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Working Paper
Central Bank Digital Currencies: An Old Tale with a New Chapter
Bordo, Michael D.; Roberds, William
(2022-12-18)
We consider the debut of a new monetary instrument, central bank digital currencies (CBDCs). Drawing on examples from monetary history, we argue that a successful monetary transformation must combine microeconomic efficiency with macroeconomic credibility. A paradoxical feature of these transformations is that success in the micro dimension can encourage macro failure. Overcoming this paradox may require politically uncomfortable compromises. We propose that such compromises will be necessary for the success of CBDCs.
FRB Atlanta Working Paper
, Paper 2022-18
Working Paper
Global Financial Cycles and Risk Premiums
Jordà, Òscar; Ward, Felix; Taylor, Alan M.; Schularick, Moritz
(2018-06-11)
This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk ...
Working Paper Series
, Paper 2018-5
Working Paper
Learning from History : Volatility and Financial Crises
Valenzuela, Marcela; Daníelsson, Jón; Zer, Ilknur
(2016-10)
We study the effects of volatility on financial crises by constructing a cross-country database spanning over 200 years. Volatility is not a significant predictor of crises whereas unusually high and low volatilities are. Low volatility is followed by credit build-ups, indicating that agents take more risk in periods of low financial risk consistent with Minsky hypothesis, and increasing the likelihood of a banking crisis. The impact is stronger when financial markets are more prominent and less regulated. Finally, both high and low volatilities make stock market crises more likely, while ...
Finance and Economics Discussion Series
, Paper 2016-093
Working Paper
Central banks as lender of last resort: experiences during the 2007-2010 crisis and lessons for the future
Domanski, Dietrich; Moessner, Richhild; Nelson, William R.
(2014-05-14)
During the 2007-2010 financial crisis, central banks accumulated a vast amount of experience in acting as lender of last resort. This paper reviews the various ways that central banks provided emergency liquidity assistance (ELA) during the crisis, and discusses issues for the design of ELA arising from that experience. In a number of ways, the emergency liquidity assistance since 2007 has largely adhered to Bagehot's dictums of lending freely against good collateral to solvent institutions at a penalty rate. But there were many exceptions to these rules. Those exceptions illuminate the ...
Finance and Economics Discussion Series
, Paper 2014-110
Working Paper
Leveraged bubbles
Taylor, Alan M.; Jordà, Òscar; Schularick, Moritz
(2015-08-01)
What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms,asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous ...
Working Paper Series
, Paper 2015-10
Working Paper
The impact of risk cycles on business cycles: a historical view
Daníelsson, Jón; Valenzuela, Marcela; Zer, Ilknur
(2022-09-09)
We investigate the effects of financial risk cycles on business cycles, using a panel spanning 73 countries since 1900. Agents use a Bayesian learning model to form their beliefs on risk. We construct a proxy of these beliefs and show that perceived low risk encourages risk-taking, augmenting growth at the cost of accumulating financial vulnerabilities, and therefore, a reversal in growth follows. The reversal is particularly pronounced when the low-risk environment persists and credit growth is excessive. Global-risk cycles have a stronger effect on growth than local-risk cycles via their ...
International Finance Discussion Papers
, Paper 1358
Working Paper
The Welfare Costs of Business Cycles Unveiled: Measuring the Extent of Stabilization Policies
Barros, Fernando; Luduvice, Andre; Gomes, Fabio
(2021-07-30)
How can we measure the welfare benefit of ongoing stabilization? We develop a methodology to calculate the welfare cost of business cycles taking into account that observed consumption is partially smoothed. We propose a decomposition that disentangles consumption in a mix of laissez-faire (absent policies) and riskless components. With a novel identification strategy, we estimate the span of stabilization power. Our results show that the welfare cost of total fluctuations is 5.81 percent of lifetime consumption, in which 80 percent is smoothed by the status quo, yielding a residual 1.05 ...
Working Papers
, Paper 21-14
Working Paper
Measuring Shortages since 1900
Caldara, Dario; Iacoviello, Matteo; Yu, David
(2025-05-09)
This paper introduces a monthly shortage index spanning 1900 to the present, constructed from 25 million newspaper articles. The index captures shortages across industry, labor, food, and energy, and spikes during economic crises and wars. We validate the index and show that it provides information beyond traditional macroeconomic indicators. Using predictive regressions, we find that shortages are associated with persistently high inflation and lower economic activity. A structural VAR model reveals that, compared to a traditional supply shock, surprise movements in shortages produce less ...
International Finance Discussion Papers
, Paper 1407
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