The New York Fed’s unique role in the Federal Reserve System enables economists to take part in important policy projects. A description of our six research functions’ policy work suggests the wide range of our responsibilities and the breadth of expertise that we bring to them.

Capital Markets contributes to monetary policy formulation, monetary policy implementation, and market 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, inflationary expectations embedded in financial market prices, risk spillovers in risk management and capital allocation practices, and the Federal Reserve’s new liquidity facilities.

The New York Fed stands at the crossroads of policymaking and important academic research. It offers economists a unique chance to conduct research on key policy issues as well as to broaden their own research interests through policy work. Wilbert van der Klaauw, Brown Microeconomic and Regional Studies Function

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 in the function 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 developments 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 national economic, fiscal, and monetary conditions; provide forecasts of GDP growth and inflation; and advise senior Bank management on monetary policy. Recently, they have studied trends in home prices and their possible implications for the economy; the impact of oil prices on economic growth, inflation, and monetary policy; the measurement of risks to GDP growth and inflation; the effect of economic and financial market data on future inflation expectations; and the interaction of financial markets and monetary policy.

Economists in Microeconomic and Regional Studies track developments in four areas of specific interest for monetary policy: the labor market; cities and regions, with an emphasis on the Second Federal Reserve District; the public sector; and industries of particular 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 new lending facilities, including the Term Auction Facility; drafting policy proposals for paying interest on commercial banks’ reserve balances; and analyzing the stability of 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 a series of papers—one of which is forthcoming 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 year 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, has taken on a year-long assignment leading the credit risk monitoring efforts of the New York Fed’s Bank Supervision Group. In this role, he is drawing on his investigation of credit- and liquidity-risk management in studies that have appeared in the Journal of Banking and Finance and the Review of Financial Studies.

Andrew Haughwout, Richard Peach, and Joseph Tracy have examined the sources of mortgage defaults in order to identify the kinds of restructuring that would be most successful in curbing the rise in foreclosures. Their findings were published recently 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 has provided guidance on the design and administration of the Federal Reserve’s Term Auction Facility and other new lending mechanisms. With other Research Group economists, he has also written a number of research and policy papers analyzing the effectiveness of these mechanisms.

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 7,500 subscribers, including policymakers, business and banking professionals, and academics.
  
• Current Issues in Economics and Finance, with a readership of 5,000, 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 more than 160,000 papers in its database representing 100,000 authors; 24 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 our Staff Reports working paper series. To date, approximately 73,000 of these papers have been downloaded from the SSRN site.

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.