Search Results
Working Paper
How amenities affect job and wage choices over the life cycle
The current wage at a job may not fully reflect the "value" of that job. For example, a job with a low starting wage may be preferred to one with a high starting wage if the growth rate of wages is higher in the former than in the latter. In fact, differences in wage growth can potentially explain why a worker might want to quit a high-paying job for one with a lower starting wage. Job amenities are another important factor that not only influences the value of a job but also provides an independent rationale for why workers change jobs. Including a job's amenities as part of its "value" ...
Working Paper
Monetary policy implementation with an ample supply of reserves
Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply ...
Newsletter
What is clearing and why is it important?
In the financial market disruption of 2007?08, the once arcane topic of clearing of financial products took center stage in major policy debates. Generally speaking, clearing has to do with the nuts and bolts of the contractual performance of financial products after they have been traded.
Working Paper
Limited liability and the development of capital markets
We study the consequences of the introduction of widespread limited liability for corporations. In the traditional view, limited liability reduces transactions costs and enhances investment incentives for individuals and firms. But this view does not explain several important stylized facts of the British experience, including the slow rate of adoption of limited liability by firms in the years following legal reforms. We construct an alternative model that accounts for this and other features of the nineteenth century British experience. In the model, project risk is private information, and ...
Discussion Paper
Recent developments in monetary economics: a summary of the 2004 Workshop on Money, Banking, and Payments
We provide a summary and an overview of the papers presented at the Federal Reserve Bank of Clevelands 2004 Workshop on Money, Banking, and Payments, held during the weeks of August 3-7 and August 23-27, 2004.
Working Paper
An Interview with Neil Wallace
A few years ago we sat down with Neil Wallace and had two lengthy, free-ranging conversations about his career and, generally speaking, his views on economics. What follows is a distillation of these conversations.
Journal Article
A simple model of money and banking
This article presents a simple environment that has banks creating and lending out money. The authors define money to be any object that circulates widely as a means of payment and a bank to be an agency that simultaneously issues money and monitors investments. While their framework allows private nonbank liabilities to serve as the economy's medium of exchange, they demonstrate that the cost-minimizing structure has a bank creating liquid funds. In practice, the vast bulk of the money supply consists of private debt instruments that are issued by banks. Thus, their model goes some way in ...
Report
Monetary Policy Implementation with an Ample Supply of Reserves
We offer a parsimonious model of reserve demand to study the trade-offs associated with various monetary policy implementation frameworks. Prior to the 2007-09 financial crisis, many central banks supplied scarce reserves to execute their interest rate policies. In response to the crisis, central banks undertook quantitative easing policies that greatly expanded their balance sheets and, by extension, the amount of reserves they supplied. When the crisis and its aftereffects passed, central banks were in a position to choose a framework that has reserves that are: (1) abundant—by keeping ...
Working Paper
Shadow Bank Runs
Short-term debt is commonly used to fund illiquid assets. A conventional view asserts that such arrangements are run-prone in part because redemptions must be processed on a first-come, first-served basis. This sequential service protocol, however, appears absent in the wholesale banking sector---and yet, shadow banks appear vulnerable to runs. We explain how banking arrangements that fund fixed-cost operations using short-term debt can be run-prone even in the absence of sequential service. Interventions designed to eliminate run risk may or may not improve depositor welfare. We describe how ...
Working Paper
Counterfeiting as private money in mechanism design
We describe counterfeiting activity as the issuance of private money, one which is difficult to monitor. Our approach, which amends the basic random-matching model of money in mechanism design, allows a tractable welfare analysis of currency competition. We show that it is not efficient to eliminate counterfeiting activity completely. We do not appeal to lottery devices, and we argue that this is consistent with imperfect monitoring.