Research Topics

Banking and Financial Markets

Alternatives to Libor in Consumer Mortgages
Many adjustable rate mortgages in the United States are indexed to Libor. While the accuracy of this rate has recently been called into question, another issue affecting U.S. borrowers has become evident since the onset of the financial crisis. Specifically, many U.S. consumers with Libor-based loans may have been hit with substantially higher payments when their loans reset during the financial crisis than if those loans had been tied to a Treasury rate. We investigate several alternative reference rates for consumer loans and estimate their payment effects on a large sample of Libor-linked U.S. mortgages. We find that these alternatives would have delivered savings over Libor of about $25 to $45 per month and substantially more for mortgages that reset in October 2008. ()

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. ()
  • Business Cycles and Financial Crises: The Roles of Credit Supply and Demand Shocks ()
  • The Macroeconomic Forecasting Performance of Autoregressive Models with Alternative Specifications of Time-Varying Volatility ()
  • A Tractable Estimator for General Mixed Multinomial Logit 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 College Wage Premium
The return on educational investments has risen substantially in the past 30 years. While the primary focus has been on the college wage premium, new evidence shows that the value of going to college is affected by a host of other important educational decisions, each of which has a potential large effect on future earnings. This Commentary examines the impact of two of these other decisions on earnings: the choice of a college major and the pursuit of an advanced degree. In some cases, differences in the college major premium are as large as the college wage premium itself. ()

Financial Stability

The Cleveland Financial Stress Index: A Tool for Monitoring Financial Stability
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. ()

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 ()
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Growth and Production

Estimating Real GDP Growth Trends
The economy continues to expand at a slow pace. The recent subpar growth rates, together with the pattern of productivity and hours worked, suggest that the trend level of real GDP is growing slower than in the past. Here, we investigate this issue, looking for evidence on the current and long-run growth rates of the real GDP trend.

Households and Consumers

  • 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 ()
  • Redshirting, Compulsory Schooling Laws, and Educational Attainment ()
  • See all Households and Consumers

Households and Consumers

Consumer Finances and a Sustainable Recovery
Three rounds of quantitative easing since the official end of the recession 39 months ago testify to the fact that the economy is languishing. To evaluate the possibility of a sustainable recovery in the near future, we take a closer look at consumer finances.
  • 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

New Fed Policies and Market-Based Inflation Expectations
Market-based measures of inflation expectations reflect what investors anticipate inflation will be in the future. These measures rose in the days after September 13, when the Federal Reserve announced a third round of large-scale asset purchases and decided to keep the target range for the federal funds rate at an exceptionally low level at least through mid-2015.
  • Trimmed-Mean Inflation Statistics: Just Hit the One in the Middle ()
  • 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

Troubled Waters and the Bank of England’s Funding for Lending Scheme
With economies drifting into the doldrums, central banks are looking for ways to hoist more sail. Recently, the Bank of England unfurled its Funding for Lending Scheme, an economic jib of sorts that hopes to spur household and business loans. The Scheme will begin on August 1, 2012, and continue through 2013. Central bankers around the globe are keenly interested.

Labor Markets, Unemployment, and Wages

Regional Differences in Science and Engineering Schooling and Employment
Differences in human capital across regions are associated with differences in economic performance. For example, many studies have documented that regions with higher human capital, typically measured in terms of educational attainment, experience higher income growth. The correlation is attributed to many channels, but key among them is the view that more educated locations are more innovative and can take better advantage of new technologies.

Monetary Policy

Where Would the Federal Funds Rate Be, If It Could Be Negative?
In the wake of Great Recession, the Federal Reserve engaged in conventional monetary policy actions by reducing the federal funds rate. But soon the rate hit zero, and could go no lower. In such environments, policymakers still think in terms of where the federal funds rate should be, were it possible to go negative. To project the "unconstrained path" of the funds rate—ignoring the zero lower bound—and to identify the key underlying shocks driving that path, we employ a statistical macroeconomic forecasting model. We find that the federal funds rate would have been extremely negative during 2009-2010. ()
  • Privately Optimal Contracts and Suboptimal Outcomes in a Model of Agency Costs ()
  • How Inflationary Is an Extended Period of Low Interest Rates? ()
  • A Medium Scale Forecasting Model for Monetary Policy ()
  • 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

Changes in Household Borrowing across Metropolitan Areas
Much of the increase in household debt last decade was driven by mortgage borrowing, which accounts for between 70 and 80 percent of U.S. household liabilities. Because this borrowing was driven by (and also drove) high home-price appreciation in some parts of the country, there is a clear geographic pattern to changes in credit usage over the last decade.

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.