The New York Fed’s unique role in the Federal Reserve System enables economists to take part in important policy projects. For example, the Research Group played an instrumental role in the design and implementation of the Supervisory Capital Assessment Program (the “bank stress tests”), and our economists have built on this experience to develop an integrated system for assessing the capital adequacy of the U.S. banking system under different macroeconomic scenarios.

Economists have also conducted research aimed at clarifying the implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 for the corporate structure of banking companies and the companies’ revenue-generating capacity as well as the broader implications for required returns on debt and equity, the availability and cost of credit to consumers and businesses, and economic growth.

Individually, our six research functions apply their particular expertise to a wide range of other policy responsibilities.

Capital Markets contributes to monetary policy formulation, monetary policy implementation, and market and financial stability monitoring by developing analytical tools and providing rigorous analyses to senior Bank management. Recent work by the staff analyzes dealer positioning, liquidity in fixed-income markets, the pricing of the term structure of interest rates and credit, inflationary expectations embedded in financial market prices, systemic risk of financial institutions, the links between financial intermediary balance sheet management and asset price dynamics, and liquidity provision by the Federal Reserve.

The Financial Intermediation staff conducts research and policy-oriented analysis on a wide range of issues relating to financial intermediation and financial markets, including the behavior and health of financial institutions, innovations in financial markets, and the development of appropriate supervisory tools and techniques. Economists examine these issues from both a macroeconomic and microeconomic perspective, with a focus on the performance and stability of financial markets and core institutions. Recently, they have studied frictions in the mortgage securitization process, bank funding patterns, the role of central bank liquidity provision, credit derivatives and other financial innovation topics, and risk management and corporate governance issues.

International Research monitors events in the global economy that affect the United States, tracking the performance of industrialized countries and developments in U.S. external imbalances. The staff has recently analyzed the sustainability of U.S. current account deficits, international capital flows and financial ­developments, the micro- and macroeconomic effects of U.S. exchange rate movements, and the impact of globalization on product, labor, and financial markets and its implications for monetary policy.

In Macroeconomic and Monetary Studies, economists monitor and analyze current economic, fiscal, and monetary conditions; provide judgmental and DSGE model-based forecasts of GDP growth and inflation, gauge the risks to the outlook; and advise senior Bank management on monetary policy. Recently, they have studied changes in labor market dynamics, potential long-term economic effects of the recession, trend and cyclical productivity, the conduct of monetary policy at the zero-bound constraint, the effect of economic and financial market conditions on inflation expectations, the use of disaggregated data to discern inflation trends, and interactions between financial markets, economic conditions, and monetary policy.

Microeconomic and Regional Studies economists track developments in four areas of particular relevance for monetary policy: the labor market; cities and regions, with an emphasis on the Second Federal Reserve District; the public sector; and industries of specific interest, such as the information technology sector. The function has recently conducted analyses of inflation experiences and expectations, the information content of the Federal Reserve’s business surveys, and the fiscal status of state and local governments.

Money and Payments Studies researches and analyzes issues in short-term money markets and in payments and settlement systems. Recent work includes assisting in the design and evaluation of the Federal Reserve’s liquidity facilities, analyzing activity in the federal funds and related markets, drafting policy proposals aimed at improving the implementation of monetary policy, and analyzing the stability of the repo and other short-term funding markets. The function has also studied the potential impact of introducing liquidity-saving mechanisms in large-value payments systems and analyzed alternative strategies for mitigating risk in payments and settlement systems.

The Interplay of Research and Policy

Academic research and policy analysis can give rise to great synergies at the New York Fed. Many of our economists find that their policy work suggests new lines of inquiry for their research. For example, Michael Fleming’s research on the microstructure of the U.S. Treasury securities market—appearing in the Journal of Finance and elsewhere—was spurred by policy interest in Treasury market behavior and his work on the Bank’s Trading Desk. Similarly, Tobias Adrian’s policy work monitoring financial institutions has prompted two papers—one published in 2008 in the Bank’s Current Issues in Economics and Finance series and one published in 2010 in the Journal of Financial Intermediation—that explore the effects of investment banks’ leveraging practices on asset price movements, real economic activity, and monetary policy.

While policy assignments can stimulate new research, the relationship is a reciprocal one: an economist’s research findings will find many applications in his or her policy work. In the past three years in particular, economists have had many opportunities to contribute their expertise to the Bank’s efforts to understand and resolve problems in the credit and housing markets.

Til Schuermann, for example, completed an assignment leading the credit risk monitoring efforts of the New York Fed’s Bank Supervision Group. In this role, he drew on his research on credit and liquidity risk management, published in the Journal of Banking and Finance and the Review of Financial Studies.

Andrew Haughwout, Richard Peach, and Joseph Tracy are examining the sources of mortgage defaults in order to identify the kinds of restructuring that would be most successful in reducing the rise in foreclosures. Their ­findings were published in the Journal of Urban Economics.

Applying theoretical research on incentives in bank clearinghouse operations that appeared in the Journal of Financial Intermediation, James McAndrews provided guidance on the design and administration of the Federal Reserve’s Term Auction Facility and other ­lending mechanisms implemented during the financial crisis. With other Research Group ­economists, he has also written a ­number of research and policy papers analyzing the ­effectiveness of these mechanisms, most recently the Federal Reserve’s Primary Dealer Credit Facility.

New economists in the Research Group have many opportunities to pursue other connections between research and policy work. In doing so, they will find that the more experienced members of the Group are available to mentor them and to help identify synergies between their academic interests and policy responsibilities.

Policy-Oriented Research Publications

While economists are encouraged to publish in external journals, they also reach a large and influential audience through two New York Fed publications that address policy-related economic and financial market issues.

• The Economic Policy Review, the Bank’s flagship research publication, has 6,000 subscribers, including policymakers, business and banking professionals, and academics.
• Current Issues in Economics and Finance, with a readership of 8,000, is geared toward a broad audience that includes the general public as well as decision makers in business and government.
  

Both publications attract many website visitors and receive frequent press attention, making them valuable outlets for work that combines our economists’ research and policy interests.

SSRN Web Page

Our economists’ work also finds a wide audience through our arrangement with the Social Science Research Network (SSRN). The SSRN has approximately 250,000 papers in its database; more than 40 million papers have been downloaded from its site.

Visitors to our page on the SSRN site can view and download papers written by our economists for the Economic Policy Review, Current Issues in Economics and Finance, and the Staff Reports working paper series. To date, downloads of these papers from the SSRN site have numbered close to 150,000.

To learn more about joining the Research Group: www.newyorkfed.org/careers/phd.html.

By conviction and action, the Federal Reserve Bank of New York is an equal opportunity employer.