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Report
Déjà vu All Over Again? Learning from Nonfinancial Business Credit Booms and Busts of the Past
I study nonfinancial business credit booms that took place in the United States, the Nordic Countries, and Korea in the past century. I examine the factors that created the boom, what caused the boom to turn to a bust, and the effect of leverage on the events that followed. The case studies illustrate the variety of economic and institutional factors that contribute to nonfinancial business credit booms as well as the intensity of the fallout when booms turned to busts. Though the factors that led to the booms varied, one commonality is that the turning point between boom and bust period in ...
Report
A post-mortem of the life insurance industry's bid for capital during the financial crisis
The 2008-2009 financial crisis was the most serious shock to the U.S. financial system since the Great Depression of the 1930s. A number of large financial institutions failed during the crisis. Many institutions that survived did so only because of extraordinary actions undertaken by company management to maintain solvency, or through the extension of extraordinary support by the federal government and the Federal Reserve System. The impact of the financial crisis on the banking sector has been the subject of extensive research, discussion, and debate. Academic and policy researchers, as ...
Working Paper
Reach for Yield by U.S. Public Pension Funds
This paper studies whether U.S. public pension funds reach for yield by taking more investment risk in a low interest rate environment. To study funds? risk-taking behavior, we first present a simple theoretical model relating risk-taking to the level of risk-free rates, to their underfunding, and to the fiscal condition of their state sponsors. The theory identifies two distinct channels through which interest rates and other factors may affect risk-taking: by altering plans? funding ratios, and by changing risk premia. The theory also shows the effect of state finances on funds? risk-taking ...
Working Paper
Reach for Yield by U.S. Public Pension Funds
This paper studies whether U.S. public pension funds reach for yield by taking more investment risk in a low interest rate environment. To study funds?? risk-taking behavior, we first present a simple theoretical model relating risk-taking to the level of risk-free rates, to their underfunding, and to the fiscal condition of their state sponsors. The theory identifies two distinct channels through which interest rates and other factors may affect risk-taking: by altering plans?? funding ratios, and by changing risk premia. The theory also shows the effect of state finances on funds?? ...
Journal Article
Estimates of scale and cost efficiency for Federal Reserve currency operations
Meeting the currency demands of depository institutions, businesses, and consumers costs the Federal Reserve more than half a billion dollars each year, yet, very little research has been devoted to understanding what factors affect such costs. The authors estimate a cost function in order to obtain estimates of scale and cost efficiency for this service. They find that as in other paper-based technologies, such as checks, scale economies are achieved at a relatively low level of output, implying that currency services are not a natural monopoly. They also provide estimates of ...