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Discussion Paper
Cyberattacks and Supply Chain Disruptions
Cybercrime is one of the most pressing concerns for firms. Hackers perpetrate frequent but isolated ransomware attacks mostly for financial gains, while state-actors use more sophisticated techniques to obtain strategic information such as intellectual property and, in more extreme cases, to disrupt the operations of critical organizations. Thus, they can damage firms’ productive capacity, thereby potentially affecting their customers and suppliers. In this post, which is based on a related Staff Report, we study a particularly severe cyberattack that inadvertently spread beyond its ...
Briefing
How Post-2008 Financial Regulations Impacted Corporate Bond Liquidity
We review empirical findings regarding the impact of post-2008 financial regulations on the liquidity of corporate bond markets in the U.S. We first show that traditional measures of market liquidity improved in recent years. At the same time, the cost of illiquidity also increased. We then discuss findings showing that — after the regulations were implemented — dealer capital commitment, trade frequency and size decreased, while dealer bid-ask spread increased. The increase in dealer bid-ask spread is compensated by a change in the composition of the liquidity provision. Liquidity is ...
Discussion Paper
The Anatomy of Export Controls
Governments increasingly use export controls to limit the spread of domestic cutting-edge technologies to other countries. The sectors that are currently involved in this geopolitical race include semiconductors, telecommunications, and artificial intelligence. Despite their growing adoption, little is known about the effect of export controls on supply chains and the productive sector at large. Do export controls induce a selective decoupling of the targeted goods and sectors? How do global customer-supplier relations react to export controls? What are their effects on the productive sector? ...
Working Paper
Dealer costs and customer choice
We introduce a model to explain how an increase in intermediation costs leads to structural changes in the corporate bond market. We state three facts on corporate bond markets after the Dodd-Frank act: (1) an increase in customer liquidity provision through prearranged matches, (2) a paradoxical decrease in measured illiquidity, and (3) an increase in the illiquidity component on the yield spread. Investors take longer to finish a trade and require higher illiquidity premium even though measured illiquidity decreased. We introduce a search and matching model which explains these facts. It ...
Working Paper
Who Pays For Your Rewards? Redistribution in the Credit Card Market
We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit ...
Report
Securing Technological Leadership? The Cost of Export Controls on Firms
To safeguard its technological leadership, the U.S. has restricted domestic suppliers from exporting specific cutting-edge technologies to selected Chinese firms. Domestic firms affected by these export controls halt sales to Chinese customers, as intended, but struggle to establish new relations with alternative customers domestically or in politically aligned regions. As a result, domestic suppliers experience a $130 billion decline in market capitalization, along with reductions in profitability, employment, and bank lending. We also show how Chinese firms strategically respond to export ...
Working Paper
The Macroeconomic Implications of CBDC: A Review of the Literature
This paper provides an overview of the literature examining how the introduction of a CBDC would affect the banking sector, financial stability, and the implementation and transmission of monetary policy in a developed economy such as the United States. A CBDC has the potential to improve welfare by reducing financial frictions in deposit markets, by boosting financial inclusion, and by improving the transmission of monetary policy. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential ...