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Working Paper
How effective were the Federal Reserve emergency liquidity facilities?: evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility
Following the failure of Lehman Brothers in September 2008, short-term credit markets were severely disrupted. In response, the Federal Reserve implemented new and unconventional facilities to help restore liquidity. Many existing analyses of these interventions are confounded by identification problems because they rely on aggregate data. Two unique micro datasets allow us to exploit both time series and cross-sectional variation to evaluate one of the most unusual of these facilities - the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF). The AMLF extended ...
Working Paper
Forgive and forget: who gets credit after bankruptcy and why?
Conventional wisdom about individuals who have gone bankrupt is that they find it very difficult to get credit for at least some time after their bankruptcy. However, there is very little non-survey based empirical evidence on the availability of credit post-bankruptcy. This paper makes two contributions using data from one of the largest credit bureaus in the US. First, we show that individuals who file for bankruptcy can indeed get credit very quickly after they file. Indeed, 90% of individuals have access to some sort of credit within the 18 months after filing for bankruptcy, and 66% have ...
Working Paper
Looking behind the aggregates: a reply to “Facts and Myths about the Financial Crisis of 2008”
As Chari et al (2008) point out in a recent paper, aggregate trends are very hard to interpret. They examine four common claims about the impact of financial sector phenomena on the economy and conclude that all four claims are myths. We argue that to evaluate these popular claims, one needs to look at the underlying composition of financial aggregates. Our findings show that most of the commonly argued facts are indeed supported by disaggregated data.
Working Paper
Household debt repayment behaviour: what role do institutions play?
Household debt repayment behavior has been understudied, especially empirically, despite the heightened debate on rising household debt, personal bankruptcy filings, and arrears. In this paper, we use data from the European Community Household Panel to analyze the determinants of household debt arrears. The paper's primary aim is to understand the role of institutions in household arrears by exploiting cross-country differences and the panel nature of the data set. We start our analysis by showing that falling into arrears has important long-term consequences for employment, self-employment, ...
Working Paper
The COVID-19 Crisis and the Federal Reserve's Policy Response
The COVID-19 pandemic and the mitigation efforts put in place to contain it delivered the most severe blow to the U.S. economy since the Great Depression. In this paper, we argue that the Federal Reserve acted decisively and with dispatch to deploy all the tools in its conventional kit and to design, develop, and launch within weeks a series of innovative facilities to support the flow of credit to households and businesses. These measures, taken together, provided crucial support to the economy in 2020 and are continuing to contribute to what is expected to be a robust economic recovery in ...
Working Paper
The Demand for Short-Term, Safe Assets and Financial Stability: Some Evidence and Implications for Central Bank Policies
A number of researchers have recently argued that the growth of the shadow banking system in the years preceding the recent U.S. financial crisis was driven by rising demand for "money-like" claims--short-term, safe instruments (STSI)--from institutional investors and nonfinancial firms. These instruments carry a money premium that lowers their yields. While government securities are an important part of the supply of STSI, financial intermediaries also take advantage of this money premium when they issue certain types of low-risk, short-term debt, such as asset-backed commercial paper or ...
Working Paper
Why Do We Need Both Liquidity Regulations and a Lender of Last Resort? A Perspective from Federal Reserve Lending during the 2007-09 U.S. Financial Crisis
During the 2007-09 financial crisis, there were severe reductions in the liquidity of financial markets, runs on the shadow banking system, and destabilizing defaults and near-defaults of major financial institutions. In response, the Federal Reserve, in its role as lender of last resort (LOLR), injected extraordinary amounts of liquidity. In the aftermath, lawmakers and regulators have taken steps to reduce the likelihood that such lending would be required in the future, including the introduction of liquidity regulations. These changes were motivated in part by the argument that central ...
Working Paper
Financing Constraints and Unemployment: Evidence from the Great Recession
Exploiting the differential financing needs across industrial sectors, this paper shows that financing constraints of small businesses in the United States are one of the drivers explaining the unemployment dynamics during the Great Recession. We show that workers in small firms are more likely to become unemployed during the 2007-09 financial crisis if they work in industries with high external financing needs. We find very similar results for the 1990-91 recession, but not for the 2001 recession, where only the former was associated with a reduction in loan supply. These findings further ...
Working Paper
“Unconventional” Monetary Policy as Conventional Monetary Policy : A Perspective from the U.S. in the 1920s
To implement monetary policy in the 1920s, the Federal Reserve utilized administered interest rates and conducted open market operations in both government securities and private money market securities, sometimes in fairly considerable amounts. We show how the Fed was able to effectively use these tools to influence conditions in money markets, even those in which it was not an active participant. Moreover, our results suggest that the transmission of monetary policy to money markets occurred not just through changing the supply of reserves but importantly through financial market arbitrage ...
Discussion Paper
The Tools and Transmission of Federal Reserve Monetary Policy in the 1920s
This note describes the tools used by the Federal Reserve (Fed) to implement monetary policy in the 1920s and the degree to which changes in these tools were transmitted to private money markets. In doing so, we hope to provide some historical perspective to the renewed debate around monetary policy frameworks and toolkits.