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Working Paper
Risk Taking and Interest Rates : Evidence from Decades in the Global Syndicated Loan Market
We study how low interest rates in the United States affect risk taking in the market for cross-border corporate loans. Because banks tend to originate these loans with intent to sell to nonbank investors, we examine risk taking by the broad financial system. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of cross-border spillover effects of U.S. monetary policy and highlights the global lending and risk-taking channels. We find that movements in the U.S. interest rates have an important effect on ex-ante credit risk of ...
Working Paper
Sticky prices: a new monetarist approach
Why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption; here it is a result. We use search theory, with two consequences: prices are set in dollars, since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution. When the money supply increases, some sellers may keep prices constant, earning less per unit but making it up on volume, so profit stays constant. The calibrated model matches price-change data well. But, in contrast with other sticky-price ...
Working Paper
Risk-Taking Spillovers of U.S. Monetary Policy in the Global Market for U.S. Dollar Corporate Loans
We study the effects of U.S. interest rates and other factors on risk-taking in the global market for U.S. dollar syndicated term loans. We find that, before the Global Financial Crisis, both U.S. and non-U.S. lenders originated ex ante riskier loans to non-U.S. borrowers in response to a decline in short-term U.S. interest rates and, after the crisis, in response to a decline in longer-term U.S. interest rates. After the crisis, this behavior was more prominent for shadow banks and less prominent for banks with relatively low capital. Separately, before the crisis, lenders originated less ...