FEDS Notes are articles in which Board staff offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers and IFDP papers.

Implications of Cyber Risk for Financial Stability

Danny Brando, Antonis Kotidis, Anna Kovner, Michael Lee, and Stacey L. Schreft

Cyber risk, defined as the risk of loss from dependence on computer systems and digital technologies, has grown in the financial system. Cyber events, especially cyberattacks, are among the top risks cited in financial stability surveys in the United States and globally.

DOI: https://doi.org/10.17016/2380-7172.3077

Business entry and exit in the COVID-19 pandemic: A preliminary look at official data

Ryan A. Decker and John Haltiwanger

The economic effects of the COVID-19 pandemic brought new focus to questions about business entry and survival. The spring of 2020 was characterized by widespread fear of surging business exit (death).

DOI: https://doi.org/10.17016/2380-7172.3129

The Remarkable Recent Rebound in Household Formation and the Prospects for Future Housing Demand

This note updates our previous work on household formation and living arrangements from the summer of 2020. At that early stage in the pandemic, the data showed a dramatic decline in headship rates as millions of Americans changed their living arrangements, many by remaining with or moving back in with parents and older relatives.

DOI: https://doi.org/10.17016/2380-7172.3114

Investor Base and Prime Money Market Fund Behavior

Lei Li and Lucas Epstein

Prime money market funds (MMFs) represent a key vulnerability in the financial system. During the last 15 years, they have experienced two severe investor runs, in September 2008 and March 2020, both of which contributed to full-scale financial crises.

DOI: https://doi.org/10.17016/2380-7172.3116

Anchored or Not: A Short Summary of a Bayesian Approach to the Persistence of Inflation

Consumer price inflation in the United States, as measured by the Consumer Price Index, jumped to just above 7 percent in the twelve months ending in December 2021. Inflation in 2021 reached the highest level seen since the early 1980s. The jump in inflation outside of the range experienced over several decades has raised questions regarding the speed with which, or the degree to which, inflation may return to the 2-percent range consistent with the Federal Reserve's inflation objective.

DOI: https://doi.org/10.17016/2380-7172.3049

Is Trend Inflation at Risk of Becoming Unanchored? The Role of Inflation Expectations

Since the start of the pandemic, views about the evolution of aggregate consumer prices moved swiftly from concerns about deflation to fears about excessive inflation. It is hard to find a parallel in the history of the U.S. economy—or the global economy more generally—to this rapid reversal of risks to the inflation outlook.

DOI: https://doi.org/10.17016/2380-7172.3043

(Don't Fear) The Yield Curve, Reprise

In recent months, financial market perceptions about the future path of short-term interest rates have evolved amidst signals from policymakers suggesting that reduced monetary policy accommodation is in the offing. As with previous episodes of policy tightening, most recently in 2018, one can hear an attendant rise in the volume of commentary about a decline in the slope of the yield curve and the risk of "inversion," whereby long-term yields fall below shorter-maturity yields.

DOI: https://doi.org/10.17016/2380-7172.3099

Testing Bank Resiliency Through Time

Sergio Correia, Matthew P. Seay, and Cindy M. Vojtech

A resilient banking system meets the demands of households and businesses for financial services during both benign and severe macroeconomic and financial conditions. Banks' ability to weather severe macroeconomic shocks, and their willingness to continue providing financial services, depends on their levels of capital, balance sheet exposures, and ability to generate earnings. This note uses the Forward-Looking Analysis of Risk Events (FLARE) stress testing model to evaluate the resiliency of the banking system by consistently applying severe macroeconomic and financial shocks each quarter between 2014:Q1 and 2021:Q3.

DOI: https://doi.org/10.17016/2380-7172.3070

Drivers of Bank Supply of Business Loans

Andrew Castro, David Glancy, and Felicia Ionescu

Numerous studies show that tightening loan supply may significantly affect credit outcomes, including declines in total lending capacity and changes in loan terms (see for example, Bassett et al. (2014), Castro et al. (2022), Lown and Morgan (2006)). Moreover, research has linked these supply-driven declines in credit to negative effects on economic outcomes, including employment or output (see Alfaro et al. (2021) or Herheknhoff (2019)).

DOI: https://doi.org/10.17016/2380-7172.3059

What Happens When Banks Tighten C&I Loan Supply?

Andrew Castro, David Glancy, Felicia Ionescu, and Greg Marchal

The supply of bank credit is an important driver of macroeconomic outcomes, with significant implications for employment and output (Basset et al., 2014; Chodorow-Reich, 2014). However, studying credit supply is not straightforward for several reasons.

DOI: https://doi.org/10.17016/2380-7172.3058

Estimating U.S. Cross-Border Securities Flows: Ten Years of the TIC SLT

The Treasury International Capital (TIC) system collects cross-border securities positions and transactions data and is the primary source of information on foreign official and private demand for U.S. Treasuries and other U.S. securities, as well as for U.S. investment in foreign securities. As noted in earlier work, though, the TIC system currently collects data separately on holdings of securities (the monthly TIC SLT and the annual SHL/SHC collections) and on transactions, the TIC S, and these two data streams can be difficult to reconcile, making interpretation of movements in the data challenging.

DOI: https://doi.org/10.17016/2380-7172.3068

Global Real Economic Uncertainty and COVID-19

Ranie Lin, Juan M. Londono, and Sai Ma

The COVID-19 pandemic led to unprecedented disruptions in supply, demand, and productivity, which have had cataclysmic health, social, and economic implications across the globe. In this note, we explore the large increase in global real economic uncertainty observed during the pandemic as a channel that explains or magnifies the economic implications of COVID-19

DOI: https://doi.org/10.17016/2380-7172.3045

Delinquency Rates and the “Missing Originations” in the Auto Loan Market

Vitaly M. Bord and Lucas M. Nathe

One of the surprising characteristics of the economic downturn induced by the COVID-19 pandemic is that delinquency rates in most consumer credit markets have remained low both during the downturn and the subsequent recovery. The existing literature has emphasized the roles that forbearance policies and various government stimulus programs played in helping households meet their debt obligations (Dettling and Lambie-Hanson, 2021; Bakshi and Rose, 2021).

DOI: https://doi.org/10.17016/2380-7172.3053

A Lawyer's Perspective on U.S. Payment System Evolution and Money in the Digital Age

Jess Cheng and Joseph Torregrossa

Take a close look at something that is widely used by the general public as "money"—a Federal Reserve note, a deposit with a bank, a balance with a nonbank payment company (such as PayPal or Venmo), or perhaps even a cryptocurrency—and ask what it means to use it as a store of value and a medium of exchange. That question is, in essence, a legal one.

DOI: https://doi.org/10.17016/2380-7172.2964

Using Distributed Ledger Technology for Payment Directories

Peter Lone, Kumar Nagarajan, Trish Supples, and Paul Wong

Although distributed ledgers frequently are viewed as a revolutionary technology that could transform many markets, the technology has not yet received wide-scale business adoption. This may be due in part to a lack of use cases for which the decentralized and distributed features of distributed ledger technology (DLT) are optimal. But payment directories (known in certain markets as registries), which facilitate the lookup of payments-related information, may be a use case that has specific challenges that take better advantage of these features than other use cases explored by businesses to date. Directories that support routing of information to support payments like aliases for peer-to-peer payments and business-to-business e-invoices may benefit from the use of DLT. DLT allows market participants to maintain and to protect localized information without the competitive, operational, and technical challenges of a centralized database.

DOI: https://doi.org/10.17016/2380-7172.3042

How global risk perceptions affect economic growth

Jón Daníelsson, Marcela Valenzuela, and Ilknur Zer

The global crisis in 2008 reminded us of the importance of the financial sector for the macroeconomy, a lesson many had forgotten in the decades after the previous global crisis, the Great Depression. Financial risk matters. It is necessary for investment and growth, while also driving uncertainty, inefficiency, recessions, and crises.

DOI: https://doi.org/10.17016/2380-7172.3054

Security Considerations for a Central Bank Digital Currency

Tarik Hansen and Katya Delak

The concept of a central bank digital currency (CBDC) has gained traction in recent years, with an increasing number of central banks announcing efforts to explore CBDC use cases and designs. Institutions are in various stages of research and development, with some just beginning their research and others already entering pilot testing or even production, albeit on a limited scale.

DOI: https://doi.org/10.17016/2380-7172.2970

Foreign Demand for U.S. Treasury Securities during the Pandemic

Foreign investors hold a sizable amount of U.S. Treasury securities—$7.5 trillion or about 35 percent of the total outstanding—so net purchases by foreign investors receive significant attention from a variety of sources, including academic researchers, finance professionals, and journalists. During the pandemic, foreign demand for U.S. Treasury securities has received scrutiny for a variety of reasons, including the contribution of foreign investors to the massive selloff in March 2020 (Duffie, 2020; Vissing-Jorgensen, forthcoming) and the ability of foreign investors to absorb additional Treasury securities as the Federal Reserve prepares to taper its asset purchases (Duguid and Rennison, 2021).

DOI: https://doi.org/10.17016/2380-7172.3046

Disclaimer: FEDS Notes are articles in which Board staff offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers and IFDP papers.

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Last Update: September 04, 2020