for two-thirds of consumer and business noncash payments in 2012. With annual growth of 15.8 percent, prepaid card payments grew the fastest of all noncash payments. The 2013 study the Fed’s fifth in a series of triennial studies.

Beige Book – April 16, 2014 (Summary of Commentary on Current Economic Conditions by Federal Reserve District )

April 25, 2014 Comments off

Beige Book – April 16, 2016
Source: Federal Reserve Board

Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. The expansion was characterized as modest or moderate by the Boston, Philadelphia, Richmond, Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco Districts. Chicago reported that economic growth had picked up, and New York and Philadelphia indicated that business activity had rebounded from weather-related slowdowns earlier in the year. The Cleveland and St. Louis Districts both reported a decline in economic activity.

Consumer spending increased in most Districts, as weather conditions improved and foot traffic returned. Auto sales were up in the New York, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, and San Francisco Districts, but they were little changed from a year earlier in Kansas City and Cleveland. In addition, assessments of tourism were generally positive, particularly for the Districts of Philadelphia, Richmond, and Minneapolis, where ski resorts had record seasons. Summer bookings were also solid in several Districts. Activity was mixed at non-financial services firms, with the Boston, Philadelphia, Minneapolis, and Kansas City Districts reporting increased demand. In the Boston District, for example, advertising and consulting were strong. The Richmond District indicated that revenues at non-retail services firms were flat, and St. Louis said firms’ planned activity declined on net.

The transportation sector generally strengthened in recent weeks, with higher port volumes and increased trucking. Even in districts where transportation was soft, the outlook was optimistic.

Manufacturing improved in most Districts. Several Districts reported that the impact of winter weather was less severe than earlier this year. Chicago and Minneapolis saw moderate growth, while manufacturing grew at a steady pace in New York, Atlanta, St. Louis, and Dallas. San Francisco noted that manufacturing appeared to gain some momentum. Other Districts noted mild growth, except Richmond, where manufacturing activity was mixed. Demand for food production declined in the Boston, Richmond, and Dallas Districts; however the drop was primarily weather related. Steel production picked up in several districts.

Reports on residential housing markets varied.

An Evaluation of the Inflationary Pressure Associated with Short- and Long-term Unemployment

April 25, 2014 Comments off

An Evaluation of the Inflationary Pressure Associated with Short- and Long-term Unemployment
Source: Federal Reserve Board

In the years following 2009, long-term unemployment has been very elevated while inflation has fallen only moderately, raising the question of whether the long-term unemployed exert less downward pressure on prices than the short-term unemployed, perhaps because such potential workers are disconnected from the labor market. However, empirical evidence is mixed. This analysis demonstrates that the typical approach, using national data, is incapable of discriminating the inflationary pressure exerted by short and long-term unemployment because the series are highly correlated, making inference difficult given the short-span of data used in Phillips-curve estimation. However, application of more data, through the use of regional variation, can discriminate the independent influences of short-and long-term unemployment on price inflation. We present a model illustrating these issues and apply the model to data for U.S. metropolitan regions. We find that that short- and long-term unemployment exert equal downward pressure on price inflation.

Stress testing: A look into the Fed’s black box

April 24, 2014 Comments off

Stress testing: A look into the Fed’s black box
Source: PricewaterhouseCoopers

On March 26th, the Federal Reserve (Fed) announced the results of its annual Comprehensive Capital Analysis and Review (CCAR). This year the Fed assessed the capital plans of 30 bank holding companies (BHCs) – 12 more than last year – and objected to five plans (four due to deficiencies in the quality of capital planning process, and one for falling below quantitative minimum capital ratios). Two other US BHCs had to “take a mulligan” and quickly resubmit their plans with reduced capital actions to remain above the quantitative floors.

The CCAR 2014 results send two overarching messages: The quality of the capital planning process is now a more prominent aspect of the Fed’s focus (versus just the quantity of capital), and the bar continues to rise, especially for the largest firms. Therefore, BHCs must continue to improve their capital planning processes regardless of whether they meet quantitative capital requirements.

Fed objections this year covered both US and foreign-owned BHCs. Three of the six largest US BHCs were unable to make desired capital distributions, in part due to the Fed using its own forecasting models for the first time (rather than relying on the BHCs’ models). In addition, half of foreign-owned BHCs’ plans (again, three of six) were rejected due to qualitative issues. These outcomes suggest that the Fed will likely continue to use its models to exert downward pressure on stressed capital ratios to keep capital in the system, supplemented by its heightened qualitative assessments.

This A closer look provides our quantitative and qualitative analyses of the CCAR 2014 results and lessons learned, and our view of enhancements needed to meet increasingly heightened regulatory expectations.

Which Poor Neighborhoods Experienced Income Growth in Recent Decades?

April 18, 2014 Comments off

Which Poor Neighborhoods Experienced Income Growth in Recent Decades?
Source: Federal Reserve Bank of Cleveland

Why has average income grown in some poor neighborhoods over the past 30 years and not in others? We explore that question and find that low-income neighborhoods that experienced large improvements in income over the past three decades tended to be located in large, densely populated metro areas that grew in income and population. Residential sorting—changes in population and demographics within neighborhoods—could help to explain this relationship.

Competition in lending and credit ratings

April 14, 2014 Comments off

Competition in lending and credit ratings
Source: Federal Reserve Board

This article relates corporate credit rating quality to competition in lending between the public bond market and banks. In the model, the monopolistic rating agency’s choice of price and quality leads to an endogenous threshold separating low-quality bank-dependent issuers from higher-quality issuers with access to public debt. In a baseline equilibrium with expensive bank lending, this separation across debt market segments provides information, but equilibrium ratings are uninformative. A positive shock to private (bank) relative to public lending supply allows banks to compete with public lenders for high-quality issuers, which threatens rating agency profits, and informative ratings result to prevent defection of high-quality borrowers to banks. This prediction is tested by analyzing two events that increased the relative supply of private vs. public lending sharply: legislation in 1994 that reduced barriers to interstate bank lending and the temporary shutdown of the high-yield bond market in 1989. After each event, the quality of ratings (based on their impact on bond yield spreads) increased for affected issuers. The analysis suggests that strategic behavior by the rating agency in an issuer-pays setting dampens the influence of macroeconomic shocks, and explains the use of informative unsolicited credit ratings to prevent unrated bond issues, particularly during good times. Additionally, the controversial issuer-pays model of ratings leads to more efficient outcomes than investor-pays alternatives.

Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions

April 14, 2014 Comments off

Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions
Source: Federal Reserve Bank of Richmond

This paper uses transaction-level data from a large discount chain together with zip-code-level explanatory variables to learn about consumer payment choices across size of transaction, location, and time. With three years of data from thousands of stores across the country, we identify important economic and demographic effects; weekly, monthly, and seasonal cycles in payments, as well as time trends and significant state-level variation that is not accounted for by the explanatory variables. We use the estimated model to forecast how the mix of consumer payments will evolve and to forecast future demand for currency. Our estimates based on this large retailer, together with forecasts for the explanatory variables, lead to a benchmark prediction that the cash share of retail sales will decline by 2.54 percentage points per year over the next several years.

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