Liberty Street Economics
July 11, 2014

Crisis Chronicles: The Collapse of the French Assignat and Its Link to Virtual Currencies Today

James Narron and David Skeie

In the late 1700s, France ran a persistent deficit and by the late 1780s struggled with how to balance the budget and pay down the debt. After heated debate, the National Assembly elected to issue a paper currency bearing an attractive 3 percent interest rate, secured by the finest French real estate to be confiscated from the clergy. Assignats were first issued in December 1789 and initially were a boon to the economy. Yet while the first issues brought prosperity, subsequent issues led to stagnation and misery. In this edition of Crisis Chronicles, we review how fiat money inflation in France caused the collapse of the French assignat (subscription required) and describe some interesting parallels between the politics of French government finance (subscription required) in the late 1700s and more recent fiscal crises.

Posted by Blog Author at 7:00 AM in Crisis Chronicles | Permalink | Comments ( 0 )

July 10, 2014

At the N.Y. Fed: Conference Highlights Financing Tools for New York’s Food and Beverage Firms

Richard Deitz and Shira Gans

With more than 35,000 farms and $5.5 billion in annual sales, the agriculture industry is an important part of the New York State economy. New York produces a wide array of agricultural goods, from dairy products (the state has the third largest dairy industry in the country) to fruits and vegetables, livestock, and even fish. It is also a growing industry: agricultural exports, for example, have more than doubled in the state since 2000. And the action isn’t just on farms: agriculture reaches into many other parts of the economy, such as farmers’ markets, food manufacturing and processing firms, restaurants, and agritourism.

     Recognizing that firms that make, process, and sell agricultural products play an important role in the state’s economy, the Regional and Community Outreach team at the New York Fed recently held a conference for N.Y. food and beverage firms on accessing capital, co-sponsored by Empire State Development and the New York State Department of Agriculture and Markets. The goal of the event, which was held on June 24, was to provide information about the wide array of financing available for these firms, and to help them decide which types of financing would best suit their credit needs. The conference also highlighted opportunities in international markets, and identified financing tools available to assist firms with exporting their goods abroad.

Posted by Blog Author at 7:00 AM in Regional Analysis | Permalink | Comments ( 0 )

July 09, 2014

Lifting the Veil on the U.S. Bilateral Repo Market

Adam Copeland, Isaac Davis, Eric LeSueur, and Antoine Martin

The repurchase agreement (repo), a contract that closely resembles a collateralized loan, is widely used by financial institutions to lend to each other. The repo market is divided into trades that settle on the books of the two large clearing banks (that is, tri-party repo) and trades that do not (that is, bilateral repo). While there are public data about the tri-party repo segment, there is little to no information on the bilateral repo segment. In this post, we update a methodology we developed earlier to estimate the size and composition of collateral posted for bilateral repos, and find that U.S. Treasury securities are the dominant form of collateral for bilateral repos. This new finding implies that the collateral posted for bilateral repos is of higher quality than the collateral posted for tri-party repos.

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 0 )

July 07, 2014

Why Hasn't the Yen Depreciation Spurred Japanese Exports?

Mary Amiti, Oleg Itskhoki, and Jozef Konings

The Japanese yen depreciated 30 percent from its peak in the fourth quarter of 2011 against its trading partners. This was expected to boost its exports as the lower yen makes Japanese goods more competitive on global markets. Instead, the volume of Japanese exports of goods actually fell by 0.6 percent over this same period, as can be seen in the chart below. Weaker external demand surely contributed to this poor export performance. Yet over the same period, U.S. goods exports grew by more than 6 percent, which suggests that other factors are also at play. In this post, we draw on our recent paper “Importers, Exporters, and Exchange Rate Disconnect” that highlights another channel to help explain these puzzling developments. In that study, we show that a key to understanding why there is low pass-through from exchange rates into export prices is that large exporters are also large importers, so they face offsetting exchange rate effects on their marginal costs. In the case of Japan, the connection between the yen and production costs has been made stronger since the country replaced nuclear power with imported fuels in the aftermath of the 2011 earthquake.

Posted by Blog Author at 7:00 AM in International Economics | Permalink | Comments ( 2 )

June 27, 2014

Historical Echoes: The United States’ First Credit Union–Run Out of a Gentleman Lawyer’s Front Parlor

Amy Farber

St. Mary’s Bank was the first credit union created in the United States, in Manchester, New Hampshire, in 1908. A website honors both the centennial of the institution and the credit union concept. A small museum (see article about its opening) was created near the site of the credit union, which is still functioning.

Posted by Blog Author at 7:00 AM in Historical Echoes | Permalink | Comments ( 1 )

June 26, 2014

From Our Archive: Student Debt in Perspective

The Editors

We read with interest a new Brookings Institution report, Is a Student Loan Crisis on the Horizon?, assessing the weight of the student debt burden. It was also pleasing to see the New York Times, several of our Twitter followers, and others citing work on this blog in counterpoint.

June 25, 2014

Do Currency Forwards Say Anything about the Future Value of the U.S. Dollar?

J. Benson Durham

Currency forwards do include useful information about the future value of the U.S. dollar, but any messages are hard to decipher without tools. Just as the yield curve reflects expected short rates as well as term premiums, foreign exchange forwards embed not only anticipated depreciation but also premiums for currency risk. This complicates life for both central bankers, who routinely tease information from asset prices, and portfolio managers, who need to estimate expected returns and beat benchmarks. Most analyses of market quotes suggest that forwards as well as interest rate differentials largely comprise noise rather than information about anticipated currency returns. However, drawing on my recent staff report, a new method, analogous to common arbitrage-free term structure models and based solely on observable prices, suggests that forwards provide lucid clues about the expected path of the U.S. dollar.
Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 0 )

June 23, 2014

The Capitol Since the Nineteenth Century: Political Polarization and Income Inequality in the United States

Rajashri Chakrabarti and Matt Mazewski

Even the most casual observer of American politics knows that today’s Republican and Democratic parties seem to disagree with one another on just about every issue under the sun. Some assume that this divide is merely an inevitable feature of a two-party system, while others reminisce about a golden era of bipartisan cooperation and hold out hope that a spirit of compromise might one day return to Washington. In this post, we present evidence that political polarization—or the trend toward more ideologically distinct and internally homogeneous parties—is not a recent development in the United States, although it has reached unprecedented levels in the last several years. We also show that polarization is strongly correlated with the extent of income inequality, but only weakly associated with the rate of economic growth. We offer several tentative explanations for these relationships, and discuss whether all forms of polarization are created equal.

Posted by Blog Author at 7:00 AM in Fiscal Policy , Macroecon | Permalink | Comments ( 2 )

June 09, 2014

What’s Your WAM? Taking Stock of Dealers’ Funding Durability

Adam Copeland, Isaac Davis, and Ira Selig

One of the lessons from the recent financial crisis is the need for securities dealers to have durable sources of funding. As evidenced by the demise of Bear Stearns and Lehman Brothers, during times of stress, cash lenders may pull away from firms or funding markets more broadly. Lengthening the tenor of secured funding is one way for a dealer to mitigate the risk of losing funding when market conditions are strained. In this post, we use clearing bank tri-party repo data to examine the degree to which dealers are lengthening the maturities of their sources of funding. (Aggregate statistics using these data are available here.) We focus on less liquid securities because it is for these assets that the durability of funding matters the most. We find substantial progress overall, with the weighted-average maturity (WAM) of funding of the less liquid securities more than doubling from January 2011 to May 2014. Nevertheless, there is currently a wide dispersion in dealer-level WAM, raising questions as to whether all dealers have enough durability in their funding of risk assets.


June 06, 2014

Crisis Chronicles: Canal Mania (1793)

By James Narron and David Skeie

Today, a leisurely trip down a canal on a quiet Sunday afternoon is a reminder of an unhurried time away from the hectic pace of modern commerce. But this was not always so. From the late 1790s into the early 1800s, canal transport was a crucial element of the industrial revolution—a time when barges were loaded with raw materials and goods rather than tourists and holidaymakers. By the mid-1700s, manufacturing was evolving from a cottage industry to a factory system in which goods could be produced en masse. But mass production required heavy raw materials like coal and a way to ship sometimes fragile goods such as pottery to market. And while more roads were being built or improved, they weren’t very efficient—one horse could pull a ton on land, but up to thirty or even fifty tons on a boat. So when the Third Duke of Bridgewater built a canal to transport coal directly to Manchester and Liverpool, the price of coal was halved, but the Duke’s profits soared. In this edition of Crisis Chronicles, we explore England’s Canal Mania, drawing on studies from The Economic History Review on Manchester, the Thames, and British Public Finance.

Posted by Blog Author at 7:00 AM in Crisis Chronicles | Permalink | Comments ( 2 )

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Liberty Street Economics features insight and analysis from economists working at the intersection of research and Fed policymaking.

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