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Economic Research

Expectations and the Final Mile of Disinflation
In the aftermath of the COVID-19 pandemic, the U.S. economy experienced a swift recovery accompanied by a sharp rise in inflation—which has been gradually declining since 2022 without a notable slowdown in the labor market. Nonetheless, inflation remains above the Federal Reserve's 2 percent goal. The authors examine the unemployment-inflation trade-off over the past few years through the lens of a New Keynesian Phillips curve.
By Richard K. Crump, Stefano Eusepi, and Ayşegül Şahin
Global Supply Chains and U.S. Import Price Inflation
Inflation around the world increased dramatically with the reopening of economies following COVID-19. After reaching a peak of 11 percent in the second quarter of 2021, world trade prices dropped more than five percentage points by mid-2023. U.S. import prices followed a similar pattern. In a new study, the authors investigate what drove these price movements by using information on the prices charged for products shipped from fifty-two exporters to fifty-two importers—and uncover several patterns in the data.
By Mary Amiti, Oleg Itskhoki, and David Weinstein
Can Electric Cars Power China’s Growth?
China’s aggressive policies to develop its battery-powered electric vehicle (BEV) industry have been successful in making the country the dominant producer worldwide. And while BEVs will likely claim a growing share of global motor vehicle sales, China’s success in selling BEVs may not contribute much to its GDP growth, owing both to the maturity of its motor vehicle sector and the likelihood that other countries will protect this high-profile industry.
By Thomas Klitgaard
Businesses See Inflationary Pressures Moderating
Shortly after the recovery from the pandemic recession began, the U.S. economy entered a period of high inflation as surging demand, severe supply disruptions, and worker shortages combined to create large imbalances and inflationary pressures in the economy. Have these pressures moderated for local businesses in the New York–Northern New Jersey region? The New York Fed’s February business surveys asked firms about increases in their costs and prices.
By Jaison R. Abel and Richard Deitz
How and Why Do Consumers Use “Buy Now, Pay Later”?
The authors shed further light on the place of “buy now, pay later” (BNPL) in its users’ household finances, with a particular focus on how use varies by a household’s level of financial fragility. Their results reveal substantially different use patterns. They explore what drives these differences and consider the implications for future BNPL use.
By Felix Aidala, Daniel Mangrum, and Wilbert van der Klaauw
Measuring Treasury Market Depth
A commonly used measure of market liquidity is market depth, which refers to the quantity of securities market participants that are willing to buy or sell at particular prices. The authors review the many measurement decisions that go into depth calculations and show that inferences about the evolution of U.S. Treasury market depth, and hence liquidity, are largely invariant with respect to these decisions.
By Michael Fleming, Isabel Krogh, and Claire Nelson
RESEARCH TOPICS
Nonlinear Firm Dynamics
Firms are hit by idiosyncratic shocks of various natures and magnitude. The features of this firm-level variation are crucial for many economic questions that relate to firm dynamics. This paper presents empirical evidence on the nature of idiosyncratic shocks to firms and discusses its role for firm behavior and aggregate fluctuations. The authors document that, even among relatively large, publicly listed, U.S. firms, firm-level sales and productivity substantially depart from standard AR(1) models with Gaussian innovations.
Davide Melcangi and Silvia Sarpietro, Staff Report 1088, March 2024
Drivers of Dollar Share in Foreign Exchange Reserves
The share of U.S. dollar assets in the official foreign exchange reserve portfolios of central banks sometimes is taken as an indicator of dollar status. The authors show that the observed decline in aggregate U.S. dollar shares is not from a systematic decline in preferences for dollar assets. Instead, it is due to monetary policies executed vis-a-vis euros and a small group of large foreign-exchange reserve balance countries.
Linda S. Goldberg and Oliver Hannaoui, Staff Report 1087, March 2024
The Unemployment-Inflation Trade-off Revisited: The Phillips Curve in COVID Times
In the aftermath of the COVID-19 pandemic, the U.S. economy experienced a swift recovery accompanied by a sharp rise in inflation, unseen since the late 1960s. This episode has re-ignited the debate about the trade-off between inflation and unemployment and its implications for inflation stability in the long run. The authors evaluate the unemployment-inflation trade-off through the lens of a simple New Keynesian Phillips curve focusing on the post-pandemic economy.
Richard K. Crump, Stefano Eusepi, Marc Giannoni, and Ayşegül Şahin, Staff Report 1086, March 2024
Self-Employment and Labor Market Risks
The author studies the labor market risks associated with self-employment and the provision of benefits targeted at these risks. He provides new empirical evidence on the earnings risks faced by the self-employed using U.S. monthly survey data. He shows that earnings are substantially more volatile during self-employment spells than during paid-employment spells, and that there are frequent direct transitions from self-employment to unemployment. He also builds a framework to assess the impact of extending unemployment insurance benefits to the self-employed.
Richard Audoly, Staff Report 1085, January 2024
On the Validity of Classical and Bayesian DSGE-Based Inference
The author investigates the asymptotic validity of classical and Bayesian inference on the structural parameters in a dynamic stochastic general equilibrium (DSGE) model whenever the distributional assumption on the model’s structural shocks is misspecified. Since both classical and Bayesian methods are full-information, such distributional assumptions are required, and the standard assumption made in the literature is Gaussianity. This paper demonstrates that classical and Bayesian inference on the structural parameters based on Gaussian likelihood is unaffected by departures from Gaussianity of the structural shocks.
Katerina Petrova, Staff Report 1084, January 2024
Monetary Policy across Inflation Regimes
Does the effect of monetary policy depend on the prevailing level of inflation? The authors find that the effects of monetary policy are markedly different when year-over-year inflation exceeds 5.5 percent. Below this threshold, changes in monetary policy have a short-lived effect on prices, but no effect on the unemployment rate. Above this threshold, the effects on both inflation and unemployment can be larger and longer lasting.
Valeria Gargiulo, Christian Matthes, and Katerina Petrova, Staff Report 1083, January 2024
The New York Fed DSGE Model: A Post-Covid Assessment
The authors document the real-time forecasting performance for output and inflation of the New York Fed dynamic stochastic general equilibrium (DSGE) model since 2011. How did its performance pan out? They found the DSGE’s accuracy to be comparable to that of private forecasters before Covid, but somewhat worse thereafter.
Marco Del Negro, Keshav Dogra, Aidan Gleich, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula, Staff Report 1082, January 2024
The Global Dash for Cash: Why Sovereign Bond Market Functioning Varied across Jurisdictions in March 2020
As the economic disruptions associated with the COVID-19 pandemic increased in March 2020, there was a global dash-for-cash by investors. This selling pressure occurred across advanced sovereign bond markets and caused a deterioration in market functioning, leading to central bank interventions. The authors show that these market disruptions occurred disproportionately in the U.S. Treasury market and were due to investors’ selling pressures being far more pronounced and broad-based.
Jordan Barone, Alain Chaboud, Adam Copeland, Cullen Kavoussi, Frank Keane, and Seth Searls, Economic Policy Review 29, no. 3, December
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