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Journal Article
Financial consolidation and monetary policy
Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission
Working Paper
Inflation and financial sector size
Traditionally, the cost of expected inflation has been seen as the "shoeleather cost" of going to the bank more often. This paper focuses on the other side of these transactions--i.e., on the increased production of financial services by financial firms. I construct a model in which households must make purchases either with cash or with costly transactions services produced by firms in the financial services sector. Higher inflation leads households to substitute purchased transactions services for money balances, increasing the size of the financial sector. A test of the model using ...
Working Paper
The Federal Reserve's large-scale asset purchase programs: rationale and effects
We provide empirical estimates of the effect of large-scale asset purchase (LSAP)-style operations on longer-term U.S. Treasury yields within a framework that nests the alternative theoretical perspectives on LSAPs. As the principal channels through which LSAPs might matter for longer-term interest rates, we concentrate on (i) the scarcity (available local supply) channel associated with the traditional preferred habitat literature, and (ii) the duration channel associated with the general notion of interest rate risk. We also clarify LSAPs' role in the broader context of monetary policy ...
Journal Article
Direct investment: a doubtful alternative to international debt
The paper considers a model in which private foreign investors make direct long-lived capital investments in a small developing country that is subject to stochastic shocks to production. Depending upon the preferences of the host country, we find that expropriation can occur because of either desperation or opportunism. We show that under reasonable assumptions, increased investment makes expropriation less likely to occur and that the level of investment chosen by atomistic foreign investors may be nonoptimal.
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 1997
U.S. commercial banks had another excellent year in 1997. Their return on equity remained in the elevated range that it has occupied for five consecutive years, and their return on assets reached a new high. Banks maintained their profitability while also adding significantly to assets. The year's strong economic growth increased the demand for credit; banks more than met that demand, gaining market share. In addition, banks departed from the pattern of recent years by sharply increasing their holdings of securities. Compared with 1996, banks earned a somewhat lower average rate on their ...
Working Paper
Money-Financed Fiscal Programs : A Cautionary Tale
A number of prominent economists and policymakers have argued that money-?nanced ?scal programs (helicopter drops) could be e?cacious in boosting output and in?ation in economies facing persistent economic weakness, very low in?ation, and signi?cant ?scal strains. We employ a fairly conventional macroeconomic model to explore the possible e?ects of such policies. While we do ?nd that money-?nanced ?scal programs, if communicated successfully and seen as credible by the public, could provide signi?cant stimulus, we underscore the risks that would be associated with such a program. These risks ...
Journal Article
Recent changes to the Federal Reserve's survey of terms of business lending
The Federal Reserve's quarterly Survey of Terms of Business Lending, which has been conducted for more than twenty years, collects information on interest rates and other characteristics of commercial bank business loans. The survey has been changed from time to time to recognize innovations in bank lending practices and to improve the measurement of the desired information. The most recent changes took effect with the May 1997 survey. The major improvement was the addition of an item measuring loan risk. In addition, the reporting panel, which had been limited to domestically chartered ...
Conference Paper
Bank risk rating of business loans
Working Paper
Bank risk rating of business loans
In recent years many banks have attempted to improve the measurement and management of credit risk by assigning risk ratings to business loans. Virtually all large banks now assign such ratings. However, until recently there has been little information on the use of risk ratings by smaller banks. Recent revisions to the Federal Reserve's Survey of Terms of Business Lending and telephone consultations with more than 100 banks on the survey panel provide data on the prevalence and precision of risk rating systems at banks of all sizes. We find that the use of risk rating systems is quite ...