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Newsletter
A Dollar’s Worth: Inflation Is Real
Understanding the reality of inflation can help consumers make decisions in personal finance. Learn more about inflation, how it’s measured, and how the inflation rate is calculated in the December 2021 issue of Page One Economics: Focus on Finance.
Newsletter
On the Move: Mortgage Basics
Buying a home is a major financial decision, and for young people in particular the entire process can seem overwhelming. Learn about mortgages and the steps people can take early in life to prepare themselves financially to buy a home, in this February 2022 issue of Page One Economics: Focus on Finance.
Discussion Paper
A History of SOMA Income
Historically, the Federal Reserve has held mostly interest-bearing securities on the asset side of its balance sheet and, up until 2008, mostly currency on its liability side, on which it pays no interest. Such a balance sheet naturally generates income, which is almost entirely remitted to the U.S. Treasury once operating expenses and statutory dividends on capital are paid and sufficient earnings are retained to equate surplus capital to capital paid in. The financial crisis that began in late 2007 prompted a number of changes to the balance sheet. First, the asset side of the balance sheet ...
Report
Macroeconomic Drivers and the Pricing of Uncertainty, Inflation, and Bonds
This paper analyzes a new stylized fact: According to financial market prices, the correlation between uncertainty shocks, as measured by changes in the VIX, and changes in break-even inflation rates has declined and turned negative over the past quarter century. It rationalizes this uncertainty-inflation correlation within a standard New Keynesian model with a lower bound on interest rates combined with a decline in the natural rate of interest. With a lower natural rate, the likelihood of the lower bound binding increased and the effects of uncertainty on the economy became more pronounced. ...
Journal Article
The Long-Run Fiscal Outlook in the United States
The federal debt as a share of U.S. GDP is nearing its historical high from World War II. This ratio fell sharply over the three decades after World War II due to a primary surplus, rapid economic growth, and low interest rates. Projections for the coming three decades point to a persistent primary deficit without major reforms to mandatory spending programs or higher taxes. Thus, the rates of interest and economic growth will be crucial for determining the long-run debt-to-GDP ratio’s evolution.