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Effects of leverage on corporate investment and hiring decisions
Nonbank lenders and the credit slowdown
The securities industry and the New York - New Jersey region
The author finds that the securities industry in the New York-New Jersey region, while vulnerable to stock and bond market fluctuations, is enjoying strong growth in employment and salaries. Benefits from future growth, however, will likely flow predominantly to highly skilled workers as rapid technological change continues to widen existing income differentials.
Securitization, loan sales, and the credit slowdown
Household and business lending has slowed sharply in recent years, but the anemic growth in loans booked at depository institutions, mortgage companies, and finance companies may overstate the decline in credit originated by these institutions. This article reports measures of credit growth that include "off-balance-sheet lending"loans that were originated by intermediaries but are absent from their balance sheets because of direct loan sales or the issuance of asset-backed securities. The authors also compare the relative volume of off-balance-sheet lending by types of intermediaries.
Current labor market trends and inflation
Can a fiscal contraction strengthen a currency?: Some doubts about conventional Mundell-Fleming results
This article demonstrates that a fiscal expansion can induce both a short- and long-run depreciation of a currency and, by parallel arguments, fiscal contraction can induce short- and long-run appreciation. This possibility hinges on a country being a debtor with at least some of its debt servicing costs reset periodically in response to changes in its domestic interest rates. In the simpler version of our model, we show that a fiscal expansion can lead to an instantaneous depreciation and a current account deficit, causing the currency to continue to depreciate over time. The current account ...
The credit rating industry
Investors and regulators have been increasing their reliance on the opinions of the credit rating agencies. This article shows that although the ratings provide accurate rank-orderings of default risk, the meaning of specific letter grades varies over time and across agencies. Noting that current regulations do not explicitly adjust for agency differences, the authors argue that a reassessment of the use of ratings and the adequacy of public oversight is overdue.
Split ratings and the pricing of credit risk
Despite the fact that over 50 percent of all corporate bonds have different ratings from Moody's and Standard and Poor's at issuance, most bond pricing models ignore these differences of opinion. Our work compares a number of different methods of accounting for split ratings in estimating bond pricing models. We find that pricing rules that use only the Moody's or Standard and Poor's ratings produce unbiased but highly inefficient forecasts. If models rely instead on simply the higher or lower of the two ratings (but not both), greater bias is introduced with insignificant gains in ...