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Working Paper
The Transmission of the Financial Crisis in 1907: An Empirical Investigation
Using an extensive high-frequency data set, we investigate the transmission of financial crisis specifically focusing on the Panic of 1907, the final severe panic of the National Banking Era (1863-1913). We trace the transmission of the crisis from New York City trust companies to the New York City national banks through direct and indirect interconnections. Trust companies held cash balances at national banks, and these balances were liquidated as trust companies suffered depositor runs. Secondly, trust companies and national banks were notable creditors to the New York Stock Exchange; when ...
Working Paper
Close but not a central bank: The New York Clearing House and issues of clearing house loan certificates
The paper examines the New York Clearing House (NYCH) as a lender of last resort by looking at clearing-house-loan-certificate borrowing during five banking panics of the National Banking Era (1863?1913). In that system, adequate aggregate liquidity provision was passive and dependent upon member bank borrowing. We document bank borrowing behavior using bank-level data for clearing-house loan certifi cates issued to NYCH member banks. The historical record reveals that the large New York City banks behaved in ways that resembled those of a central bank in 1884 and in 1890, but less so in the ...
Journal Article
Private sector responses to the Panic of 1907: a comparison of New York and Chicago
The trend toward greater provision of payments services by nonbank providers raises a question for regulators: What if these nonbank institutions suffer unfavorable balances or experience a run? The authors of this article look to the Panic of 1907 as an example of how private market participants, in the absence of government institutions, react to a crisis in their industry. They suggest that New York's and Chicago's contrasting experiences during the panic may provide useful lessons for both regulators and market participants. ; The article compares responses to the panic by bank ...
Working Paper
How Did Pre-Fed Banking Panics End?
How did pre-Fed banking crises end? How did depositors? beliefs change? During the National Banking Era, 1863-1914, banks responded to the severe panics by suspending convertibility; that is, they refused to exchange cash for their liabilities (checking accounts). At the start of the suspension period, the private clearing houses cut off bank-specific information. Member banks were legally united into a single entity by the issuance of emergency loan certificates, a joint liability. A new market for certified checks opened, pricing the risk of clearing house failure. Certified checks traded ...
Journal Article
The burden of debt
Working Paper
Clearinghouse access and bank runs: comparing New York and Chicago during the Panic of 1907
During the Panic of 1907, New York City trust companies were not members of the New York Clearinghouse whereas trust companies in Chicago were members of the Chicago Clearinghouse. We argue that the apparent isolation of New York City trust companies from the pool of bank reserves controlled by the New York Clearinghouse led to the large-scale depositor runs on the New York City trusts. In contrast, Chicago trust companies had direct access to the Chicago Clearinghouse and their pool of reserves and did not suffer large-scale depositor withdrawals. Statistical evidence on a cross-section of ...
Working Paper
Improving forecasts of the federal funds rate in a policy model
Vector autoregression (VAR) models are widely used for policy analysis. Some authors caution, however, that the forecast errors of the federal funds rate from such a VAR are large compared to those from the federal funds futures market. From these findings, it is argued that the inaccurate federal funds rate forecasts from VARs limit their usefulness as a tool for guiding policy decisions. In this paper, we demonstrate that the poor forecast performance is largely eliminated if a Bayesian estimation technique is used instead of OLS. In particular, using two different data sets we show that ...
Working Paper
Forecasting using relative entropy
The paper describes a relative entropy procedure for imposing moment restrictions on simulated forecast distributions from a variety of models. Starting from an empirical forecast distribution for some variables of interest, the technique generates a new empirical distribution that satisfies a set of moment restrictions. The new distribution is chosen to be as close as possible to the original in the sense of minimizing the associated Kullback-Leibler Information Criterion, or relative entropy. The authors illustrate the technique by using several examples that show how restrictions from ...