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Discussion Paper
Price Impact of Trades and Orders in the U.S. Treasury Securities Market
It’s long been known that asset prices respond not only to public information, such as macroeconomic announcements, but also to private information revealed through trading. More recently, with the growth of high-frequency trading, academics have argued that limit orders—orders to buy or sell a security at a specific price or better—also contain information. In this post, we examine the information content of trades and limit orders in the U.S. Treasury securities market, following this paper, recently published in the Journal of Financial Markets and earlier as a New York Fed staff ...
Working Paper
Credit Market Information Feedback
We examine how a combination of credit market and asset quality information can jointly be used in assessing bank franchise value. We find that expectations of future credit demand and future asset quality explain contemporaneous bank franchise value, indicative of the feedback in credit market information and its consequent impact on bank franchise value.
Working Paper
Appraising Home Purchase Appraisals
Home appraisals are produced for millions of residential mortgage transactions each year, but appraised values are rarely below the purchase contract price: Some 30% of appraisals in our sample are exactly at the home price (with less than 10% of them below it). We lay out a basic theoretical framework to explain how appraisers? incentives within the institutional framework that governs mortgage lending lead to information loss in appraisals (that is, appraisals set equal to the contract price). Consistent with the theory, we observe a higher frequency of appraisal equal to contract price and ...
Working Paper
Goods-Market Frictions and International Trade
We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it takes time and expense for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the competitive equilibrium does not generally result in the socially optimal number of searching firms. Finally, ignoring search frictions results in biased estimates of the effect of tariffs ...
Discussion Paper
What Americans (Don’t) Know about Student Loan Collections
U.S. student debt has more than tripled since 2004, and at over $1 trillion is now substantially greater than both credit card and auto debt balances. There are substantial potential benefits to be gained from taking out a student loan to fund a college education, including higher earnings and lower unemployment rates for college grads. However, there are significant costs to having student debt: The loans frequently carry relatively high interest rates, delinquency is common and costly (involving potential late fees and collection fees), and the federal government has the power to garnish ...
Journal Article
Information and Communications Technology Spending and City Size
Firms in big cities are spending more on information and communications technology than firms in small cities, a likely cause of the growing economic divide between big and small U.S. cities.
Working Paper
The Signaling Effects of Fiscal Announcements
Fiscal announcements may transfer information about the government’s view of the macroeconomic outlook to the private sector, diminishing the effectiveness of fiscal policy as a stabilization tool. We construct a novel dataset that combines daily data on Japanese stock prices with narrative records from press releases about a set of extraordinary fiscal packages introduced by the Japanese government from 2011-2020. We use local projections to show that these fiscal stimuli were often interpreted as negative news by the stock market whereas exogenous fiscal interventions that do not convey ...
Report
Information heterogeneity and intended college enrollment
Despite a robust college premium, college attendance rates in the United States have remained stagnant and exhibit a substantial socioeconomic gradient. We focus on information gaps? specifically, incomplete information about college benefits and costs?as a potential explanation for these patterns. In a nationally representative survey of U.S. household heads, we show that perceptions of college costs and benefits are severely and systematically biased: 74 percent of our respondents underestimate the true benefits of college (average earnings of a college graduate relative to a non-college ...
Report
The microstructure of a U.S. Treasury ECN: the BrokerTec platform
We assess the microstructure of the U.S. Treasury securities market following its migration to electronic trading. We model price discovery using a vector autoregression model of price and order flow. We show that both trades and limit orders affect price dynamics, suggesting that traders also choose limit orders to exploit their information. Moreover, while limit orders have smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find increased price impact of trades and especially limit orders following major announcements (such as FOMC ...
Report
Capital Management and Wealth Inequality
Wealthier individuals have stronger incentives to seek higher returns. We investigate theoretically the effect this has on long-run wealth inequality. Incorporating capital management into a standard Ramsey-Cass-Koopmans model generates substantial long-run inequality: the majority of the population works and holds no capital, while a small minority holds a large amount of capital and manages it full-time. Counterintuitively, financial innovations or policies that reduce return differentials increase long-run wealth inequality. Egalitarian steady states may exist, but are inefficient and ...