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Ryan, thanks for the comment and question. I agree that household deleveraging and tighter credit supply following the GFC likely were among the factors behind the weakness of consumer spending during the recession and afterwards. Those factors also have been cited in commentary about consumer spending weakness, including speeches by New York Fed President Dudley, and in academic research (for example, a number of papers by Atif Mian and Amir Sufi). Nevertheless, as documented in the post, discretionary services spending in this cycle remains subdued compared to previous cycles, even after the deleveraging process appears to have been completed. So other factors, including continued slow productivity growth that I cite in the post, probably have been contributors. How much to assign to these various factors requires more research.
Thanks for your comment. For this analysis, we draw on multiple databases on global liquidity component flows from both borrower country and creditor country perspectives, distinguishing between instrument types (international debt securities versus international bank loans), and between borrowing sectors (bank versus non-bank). Using the BIS International Debt Securities (IDS) Statistics and the BIS Locational Banking Statistics (LBS), we create a quarterly panel of international bank loan and bond flows to 64 recipient countries for the period between 2000:Q1 and 2015:Q4. In addition, we utilise the BIS Consolidated Banking Statistics (CBS) in order to assign loans to specific national lending banking systems. The data are accessed through the Bank for International Settlements, and described here []
Michael: Thank you for your interest in the post and for the comment on one possible reason for establishing excess repo capacity. Determining the relative importance of the potential motivations for acquiring excess equity tri-party capacity is an interesting issue that will need significant additional research to answer.
Taylor: Thanks for your interest in our blog post and for your comment. In response to your question, for Department Store employment we used NAICS 4521 (not all of 452, which includes a broader set of “general merchandise” stores). The data by county is from the BLS’ QCEW data set, which you can find here:
Jack: Thank you for your comment. In the‎ pre-crisis regime, the Fed adjusted the supply of reserve balances so as to keep the federal funds rate around the target established by the FOMC. These adjustments were made almost daily through open market operations. One example of an open market operation is a repo transaction that adds reserves. Under a repo, the Fed buys a security under an agreement to resell that security in the future. During the term of the repo in this example, reserves increase. With these open market operations the Fed would set the supply of reserves so that it would intercept the demand for reserves at the desired rate. A more detailed description of OMOs can be found here: There are also a number of publications describing how OMOs can be used in monetary policy implementation: for example, “Understanding Monetary Policy Implementation,” at
meisonas: Thank you for your comment. Banks are not required to hold vault cash. Typically, when banks hold vault cash, they do so to satisfy the needs of their customers. Banks can also use this vault cash to satisfy their reserve requirements. For more information on aggregate vault cash used to satisfy reserve requirements, you can look at the statistical release, Aggregate Reserves of Depository Institutions and the Monetary Base (H.3), at‎
While this analysis is run on a daily basis internally at the New York Fed, we only share staff estimates on a monthly basis, according to the release schedule outlined on our website: The methodology is public, and described in our 2014 staff report “The FRBNY Staff Underlying Inflation Gauge: UIG” and our forthcoming Economic Policy Review article “The New York Fed Staff Underlying Inflation Gauge (UIG).” Find bibliographic detail in the References section of our downloadable monthly report. See also the Data Appendix on our website, which contains a complete list of the variables employed in the construct of our reported measures.
Engin: Thank you for these interesting questions. First of all, as your question points out, the FOMC sets a target for the federal funds rate. It is important to note that the federal funds rate is targeted, rather than set, because it is a market rate, rather than an administered rate. The Federal Reserve can influence market rates, including the federal funds rate, with the use of various tools of monetary policy, but a market rate cannot be directly controlled. The interest rate paid on excess reserves (IOER) gives the Federal Reserve an important tool to target the federal funds rate. By raising and lowering this rate, the Federal Reserve can change the attractiveness of holding balances and thus influence the rate at which institutions are willing to trade in the market. IOER pulls money market rates up by giving incentives for borrowers to compete among themselves to attract reserves, which earn IOER. In the current environment, lenders of funds in this market are generally those that do not have access to IOER, and thus are willing to lend below IOER. Another set of Liberty Street blogs discusses borrowers and lenders in the fed funds market. For information on income, expenses, and distribution of net earnings of the Federal Reserve Banks, the annual report is a good source, with a table on page 108 detailing forms of interest expense, including interest paid on depository institution deposits. For additional context, it may also be useful to look at Federal Reserve remittances to the U.S. Treasury (which are the residual net earnings that Federal Reserve sends to the U.S. Treasury after interest and other expenses). An overview of these remittances is provided starting on page 18 of the report. Interest income on the Federal Reserves’ assets has continued to support substantial remittances to Treasury. A historical depiction of remittances can be found here: Congress amended the Federal Reserve Act to provide that Reserve Banks may pay interest on balances (Federal Reserve Act, Section 19(b)(12), found at There is no end date for this authority. The regulations implementing the authority are found in Section 204.10 of Regulation D (, which, among other things, includes specification of the rates. An overview of the regulatory and legal history relating to interest on reserves can be found here:
K K: Thank you for your comment. The idea behind the Friedman rule is that there should be no opportunity cost of holding money. That is, the return on money should be approximately the same as the return of close substitutes, like Treasury bills. This should be true for any level of the interest rate, even negative rates. When setting the stance of monetary policy, by choosing a level of the policy rate, a central bank hopes to influence both short-term interest rates, which applies to assets that can be close substitutes for money, and longer-term rates, such as mortgage rates.‎ The idea is to set the policy rate to influence interest rates and financial conditions to help achieve the central bank’s mandated goals over time; in the case of the Fed, those goals are maximum employment and price stability. If interest rates are too low for too long a period, then there is a greater risk of inflation rising too high. Conversely, if interest rates are too high for too long, then there is a greater risk that economic growth will be inappropriately constrained. Central banks set the level of the policy rate based on their assessments of economic conditions and the economic outlook. The idea behind setting a negative policy rate is that the economy is sufficiently weak such that even if the policy rate was zero, overall interest rates are not low enough to help stimulate the economy as much as is needed.
DO: In the pre-crisis monetary policy implementation regime, the Fed achieved its target federal funds rate by actively managing the supply of reserves in the banking system. To do this, the New York Fed’s trading desk bought and sold Treasury securities in the open market to bring the supply of reserve balances in line with the estimated quantity of reserves demanded at the FOMC’s target rate. In calibrating these operations, it was necessary for the Desk to account for the net effects of movements in so-called “autonomous factors”—factors that affect the supply of reserves but are largely outside the direct influence of Fed policymakers or the Desk’s operations. Movements in and out of the Treasury general account (TGA) was one autonomous factor among many. (Changes in demand for U.S. dollar paper currency was another.) So while the actions of the Treasury could, combined with other factors, contribute to the need for an open market operation, the Federal Reserve did not react to specific Treasury actions. In the current policy implementation regime, where the Fed has an abundant level of reserves and achieves interest rate control through IOER and an overnight reverse repo facility, changes in autonomous factors do not affect achievement of the FOMC’s fed funds target range. More generally, the TGA balance does not impact (i) the FOMC’s setting of the monetary policy target, for example, a certain level of reserves or a particular interest rate or rate range, (ii) the FOMC’s monetary policy regime, for example, a corridor or a floor-type system, or (iii) the objectives of monetary policy, which are set by the Federal Reserve Act as “maximum employment, stable prices, and moderate long-term interest rates.”
Mark: Thank you for your comment. Even though you are correct that the Krugman article does not explicitly mention Glass-Steagall, it was, as far as I am aware, the article that coined the concept of “boring banking.” In addition, to me, that article refers to Glass-Steagall implicitly when it refers to the evolution of banking following its Great Depression collapse, as in this excerpt: “… The banking industry that emerged from that collapse [The Great Depression] was tightly regulated, far less colorful than it had been before the Depression, and far less lucrative for those who ran it. Banking became boring … “ The Glass Steagall Act of 1933 was the main piece of legislation that imposed that tighter set of activity restrictions on banks. In my follow-up post, published on August 2, I actually suggest that banking really never “became boring”: tighter regulation was put in place and certain entities were restricted by it, but intermediation activities continued, undertaken by entities not subject to those restrictions. Link to follow-up post:
Darrell: Thank you for your comment. U.S. dealers that are subsidiaries of bank holding companies and those that are not appear to be behaving roughly the same way over our sample. This is not necessarily surprising now that U.S. dealers subject to the leverage ratio have had time to adapt. These two types of dealers likely responded differently to the introduction of the leverage ratio, but this episode is outside our sample.
JF: Thank you for your comment. We understood the first part of your comment to be about the Federal Reserve’s remittances to the Treasury and why payment of principal does not represent income. As noted in the answer to another comment, the Fed is required to remit its earnings to the Treasury after providing for the Fed’s cost of operations, payment of dividends, and reservation of any amount necessary to maintain Reserve Bank capital at no more than $10 billion (per Section 7(a) of the Federal Reserve Act: That principal repayments don’t contribute to income is standard accounting practice. Think about it this way: If Alex lends $100 to Chris and Chris pays the money back, the inflow of cash that Alex received isn’t “income.” It made him whole again, but did not increase his overall wealth. However, if Alex charged Chris interest on the loan, any interest payments Chris made would represent income, to compensate Alex for his service and the time value of his money. We understood the second part of your comment to be related to the relationship between the Fed and the Treasury. As noted in our post, the Federal Reserve Banks are independent of the Treasury This arrangement reflects a broad consensus among policymakers and academics worldwide regarding the importance of separating monetary policy decisions from political influence (see, for example, Relatedly, there is a separation between the objectives and parties responsible for the development and execution of fiscal policy and those of monetary policy (see, for example, The accounting treatment of the Fed’s maturing Treasury securities doesn’t affect this separation. Indeed, since repayment of principal is not income, it has no bearing on the income of the Fed, the income of the Treasury, or the government’s overall need to borrow over time.
Hi Meredith, Thank you for your question on the blog post. I would first like to note that the broad Treasuries financing rate (the broadest of the 3 rates proposed) is the one that the ARRC chose as an alternative to LIBOR. Further, the data underlying the last figure is already compounded on a 3-month basis. Creating a viable term structure for the proposed rates is currently being discussed by ARRC members, and further information will be available over time. Please let us know if you have any further questions. Thank you.
AC: Thank you for your comment. The Fed is required to remit its earnings to the U.S. Treasury after providing for the cost of operations, payment of dividends, and reservation of any amount necessary to maintain Reserve Bank capital at no more than $10 billion. Interest income earned from coupons paid on the Fed's holdings of Treasury securities is part of the Fed's earnings. Like the Fed, most central banks around the world are subject to rules that specify who has a claim on their profit. In many cases, central bank profits are remitted to the local Treasury.
Thank you for your comments. In light of the comments we have received about this post, we decided to write a new post that provides a closer look at the Fed’s balance sheet accounting. This post can be found at the following URL: .
Joel: Thank you for your comment. Congress prohibits the Federal Reserve to purchase securities directly from the Treasury (this staff report provides more details: The securities obtained as part of the large scale asset purchases were bought on the open market. Information about the Federal Reserve’s rollover policy can be found on the New York Fed’s Website at
Douglas: Thank you for your comment. You note, correctly, that all the Fed’s income, net of costs, is remitted to the Treasury. Payments of principal, however, do not generate distributable income (in contrast to interest payments). As we show in the post, when the Fed holds a Treasury security to maturity and does not roll it over into new securities, two things happen to the Fed’s balance sheet: 1) The securities disappear from the asset side of its balance sheet, and 2) the amount of cash held by the Treasury in its Fed account decreases by the same amount on the liability side of its balance sheet. In other words, instead of paying the Fed by exchanging the maturing security with another asset (as would be the case with a rollover), the Treasury “pays” the Fed by reducing its claim on the Fed. The Federal Open Market Committee (FOMC) recently described how it plans to reduce the Federal Reserve’s securities holdings in an addendum to its Policy Normalization Principles and Plans (which can be could at this link: Principal repayments that are not reinvested will run down the Fed’s securities holdings and reduce the size of its balance sheet through dynamics like those we illustrate in this blog post. The FOMC notes, as you do, that reducing the Federal Reserve's securities holdings will result in a declining supply of reserve balances. But the FOMC has not specified its desired future level of reserve balances, saying only that it anticipates reducing the quantity of reserves to a level appreciably below that seen in recent years but larger than before the crisis. You can find updated staff projections for the future size of the Fed’s domestic securities portfolio—based on a range of market expectations for the long-run level of reserve balances and other Fed liabilities taken from recent surveys—on the New York Fed’s website at
Bernard: Thanks you for your question. Even though they serve the public, the Federal Reserve Banks, which ultimately hold the Treasury securities, are not part of the federal government. As such, their consolidated balance sheet is distinct from the Treasury’s balance sheet. The Fed does not have the ability to retire Treasury debt, and the Treasury makes principal and interest payments to the Fed as it does to any other holder of Treasury securities. Moreover, the Fed wishes to hold Treasury securities to pursue its policy goals. For example, the Fed purchased longer-term Treasury securities to put downward pressure on interest rates, and has continued to hold them in order to help maintain accommodative financial conditions. Having a stock of securities to sell, as was done through the Maturity Extension Program in 2011 and 2012, is another way the Fed can carry out its monetary policy objectives. In addition, securities the Fed holds can be lent out under securities lending arrangements with primary dealers. These lending transactions provide a temporary source of securities to the financing market to promote the smooth clearing of Treasury securities.
Thank you both for your comments. In response to Alex, the financial assets of broker dealers are broken down into a number of different categories in the Financial Accounts of the United States, published by the Board of Governors of the Federal Reserve System. In particular, see Table L.130, in the Z.1 Statistical Release (most recent version is here: In response to Darrell, thank you for the great suggestion. A few recent papers (by Harris (2015), Bessembinder, Jacobsen, Maxwell, and Venkataram (2016), Choi and Huh (2017), and Goldstein and Hotchkiss (2017)) have examined the holding periods of dealers and their propensity to act as an agent (or riskless principal) over time. A challenge in estimating the time taken to execute a large total desired client trade is that observed trade sizes are not exogenous, but reflective of liquidity conditions.
"Hit from decreased" income assumes that a BHC holds its 2009 asset mix, but earns its 2015 rates on its components of interest income. Similarly, "Boost from decreased expense" assumes that a BHC is funded by its 2009 liability mix, but pays its 2015 rates on its components of interest expense. "Hit from lower yielding asset mix" measures the impact of changes to the BHC’s asset mix between 2009 and 2015, and "Boost from lower rate liability mix" to the impact of changes to BHC’s liability mix between 2009 and 2015.
I have received a number of messages from readers about the long-time downward trend in NIMs seen in the first chart of this post and the possible implications if short-term interest rates continue to rise. Here is what we know about this issue so far. When modeling NIM in aggregate, we estimate a statistically significant and negative time trend in our top-down model of bank capital (see Appendix Table 1 of this paper published in the Journal of Banking and Finance) In separate unpublished work, we modelled NIM separating out the relationship of each NIM component to rates (i.e. separately modelling components of interest income and interest expense). In these component models, we generally no longer estimate statistically significant time trends, which suggest to me that most of the secular decline in NIM is mix driven. However, it is hard to empirically separate the post-financial crisis time period from the low interest rate period, since the two coincide until basically now, so only when interest rates go up can these two possibilities be fully separated.
Joe: The basis for this is the following question: “If someone had a large sum of money that they wanted to invest, would you say that relative to other possible financial investments, buying property in your zip code today is a [very good; somewhat good; neither good nor bad; somewhat bad; very bad] investment?” More than 60% of the respondents choose very or somewhat good. We do not ask respondents why they gave their selected answer. However, research suggests that at least to some extent, the optimism about housing may be driven by extrapolation from recent house price growth (see; section A.3 provides direct evidence on this particular question).
Thank you for your question. We have looked at data that address this question to some degree in a recent blog: “Do Big Cities Help College Graduates Find Better Jobs?” In this work, we focused on how well college graduates were able to find college level jobs, if those jobs fit their college major, and how this matching varied based on where people live. We found that college graduates who are located in big cities are more likely to be working in jobs that both require a college degree and that are related to their college major. These findings are consistent with theories of urban agglomeration suggesting that searching for a job in big cities, which have larger and thicker local labor markets (that is, bigger markets with many buyers and sellers), gives workers a better chance to find a job that fits their skills.
Burton: Thank you for your interest in the post and your comment. We view the monthly movements in inflation as reflecting the sum of three (unobserved) components: an idiosyncratic component, a cyclical component and a trend component. The UIG provides an estimate of the trend component.