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Jel Classification:E44 

Working Paper
Flight to What? — Dissecting Liquidity Shortages in the Financial Crisis

We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the business cycle. When calibrated to match the U.S. aggregate output fluctuations and bond premiums, the model reveals that a sharp reduction in the quality, instead of the liquidity, of private assets was the culprit of the recent financial crisis, consistent with the perception that it was the subprime ...
Working Papers , Paper 2017-25

Report
DSGE forecasts of the lost recovery

The years following the Great Recession were challenging for forecasters. Unlike other deep downturns, this recession was not followed by a swift recovery, but generated a sizable and persistent output gap that was not accompanied by deflation as a traditional Phillips curve relationship would have predicted. Moreover, the zero lower bound and unconventional monetary policy generated an unprecedented policy environment. We document the real real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model during this period and explain the results using ...
Staff Reports , Paper 844

Report
Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016

This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level data set that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, ...
Staff Reports , Paper 924

Working Paper
The Internal Capital Markets of Global Dealer Banks

This study uncovers the existence of a trillion-dollar internal capital market that played a central role in the financing of dealer banks during the 2008 Global Financial Crisis. Hand-collecting a novel set of dealer microdata at the subsidiary level, I present the first set of facts on the evolution of interaffiliate loans between U.S. primary dealers and their (primarily foreign) siblings. First, the aggregate size of these dealer internal capital markets quadrupled from $335 billion in 2001 to $1.2 trillion by 2007. Second, 25 percent of total repurchase agreements and 61 percent of total ...
Finance and Economics Discussion Series , Paper 2021-036

Working Paper
Does Fed policy reveal a ternary mandate?

This paper examines the role of financial instability in setting monetary policy. The paper begins with a model that examines the interaction of monetary and regulatory policy. It then empirically tests whether financial instability has affected monetary policy. One important innovation is to construct a measure of financial instability directly related to the FOMC financial instability concerns expressed in FOMC meeting transcripts. We find that, even after controlling for forecasts of inflation and unemployment, the word counts of terms related to financial instability do correlate with ...
Working Papers , Paper 16-11

Working Paper
A Counterfactual Economic Analysis of COVID-19 Using a Threshold Augmented Multi-Country Model

This paper develops a threshold-augmented dynamic multi-country model (TG-VAR) to quantify the macroeconomic effects of COVID-19. We show that there exist threshold effects in the relationship between output growth and excess global volatility at individual country levels in a significant majority of advanced economies and in the case of several emerging markets. We then estimate a more general multi-country model augmented with these threshold effects as well as long-term interest rates, oil prices, exchange rates and equity returns to perform counterfactual analyses. We distinguish common ...
Globalization Institute Working Papers , Paper 402

Working Paper
Unexpected Supply Effects of Quantitative Easing and Tightening

To analyze the evolution of quantitative easing’s (QE) and tightening’s (QT) effects across consecutive announcements, we focus on their unexpected component. Treasury yield sensitivities to QE and QT supply surprises do not fall monotonically over time, thus later announcements seemed to remain powerful; yield sensitivities to QT surprises are on average larger than sensitivities to QE surprises, implying supply effects did not diminish during periods of market calm amid economic expansion; finally, yield sensitivities are amplified by the amount of interest-rate uncertainty prevailing ...
Working Paper Series , Paper WP-2020-17

Report
Banking globalization, transmission, and monetary policy autonomy

International financial linkages, particularly through global bank flows, generate important questions about the consequences for economic and financial stability, including the ability of countries to conduct autonomous monetary policy. I address the monetary autonomy issue in the context of the international policy trilemma: Countries seek three typically desirable but jointly unattainable objectives?stable exchange rates, free international capital mobility, and monetary policy autonomy oriented toward, and effective at, achieving domestic goals. I argue that global banking entails some ...
Staff Reports , Paper 640

Report
The sensitivity of housing demand to financing conditions: evidence from a survey

The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a strategic survey in which respondents are asked for their willingness to pay (WTP) for a home comparable to their current one, under ...
Staff Reports , Paper 702

Working Paper
Macroeconomic Policy Games

Strategic interactions between policymakers arise whenever each policymaker has distinct objectives. Deviating from full cooperation can result in large welfare losses. To facilitate the study of strategic interactions, we develop a toolbox that characterizes the welfare-maximizing cooperative Ramsey policies under full commitment and open-loop Nash games. Two examples for the use of our toolbox offer some novel results. The first example revisits the case of monetary policy coordination in a two-country model to confirm that our approach replicates well-known results in the literature and ...
Finance and Economics Discussion Series , Paper 2014-87

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