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Working Paper
Output Spillovers from U.S. Monetary Policy: The Role of International Trade and Financial Linkages
We estimate that U.S. monetary policy has sizable spillover effects on global economic activity. In response to a surprise increase in the federal funds rate of 25 basis points, real output in our sample of 44 countries declines on average by 0.9% after three years. We find that international trade is a more important factor than international finance in explaining these spillovers. In particular, countries with a high share of exports and imports in output have 79% larger responses than countries with a low share, whereas we do not find significant heterogeneity depending on a country’s ...
Report
Corporate Debt Maturity and Monetary Policy
Do firms lengthen the maturity of their borrowing following a flattening of the Treasury yield curve that results from monetary policy operations? We explore this question separately for the years before and during the zero lower bound (ZLB) period, recognizing that the same change in the yield curve slope signifies different states of the economy and monetary policy over the two regimes. We find that the answer is robustly yes for the pre-ZLB period: Firms extended the maturity of their bond issuance by nearly three years in response to a policy-induced reduction of 1 percentage point in the ...
Discussion Paper
Uptake of the Main Street Lending Program
The Main Street Lending Program (Main Street) was one of several new credit facilities launched by the Federal Reserve and the U.S. Department of the Treasury (Treasury) in response to the COVID-19 pandemic.
Working Paper
Real Effects of Foreign Exchange Risk Migration: Evidence from Matched Firm-Bank Microdata
When firms trade forward contracts with banks to protect foreign currency cash flows against exchange rate movements, foreign exchange risk migrates to the banking sector. We show how this migrated risk may induce systemic repercussions with severe implications for the real economy. For identification, we exploit the Brexit referendum in June 2016 as a quasi-natural experiment in combination with detailed microdata on forward contracts and the credit register in Germany. Before the referendum, firms substantially increased their use of derivatives in response to the heightened uncertainty; ...
Working Paper
International financial integration, crises, and monetary policy: evidence from the euro area interbank crises
We analyze how financial crises affect international financial integration, exploiting euro area proprietary interbank data, crisis and monetary policy shocks, and variation in loan terms to the same borrower on the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of crossborder liquidity, with stronger volume effects than pricing effects, thereby impairing international financial integration. On the extensive margin, there is flight to home ? but this is independent of quality. On the intensive margin, however, GIPS-headquartered debtor banks suffer in the Lehman ...
Working Paper
The dynamic factor network model with an application to global credit risk
We introduce a dynamic network model with probabilistic link functions that depend on stochastically time-varying parameters. We adopt the widely used blockmodel framework and allow the high-dimensional vector of link probabilities to be a function of a low-dimensional set of dynamic factors. The resulting dynamic factor network model is straightforward and transparent by nature. However, parameter estimation, signal extraction of the dynamic factors, and the econometric analysis generally are intricate tasks for which simulation-based methods are needed. We provide feasible and practical ...
Report
A Helping Hand to Main Street Where and When It Was Needed
This paper investigates the lending activity of the Main Street Lending Program, which the Federal Reserve established at the onset of the COVID-19 pandemic in spring 2020. Main Street was the largest (by total principal outstanding) of the Federal Reserve's emergency credit and liquidity facilities. The authors find fairly robust evidence that Main Street accomplished its key goal of directing more funds where and when they were most needed. Businesses located in states with more severe declines in commercial activity (as proxied by mobility indicators) and higher infection rates obtained a ...
Report
The Great Leverage 2.0? A Tale of Different Indicators of Corporate Leverage
Many policymakers have expressed concerns about the rise in nonfinancial corporate leverage and the risks this poses to financial stability, since (1) high leverage raises the odds of firms becoming a source of adverse shocks, and (2) high leverage amplifies the role of firms in propagating other adverse shocks. This policy brief examines alternative indicators of leverage, focusing especially on the somewhat disparate signals they send regarding the current state of indebtedness of nonfinancial corporate businesses. Even though the aggregate nonfinancial corporate debt-to-income ratio is at ...
Report
Uptake of the Main Street Lending Program
The Main Street Lending Program (Main Street) was one of several new credit facilities launched by the Federal Reserve and the U.S. Department of the Treasury (Treasury) in response to the COVID-19 pandemic. The Federal Reserve published draft terms for Main Street on April 9, 2020, and the program started purchasing loan participations on July 6, 2020, with the goal of supporting lending to a wide range of small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. When the program’s draft terms were first circulated, pandemic-related ...
Report
Stress testing effects on portfolio similarities among large US Banks
We use an expansive regulatory loan-level dataset to analyze how the portfolios of the largest US banks have evolved since 2011. In particular, we analyze how the commercial and industrial and commercial real estate loan portfolios have changed in response to stress-testing requirements stipulated in the 2010 Dodd-Frank Act. We find that the largest US banks, which are subject to stress testing, have become more similar since the current form of the stress testing was implemented in 2011. We also find that banks with poor stress test results tend to adjust their portfolios in a way that makes ...