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Working Paper
Transparency, expectations, and forecasts
In 1994, the Federal Open Market Committee (FOMC) began to release statements after each meeting. This paper investigates whether the public?s views about the current path of the economy and of future policy have been affected by changes in the Federal Reserve?s communications policy as reflected in private sector?s forecasts of future economic conditions and policy moves. In particular, has the ability of private agents to predict where the economy is going improved since 1994? If so, on which dimensions has the ability to forecast improved? We find evidence that the individuals? forecasts ...
Journal Article
Bank crisis resolution and foreign-owned banks
In many countries in recent years, failure to efficiently resolve large insolvent banks has come at a high cost both to taxpayers and to the countries? aggregate income. The increasing entry of foreign banks has complicated the resolution process. ; This article explores some special problems in the efficient resolution of insolvent banks raised by cross border banking, particularly weighing the costs and benefits of foreign bank entry via branches versus subsidiary banks. These problems lie primarily in the cross country differences in both the closure rule and the deposit insurance ...
Conference Paper
A theory of optimal forbearance
Working Paper
Agency problems and goal conflicts
Agency theory is used to evaluate how the European Union (EU) may deal with the resolution of goal and agency conflicts in dealing with failing financial institutions. Experience in the United States suggests that the financial and regulatory structure being put in place, which relies upon country-sponsored deposit insurance funds and home country responsibility for supervision and lender-of-last-resort functions, is not likely to be robust to the failure of a large EU institution that threatens the solvency of the deposit insurance fund or that poses systemic risk. The author concludes that ...
Working Paper
An analysis of the systemic risks posed by Fannie Mae and Freddie Mac and an evaluation of the policy options for reducing those risks
Fannie Mae and Freddie Mac are government-sponsored enterprises that are central players in U.S. secondary mortgage markets. Over the past decade, these institutions have amassed enormous mortgage- and non-mortgage-oriented investment portfolios that pose significant interest-rate risks to the companies and a systemic risk to the financial system. This paper describes the nature of these risks and systemic concerns and then evaluates several policy options for reducing the institutions? investment portfolios. We conclude that limits on portfolio size (assets or liabilities) would be the most ...
Journal Article
Path to U.S. economic recovery difficult to determine
Journal Article
International settlements: a new source of systemic risk?
Recent market developments have heightened concerns about the potential for systemic risk in the payments system. At the same time that markets are becoming more integrated and global in scope, they are becoming more segmented in the sense that there is a growing separation evolving between the clearing and settlement of transactions that raises the prospect of a need to invoke the safety net and introduces a possible distortion into the international payments system. As a consequence, both public-sector and private markets have given great attention to attempting to identify and control risk ...