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.

##### Are Rising U.S. Interest Rates Destabilizing for Emerging Market Economies?

Jasper Hoek, Emre Yoldas, and Steve Kamin

Rising U.S. interest rates are often thought to be bad news for emerging market economies (EMEs) as they increase debt burdens, trigger capital outflows, and generally cause a tightening of financial conditions that can lead to financial crises. Indeed, as shown in Figure 1 below, the rise in the federal funds rate (the black line) during the Volcker disinflation of the early 1980s was associated with a sharp rise in the incidence of financial crises in EMEs (the green bars).

DOI: https://doi.org/10.17016/2380-7172.2930

##### What is programmable money?

Alexander Lee

This note focuses on the importance of a mechanism guaranteeing the inseparable functionality of the technical components of a programmable money system rather than prescribing the specific nature of those components.

DOI: https://doi.org/10.17016/2380-7172.2915

##### The Global Recovery: Lessons from the Past

The downturn in global economic activity caused by the COVID-19 pandemic was unique both for its causes and for its severity. Even though, on a global scale, the recent contraction is unprecedented in modern times, it is useful to look at the consequences of large recessions which affected individual countries in the past.

DOI: https://doi.org/10.17016/2380-7172.2931

##### Did the U.S. Bilateral Goods Deficit With China Increase or Decrease During the US-China Trade Conflict?

Hunter L. Clark and Anna Wong

The United States' bilateral goods trade deficit with China appeared to have narrowed substantially since the escalation of the U.S.-China trade conflict in 2018, or so U.S. trade data suggest. By contrast, the Chinese data tell a much different story: the deficit, as implied by China's bilateral surplus, nearly reached historical highs by the end of 2020.

DOI: https://doi.org/10.17016/2380-7172.2927

##### The 104th Anniversary of the Federal Reserve's Oldest Data Collection

Scott Konzem, Virginia Lewis, Suzanna Stephens, Gretchen Weinbach, and Michael Zhang

The Federal Reserve's oldest data collection, designed to gather weekly information about commercial banks' balance sheets, will turn 104 years old this year. Initiated in December 1917 in response to World War I, this voluntary collection currently underlies the Board's H.8 statistical release, Assets and Liabilities of Commercial Banks in the United States. This Note describes the origins of this collection, some highlights regarding its evolution, and how the data are used today.

DOI: https://doi.org/10.17016/2380-7172.2921

##### Improving the Measurement of Racial and Ethnic Disparities in the Survey of Consumer Finances

The Survey of Consumer Finances (SCF) is one of the main data sources in the United States for assessing and analyzing differences in wealth and financial well-being across families. In recent years, the SCF estimates of racial and ethnic wealth gaps have garnered considerable attention, in part because these disparities are so large and persistent.

DOI: https://doi.org/10.17016/2380-7172.2945

##### Primary markets for short-term debt and the stabilizing effects of the PDCF

During early March 2020, amid rapidly spreading restrictions associated with preventing the spread of COVID-19, financial markets came under immense strain. These strains ultimately spilled over to funding markets and to institutions that are highly dependent on such markets.

DOI: https://doi.org/10.17016/2380-7172.2917

##### The Vaccine Boost: An Analysis of the Impact of the COVID-19 Vaccine Rollout on Measures of Activity

Ashley Sexton and Maria D. Tito

Several measures of economic activity have shown improvement since the start of the COVID-19 vaccine rollout. This note quantifies the impact of the rollout across four main dimensions of activity: spending, mobility, education, and employment.

DOI: https://doi.org/10.17016/2380-7172.2923

##### Spatial Variation in the 2020 Housing Market Decline and Recovery

Brigitte Roth Tran and Nathan Ausubel

After plunging in the spring due to the COVID-19 pandemic, residential investment had a strong recovery in the second half of 2020. The initial decline resulted from both a disruption in activity due to social distancing, a broad-based drop in demand from economic uncertainty, and reduced access to credit (DeSanctis 2020).

DOI: https://doi.org/10.17016/2380-7172.2905

##### How much lockdown policies contribute to local unemployment? Evidence from the first and second waves of COVID-19

J. Marcus Dockerty, Antonis Kotidis, Ilknur Zer

Did people reduce their social interactions as a result of the pandemic, restrictive lockdown policies, or both? What was the impact of reduced social interactions on local employment? Importantly, why did unemployment spike during the first wave of the pandemic, but gradually decline thereafter, even though the outbreak was much more severe during the second wave? In this note, we attempt to answer these questions by exploiting newly available data on hours worked among small firms at the industry-county-state-week level.

DOI: https://doi.org/10.17016/2380-7172.2903

##### The Treasury Market Flash Event of February 25, 2021

Alex Aronovich, Dobrislav Dobrev, and Andrew Meldrum

The Treasury market flash event of February 25, 2021 underscores the pivotal role of high-speed liquidity provision in the most liquid electronic parts of the Treasury market. We find evidence that the sharp drop in prices that day was accompanied by a sudden drop in market depth and a brief deterioration in high-speed liquidity provision amid elevated transaction volumes, albeit to a much lesser extent than during the episode of severe illiquidity in March 2020. Similar to some previous episodes accompanied by moderately elevated economic and financial market uncertainty, market depth has recovered steadily since February 25 at a pace comparable to that observed following other such episodes, while high-speed liquidity provision appears to have rebounded fairly quickly. That said, market depth has taken over a month to partially recover, which suggests that Treasury market liquidity has been more heavily reliant on high-speed replenishment to meet trading demand and may remain fragile.

DOI: https://doi.org/10.17016/2380-7172.2909

##### Foreign banks’ asset reallocation in response to the introduction of the Intermediate Holding Company rule of 2016

The implementation of the 2016 intermediate holding company (IHC) rule required foreign banking organizations (FBOs) operating with more than $50 billion total global consolidated assets and with$50 billion or more in U.S. non-branch assets to consolidate their non-branch activities – including their U.S. subsidiaries and U.S. broker-dealers – into holding companies, to be supervised by the Federal Reserve.

DOI: https://doi.org/10.17016/2380-7172.2886

##### Developments in the Credit Score Distribution over 2020

The distribution of household credit risk can vary with aggregate economic and credit conditions. For example, the share of subprime-scored borrowers declined at a relatively steady pace during the economic recovery from the Global Financial Crisis. Although the COVID-19 pandemic interrupted the economic conditions that supported this trend, the pace of decline accelerated following the pandemic’s onset in March 2020. The analysis that follows suggests that this acceleration was largely driven by the Coronavirus Aid, Relief, and Economic Security Act’s (CARES Act) forbearance provisions.

DOI: https://doi.org/10.17016/2380-7172.2902

##### Bank Borrowings by Asset Managers Evidence from US Open-End Mutual Funds and Exchange-Traded Funds

In this note, we look into investment funds' access to and usage of bank credit, based on a new dataset on credit line (and other types of loan) extension by top bank holding companies to open-end mutual funds and ETFs in the United States. We find that the aggregate amount of bank lending to open-end funds and ETFs was small and greatly fluctuated across time. Bank credit, particularly in the form of credit lines, has offered funds a flexible liquidity source from which they can draw down cash in times of excessive fund outflows, such as during the onset of the COVID-19 pandemic outbreak. In particular, funds that hold relatively more illiquid assets, such as bank loan funds, are more reliant on bank credit lines.

DOI: https://doi.org/10.17016/2380-7172.2887

##### Uptake of the Main Street Lending Program

Falk Bräuning and Teodora Paligorova

The Main Street Lending Program (Main Street) was one of several new credit facilities launched by the Federal Reserve and the U.S. Department of the Treasury (Treasury) in response to the COVID-19 pandemic.

DOI: https://doi.org/10.17016/2380-7172.2897

##### Oil, Equities, and a “Nonbinding” Zero Lower Bound: The Monetary Policy Response to COVID-19

We analyze the recent behavior of oil and equity prices in the context of our earlier work, Datta, et al. (2021), which focuses on the previous zero lower bound (ZLB) episode, in the aftermath of the Global Financial Crisis. We find that the correlation between oil and equity returns and the responsiveness of these returns to macroeconomic surprises are perhaps elevated relative to normal times but somewhat moderated relative to the previous ZLB episode.

DOI: https://doi.org/10.17016/2380-7172.2786

##### Inflation Thresholds and Policy-Rule Inertia: Some Simulation Results

Cristina Fuentes-Albero and John M. Roberts

In August 2020, the Federal Open Market Committee approved a revised Statement on Longer-Run Goals and Monetary Policy Strategy (FOMC, 2020) and in the subsequent FOMC meetings, the Committee made material changes to its forward guidance to bring it in line with the new framework. Clarida (2021) characterizes the new framework as comprising a number of key features.

DOI: https://doi.org/10.17016/2380-7172.2899

##### Climate Change and Financial Stability

Celso Brunetti, Benjamin Dennis, Dylan Gates, Diana Hancock, David Ignell, Elizabeth K. Kiser, Gurubala Kotta, Anna Kovner, Richard J. Rosen, Nicholas K. Tabor

Corresponding authors: Diana Hancock and Elizabeth K. Kiser

This Note describes how risks arising from climate change may affect financial stability. We describe how climate-change related risks may emerge either as shocks to the financial system or as financial system vulnerabilities that could amplify the effects of these or other shocks.

DOI: https://doi.org/10.17016/2380-7172.2893

##### The Effect of Mortgage Forbearance on House Prices During COVID-19

The contrast between the labor market and house prices during the pandemic has been stark. In this note, we document a strong positive relationship between forbearance takeup and house price growth at the county level, controlling for the unemployment rate and other factors.

DOI: https://doi.org/10.17016/2380-7172.2872

##### Non-Financial Corporate Credit and Recessions

The global financial crisis of 2008-09 (GFC) followed an extended period of growth in non-financial corporate (NFC) sector debt. NFC corporate debt resumed its climb a few years after the GFC, and the pace of growth picked up in 2020, as firms took on debt to cover revenue lost during the pandemic or to build up precautionary liquidity buffers.

DOI: https://doi.org/10.17016/2380-7172.2877

##### Research Data Series: Index of Common Inflation Expectations

In an earlier FEDS Note, "Index of Common Inflation Expectations," we introduced the Index of Common Inflation Expectations, or "CIE", which summarizes the comovement of a wide variety of inflation expectations measures based on a dynamic factor model.

DOI: https://doi.org/10.17016/2380-7172.2873

##### Why is the Default Rate So Low? How Economic Conditions and Public Policies Have Shaped Mortgage and Auto Delinquencies During the COVID-19 Pandemic

Lisa Dettling and Lauren Lambie-Hanson

Delinquencies and defaults on household debt typically closely follow the business cycle. As economic conditions deteriorate, falling employment and incomes put a strain on family finances, leading to a rise in missed debt payments and defaults. Yet, against the backdrop of a historic rise in unemployment associated with the COVID-19 pandemic, delinquencies have fallen. This FEDS Note documents trends in delinquency on mortgages and auto loans during the COVID-19 pandemic, and unpacks how changes in economic conditions and public policies have been associated with borrowers’ debt repayment behavior.

DOI: https://doi.org/10.17016/2380-7172.2854

##### The Effect of US-China Tariff Hikes: Differences in Demand Composition Matter

Ricardo Reyes-Heroles, Charlotte T. Singer, and Eva Van Leemput

In this note, we estimate the economic effects of the increases in tariffs between China and the USA since the beginning of 2018, taking into account the investment channel. As of the bilateral Phase One agreement in early 2020, the United States has raised tariffs on about $335 billion of Chinese goods and China has raised tariffs on about$120 billion of US goods.

DOI: https://doi.org/10.17016/2380-7172.2845

##### Quantifying the COVID-19 effects on core PCE price inflation

The 12-month change in core PCE price inflation was 1.5 percent in December. Why was core inflation so low in 2020? How much of this weakness can be attributed to the COVID pandemic? And what does this mean for inflation going forward?

DOI: https://doi.org/10.17016/2380-7172.2875

##### Acts of Congress and COVID-19: A Literature Review on the Impact of Increased Unemployment Insurance Benefits and Stimulus Checks

Elena Falcettoni, and Vegard Nygaard

Congress passed the first COVID-19 relief package for businesses and individuals in March 2020, when the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted, providing, among other things, one-time stimulus checks for individuals, extended unemployment insurance (UI) benefits, relief for state and local governments, liability protection, and the Paycheck Protection Program for small-business loan forgiveness.

DOI: https://doi.org/10.17016/2380-7172.2848

##### Preconditions for a general-purpose central bank digital currency

Jess Cheng, Angela N Lawson, and Paul Wong

Over the last few years, interest in the potential issuance of a general-purpose central bank digital currency (CBDC) has increased. Introducing and operating a CBDC would require actions by many stakeholders and not just the central bank. In view of the far-reaching implications of introducing a new form of money to the public, the decision cannot be taken lightly. This paper outlines foundational preconditions and proposes areas of work that may help achieve them prior to the possible implementation of a potential future general-purpose CBDC in the United States. These foundational preconditions include clear policy objectives, broad stakeholder support, a strong legal framework, robust technology, and readiness for market acceptance and adoption.

DOI: https://doi.org/10.17016/2380-7172.2839

##### Factors Affecting Recent U.S. Tariffs on Imports from China

Aaron Flaaen, Kathryn Langemeier, and Justin Pierce

The period from January 2018 to September 2019 saw an unprecedented increase in tariffs placed on U.S. imports, especially on those originating in China. We document the extent to which tariff exclusions and other factors lowered the average effective tariff on Chinese goods. Given that the large majority of tariff exclusions expired on December 31, 2020, our analysis also indicates that U.S. effective tariffs on Chinese goods increased notably at the start of 2021.

DOI: https://doi.org/10.17016/2380-7172.2863

##### The Effects of COVID-19, as Reported by Local Communities

Andrew Dumont

Since early-April 2020, the Community Development function of the Federal Reserve Board and the twelve Federal Reserve Banks have, approximately every eight weeks, surveyed key stakeholders in local communities across the United States to learn about how the COVID-19 pandemic is affecting their community.

DOI: https://doi.org/10.17016/2380-7172.2844

##### Regional Trade Agreements with Global Value Chains

François de Soyres, Julien Maire and Guillaume Sublet

This FEDS Note looks at the effect of Regional Trade Agreements on trade between the agreement zone and the rest of the world. Global Value Chains are associated with an increase in outflow. Hence, RTAs can be a stumbling block for multilateralism.

DOI: https://doi.org/10.17016/2380-7172.2841

##### Forecasting During the COVID-19 Pandemic: A Structural Analysis of Downside Risk

Martin Bodenstein, Pablo Cuba-Borda, Jay Faris, and Nils Goernemann

The global collapse in economic activity triggered by individual and policy-mandated responses to the spread of COVID-19 is unprecedented both in scale and origin. At the time of writing, U.S. GDP is expected by professional forecasters to contract a staggering 6 percent over the course of 2020 driven by its 32 percent collapse in the second quarter (measured at an annual rate).

DOI: https://doi.org/10.17016/2380-7172.2806

##### Household and Business Debt: A Fire-Sale Risk Analysis

As of year-end 2019, nonfinancial business debt (BD) and household debt (HD) as a share of GDP were at similar levels of around 74 percent, and yet Federal Reserve Financial Stability Report suggested that BD posed greater risks to financial stability than HD. Since the onset of the pandemic, the size of aggregate BD has increased considerably as a result of roughly $1.25 trillion of new issuance, while HD has grown by less than$100 billion. This note looks through the lens of fire-sale risks to show why nonfinancial BD is more concerning for financial stability than the HD.

DOI: https://doi.org/10.17016/2380-7172.2625

##### The Unusual Composition of Demand during the Pandemic

In most recessions, household spending on goods—particularly durables—and housing tends to fall sharply and remain weak for many quarters. In contrast, services spending has generally responded little to business cycles. This time, however, the opposite has occurred, as shown in Figure 1.

DOI: https://doi.org/10.17016/2380-7172.2831

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.