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Working Paper
Foreign holdings of U.S. Treasuries and U.S. Treasury yields
Foreign official holdings of U.S. Treasuries increased from $400 billion in January 1994 to about $3 trillion in June 2010. Most of this growth is accounted for by a handful of emerging market economies that have been running large current account surpluses. These countries are channeling their savings through the official sector, which is then acquiring foreign exchange reserves. Any shift in policy to reduce their current account surpluses or dampen the rate of reserves accumulation would likely slow the pace of foreign official purchases of U.S. Treasuries. Would such a slowing of foreign ...
Working Paper
Estimating the parameters of a small open economy DSGE model: identifiability and inferential validity
This paper estimates the parameters of a stylized dynamic stochastic general equilibrium model using maximum likelihood and Bayesian methods, paying special attention to the issue of weak parameter identification. Given the model and the available data, the posterior estimates of the weakly identified parameters are very sensitive to the choice of priors. We provide a set of tools to diagnose weak identification, which include surface plots of the log-likelihood as a function of two parameters, heat plots of the log-likelihood as a function of three parameters, Monte Carlo simulations using ...
Working Paper
What are Large Global Banks Doing About Climate Change?
We review the "climate action plans" of Global Systemically Important Banks (GSIBs) and the progress they are making toward achieving them. G-SIBs have identified the drivers of climate risk and their transmission channels to credit and other risks. Additionally, some have started to measure and model these risks. While most GSIBs have committed to fully offsetting their emissions by mid-century, they are only beginning to measure financed emissions resulting from their loans and investments, which comprise the vast majority of their emissions. G-SIBs have also committed to increase green ...
Working Paper
Home computers and educational outcomes: evidence from the NLSY97 and CPS
Although computers are universal in the classroom, nearly twenty million children in the United States do not have computers in their homes. Surprisingly, only a few previous studies explore the role of home computers in the educational process. Home computers might be very useful for completing school assignments, but they might also represent a distraction for teenagers. We use several identification strategies and panel data from the two main U.S. datasets that include recent information on computer ownership among children--the 2000-2003 CPS Computer and Internet Use Supplements (CIUS) ...
Working Paper
Optimizing Credit Gaps for Predicting Financial Crises: Modelling Choices and Tradeoffs
Credit gaps are good predictors for financial crises, and banking regulators recommend using them to inform countercyclical capital buffers for banks. Researchers typically create credit gap measures using trend-cycle decomposition methods, which require many modelling choices, such as the method used, and the smoothness of the underlying trend. Other choices hinge on the tradeoffs implicit in how gaps are used as early warning indicators (EWIs) for predicting crises, such as the preference over false positives and false negatives. We evaluate how the performance of credit-gap-based EWIs for ...
Working Paper
Taxonomy of Global Risk, Uncertainty, and Volatility Measures
A large number of measures for monitoring risk and uncertainty surrounding macroeconomic and financial outcomes have been proposed in the literature, and these measures are frequently used by market participants, policy makers, and researchers in their analyses. However, risk and uncertainty measures differ across multiple dimensions, including the method of calculation, the underlying outcome (that is, the asset price or macroeconomic variable), and the horizon at which they are calculated. Therefore, in this paper, we review the literature on global risk, uncertainty, and volatility ...
Discussion Paper
Emerging Market Nonfinancial Corporate Debt : How Concerned Should We Be?
Nonfinancial corporate (NFC) debt in emerging market economies (EMEs) has tripled since the global financial crisis (GFC), reaching roughly $25 trillion, or 112 percent of GDP, in mid-2016. In this note, we assess corporate vulnerabilities by looking at two common metrics related to debt-servicing capacity: leverage (the ratio of debt to equity), and the interest coverage ratio (the ratio of earnings to interest expense).
Working Paper
Foreign exposure to asset-backed securities of U.S. origin
The financial turmoil which began in August 2007 originated, in part, because investors reassessed the quality of the assets underlying many asset-backed securities (ABS), particularly U.S. mortgages. The prominence of European banks in the early stages of the turmoil created the perception that foreigners held an outsized share of risky U.S. securities and prompted questions of why Europeans were so exposed. This paper evaluates that perception by quantifying foreign exposure to ABS with U.S. underlying collateral. Using the latest survey data on foreign portfolio holdings of U.S. ...
Working Paper
Asymmetric Information and the Death of ABS CDOs
A key feature of the 2007 financial crisis is that for many securities trading had ceased; where trading did occur, market prices were well below intrinsic values, especially for ABS CDOs. One explanation is that information had been asymmetric, with sellers having better information than buyers. We first show the information advantages sellers had over buyers in both the issuance of CDOs and, through vertical integration, performance of the CDO collateral that could well have disrupted trading after the onset of the crisis. Using a ?workhorse" model for pricing securities under asymmetric ...
Working Paper
Un-Networking: The Evolution of Networks in the Federal Funds Market
Using a network approach to characterize the evolution of the federal funds market during the Great Recession and financial crisis of 2007-2008, we document that many small federal funds lenders began reducing their lending to larger institutions in the core of the network starting in mid-2007. But an abrupt change occurred in the fall of 2008, when small lenders left the federal funds market en masse and those that remained lent smaller amounts, less frequently. We then test whether changes in lending patterns within key components of the network were associated with increases in ...