Search Results
Discussion Paper
Impacts of COVID-19: Mitigation Efforts versus Herd Immunity
The rapid spread of COVID-19 is having devastating effects on the global economy. With death curves beginning to bend, governments will soon need to determine when and how to relax lockdown measures. The crucial question is: what are the public health consequences of reopening the economy? In this article, we argue that the observed decline in daily deaths could be due to two scenarios: social distancing measures and herd immunity. Both the widely used SIR model and the data collected thus far cannot distinguish these two scenarios. Such an identification problem generates a large degree of ...
Journal Article
So Far, So Good: Government Insurance of Financial Sector Tail Risk
The US government has intervened to provide extraordinary support 16 times from 1970 to 2020 with the goal of preventing or mitigating (or both) the cost of financial instability to the financial sector and the real economy. This article discusses the motivation for such support, reviewing the instances where support was provided, along with one case where it was expected but not provided. The article then discusses the moral hazard and fiscal risks posed by the government's insurance of the tail risk along with ways to reduce the government's risk exposure.
Journal Article
Impacts of COVID-19: Mitigation Efforts versus Herd Immunity
The rapid spread of COVID-19 is having devastating effects on the global economy. Governments around the world have been forced to pursue lockdown policies in an attempt to stem the spread of this deadly disease and bend the death curve. With death curves beginning to bend, governments will soon need to determine when and how to relax lockdown measures. The crucial question is: what are the consequences of reopening the economy? In this article, we address this question by studying both the model and the data and discuss the challenges we face moving forward.
Working Paper
The rescue of Fannie Mae and Freddie Mac
We describe and evaluate the measures taken by the U.S. government to rescue Fannie Mae and Freddie Mac in September 2008. We begin by outlining the business model of these two firms and their role in the U.S. housing finance system. Our focus then turns to the sources of financial distress that the firms experienced and the events that ultimately led the government to take action in an effort to stabilize housing and financial markets. We describe the various resolution options available to policymakers at the time and evaluate the success of the choice of conservatorship, and other actions ...
Report
The Main Street Lending Program
The Main Street Lending Program was created to support credit to small and medium-sized businesses and nonprofit organizations that were harmed by the pandemic, particularly those that were unsupported by other pandemic-response programs. It was the most direct involvement in the business loan market by the Federal Reserve since the 1930s and 1940s. Main Street operated by buying 95 percent participations in standardized loans from lenders (mostly banks) and sharing the credit risk with them. It would end up supporting loans to more than 2,400 borrowers and co-borrowers across the United ...
Working Paper
Historical Patterns of Inequality and Productivity around Financial Crises
To understand the determinants of financial crises, previous research focused on developments closely related to financial markets. In contrast, this paper considers changes originating in the real economy as drivers of financial instability. To this end, I assemble a novel data set of long-run measures of income inequality, productivity, and other macrofinancial indicators for advanced economies. I find that rising top income inequality and low productivity growth are robust predictors of crises, and their slowmoving trend components largely explain these relations. Moreover, recessions that ...
Working Paper
Can a Bank Run Be Stopped? Government Guarantees and the Run on Continental Illinois
This paper analyzes the run on Continental Illinois in 1984. We find that the run slowed but did not stop following an extraordinary government intervention, which included the guarantee of all liabilities of the bank and a commitment to provide ongoing liquidity support. Continental's outflows were driven by a broad set of US and foreign financial institutions. These were large, sophisticated creditors with holdings far in excess of the insurance limit. During the initial run, creditors with relatively liquid balance sheets nevertheless withdrew more than other creditors, likely reflecting ...
Working Paper
The Resolution of a Systemically Important Insurance Company during the Great Depression
This paper explores the economic issues related to systemically important insurance companies, using an example from the Great Depression, the National Surety Company. National Surety was a large and diverse insurance company that experienced a major crisis in 1933 due to losses from its guarantees of mortgage-backed securities. A liquidity crisis ensued, as policyholders staged a massive run on the company, demanding the return of their unearned premiums. The New York State Insurance Commissioner stepped in with a reorganization plan that split the company in two, out of fear that a ...
Working Paper
A Journey in the History of Sovereign Defaults on Domestic-Law Public Debt
We introduce a novel database on sovereign defaults that involve public debt instruments governed by domestic law. By systematically reviewing a large number of sources, we identify 134 default and restructuring events of domestic debt instruments, in 52 countries from 1980 to 2018. Domestic-law defaults are a global phenomenon. Over time, they have become larger and more frequent than foreign-law defaults. Domestic-law debt restructurings proceed faster than foreign ones, often through extensions of maturities and amendments to the coupon structure. While face value reductions are rare, ...
Working Paper
Using the Eye of the Storm to Predict the Wave of Covid-19 UI Claims
We leverage an event-study research design focused on the seven costliest hurricanes to hit the US mainland since 2004 to identify the elasticity of unemployment insurance filings with respect to search intensity. Applying our elasticity estimate to the state-level Google Trends indexes for the topic “unemployment,” we show that out-of-sample forecasts made ahead of the official data releases for March 21 and 28 predicted to a large degree the extent of the Covid-19 related surge in the demand for unemployment insurance. In addition, we provide a robust assessment of the uncertainty ...