Liberty Street Economics

February 14, 2025

How Censorship Resistant Are Decentralized Systems?

photo illustration of block chain in shades of teal green.

Public permissionless blockchains are designed to be censorship resistant, meaning access to the blockchain is unhampered. In practice, different blockchain ecosystem actors (such as users, builders, or proposers) can influence the degree to which a blockchain is resistant to censorship. In a recent Staff Report, we examine how sanctions imposed by the Office of Foreign Assets Control (OFAC) on Tornado Cash, a set of noncustodial cryptocurrency smart contracts on Ethereum, affected Tornado Cash and the broader Ethereum network. In this post, we summarize findings regarding sanction cooperation at the settlement layer by “block proposers”—a set of settlement actors specifically responsible for selecting new blocks to add to the blockchain.

February 13, 2025

Breaking Down Auto Loan Performance

photo of traffic with cars stretching into the distance.

Debt balances continued to rise at a moderate pace in the fourth quarter of 2024, and delinquencies, particularly for auto loans and credit cards, remained elevated, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Auto loan balances have grown steadily since 2011, expanding by $48 billion in 2024. This increase reflects a steady inflow of newly originated auto loan balances, which in 2024 were boosted primarily by originations to very prime borrowers (those with credit scores over 760) while originations to borrowers with midprime and subprime scores held roughly steady. In this post, we take a closer look at auto loan performance and find that delinquencies have been rising across credit score bands and area income levels. We also break down auto loan performance by lender type and find that delinquencies are primarily concentrated in loans from non-captive auto finance companies.

Posted at 11:00 am in Household Finance | Permalink | Comments (2)
February 3, 2025

Are First‑Time Home Buyers Facing Desperate Times?

Decorative Image: A young family standing in front of the new home they purchased with the for sale/ sold sign next to them.

Based on recent proposals and policy dialogue, it would appear that first-time home buyers (FTB) are indeed facing desperate times. For example, in a recent Urban Institute study, Michael Stegman, Ted Tozer, and Richard Green advocate for a zero-downpayment Federal Housing Administration (FHA) mortgage. They argue that this would be a more efficient way to deliver much needed support to help households transition to homeownership given the challenges of high house prices and mortgage rates.

Posted at 7:00 am in Household Finance, Housing | Permalink | Comments (2)
January 17, 2025

Discount Window Stigma After the Global Financial Crisis

Close up photo of the Federal Reserve building's name carved in the stone at the top of the pillars.

The rapidity of deposit outflows during the March 2023 banking run highlights the important role that the Federal Reserve’s discount window should play in strengthening financial stability. A lack of borrowing, however, has plagued the discount window for decades, likely due to banks’ concerns about stigma—that is, their unwillingness to borrow at the discount window because it may be viewed as a sign of financial weakness in the eyes of regulators and market participants. The discount window has been reformed several times to alleviate this problem. Although the presence of stigma during the great financial crisis has been documented empirically, we do not know whether stigma has remained since then. In this post, based on a recent Staff Report, we fill this gap by using transaction-level data from the federal funds market to examine whether the discount window remains stigmatized today.

Posted at 7:00 am in Central Bank | Permalink
January 8, 2025

Do Payout Restrictions Reduce Bank Risk?

Photo: image of a large dark blue-green modern building with a gold BANK sign on the entrance.

In June 2020, the Federal Reserve issued stringent payout restrictions for the largest banks in the United States as part of its policy response to the COVID-19 crisis. Similar curbs on share buybacks and dividend payments were adopted in other jurisdictions, including in the eurozone, the U.K., and Canada. Payout restrictions were aimed at enhancing banks’ resiliency amid heightened economic uncertainty and concerns about the risk of large losses. But besides being a tool to build capital buffers and preserve bank equity, payout restrictions may also prevent risk-shifting. This post, which is based on our recent research paper, attempts to answer whether and how payout restrictions reduce bank risk using the U.S. experience during the pandemic as a case study.

Posted at 7:00 am in Banks | Permalink
January 6, 2025

The R&D Puzzle in U.S. Manufacturing Productivity Growth

Photo: image of a young woman dressed in white overalls, gloves and safety glasses looking down and working with high-tech equipment in a manufacturing environment.

In a previous post, we provided evidence for a broad-based slowdown in productivity growth across industries and firms in the U.S. manufacturing sector starting in 2010. Since firms’ investment in research and development (R&D) for new technologies constitutes a central driver of productivity growth, in this post we ask if the observed slowdown in productivity may be due to a decline in R&D. We find that “R&D intensity” has been increasing at both the firm and industry level, even as productivity growth declines. This points to a decline in the effectiveness of R&D in generating productivity growth in U.S. manufacturing.

Posted at 7:00 am in Labor Market, Macroeconomics | Permalink
December 23, 2024

Every Dollar Counts: The Top 5 Liberty Street Economics Posts of 2024

High prices and rising debt put pressure on household budgets this year, so it’s little wonder that the most-read Liberty Street Economics posts of 2024 dealt with issues of financial stress: rising delinquency rates on credit cards and auto loans, the surge in grocery prices, and the spread of “buy now, pay later” plans. Another top-five post echoed this theme in an international context: Could the U.S. dollar itself be under stress as central banks seemingly turn to other reserve currencies? Read on for details on the year’s most popular posts.

Posted at 7:00 am in Household Finance | Permalink
December 20, 2024

The New York Fed DSGE Model Forecast—December 2024

decorative illustration: chart and stock prices background.

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since September 2024. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.

Posted at 9:00 am in DSGE | Permalink

Anatomy of the Bank Runs in March 2023

Photo of a group of depositors in front of the closed American Union Bank, New York City, April 26, 1932.

Runs have plagued the banking system for centuries and returned to prominence with the bank failures in early 2023. In a traditional run—such as depicted in classic photos from the Great Depression—depositors line up in front of a bank to withdraw their cash. This is not how modern bank runs occur: today, depositors move money from a risky to a safe bank through electronic payment systems. In a recently published staff report, we use data on wholesale and retail payments to understand the bank run of March 2023. Which banks were run on? How were they different from other banks? And how did they respond to the run?

December 5, 2024

Do Import Tariffs Protect U.S. Firms?

Photo of a port with a large carrier container ship filled up and containers on the pavement near it.

One key motivation for imposing tariffs on imported goods is to protect U.S. firms from foreign competition. By taxing imports, domestic prices become relatively cheaper, and Americans switch expenditure from foreign goods to domestic goods, thereby expanding the domestic industry. In a recent Liberty Street Economics post, we highlighted that our recent study found large aggregate losses to the U.S. from the U.S.-China trade war. Here, we delve into the cross-sectional patterns in search of segments of the economy that may have benefited from import protection. What we find, instead, is that most firms suffered large valuation losses on tariff-announcement days. We also document that these financial losses translated into future reductions in profits, employment, sales, and labor productivity.

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Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

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