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Author:Wang, J. Christina 

Working Paper
A general-equilibrium asset-pricing approach to the measurement of nominal and real bank output

This paper addresses the proper measurement of financial service output that is not priced explicitly. It shows how to impute nominal service output from financial intermediaries? interest income and how to construct price indices for those financial services. We present an optimizing model with financial intermediaries that provide financial services to resolve asymmetric information between borrowers and lenders. We embed these intermediaries in a dynamic, stochastic, general-equilibrium model where assets are priced competitively according to their systematic risk, as in the standard ...
Working Papers , Paper 04-7

Working Paper
Loanable funds, risk, and bank service output

This paper develops a unified theory of bank operations that integrates theories of financial intermediation, asset pricing, and production. In a simple dynamic model, banks maximize the present value of future profits generated through three categories of qualitatively distinct functions: (1) resolving information asymmetry in order to make loans, (2) providing transaction services, and (3) financing loans with borrowed funds. Risk determines the rate of return on the funds and in turn the discount rate for future profits. But risk affects the quantity of bank services generated in the first ...
Working Papers , Paper 03-4

Working Paper
The Great Recession and bank lending to small businesses

This paper investigates whether small firms have experienced worse tightening of credit conditions during the Great Recession than large firms. To structure the empirical analysis, the paper first develops a simple model of bank loan pricing that derives both the interest rates on loans actually made and the marginal condition for loans that would be rationed in the event of an economic downturn. Empirical estimations using loan-level data find evidence that, once we account for the contractual features of business loans made under formal commitments to lend, interest rate spreads on small ...
Working Papers , Paper 11-16

Working Paper
Productivity and economies of scale in the production of bank service value added

This paper uses a new measure of bank service output to estimate various specifications of production and cost functions for Bank Holding Companies (BHCs) over the period 1986 to 1999. The new output series is a true flow measure of bank service value added, and it follows from a unified model of bank operation that integrates risk and the measurement of bank services. The model also establishes separability between the production function of bank services and the funds borrowed and lent-a special intermediate input for banks. The preferred specification of the cost function estimates a large ...
Working Papers , Paper 03-7

Working Paper
Service output of bank holding companies in the 1990s and the role of risk

This paper constructs a new measure of output for Bank Holding Companies (BHCs) over the period 1986 to 1999. This flow measure of bank value added follows from a unified model of bank operation that integrates theories of production, financial intermediation, and asset pricing. The primary contribution of the model is to demonstrate how one should account for risk when measuring the value added of bank services. One key implication is that the risk-related return on the funds banks borrow and lend should be excluded from the nominal value of the services banks produce, since the model ...
Working Papers , Paper 03-6

Working Paper
Technological progress, the \"user cost of money,\" and the real output of banks

Financial institutions provide their customers a variety of unpriced services and cover their costs through interest margins - the interest rates they receive on assets are generally higher than the rates they pay on liabilities. In particular, banks pay below-public-market interest rates on deposits while charging above-public-market rates on loans. Various authors have suggested that this situation allows one to measure the real quantity of financial services provided without explicit prices as proportional to the real stocks of financial assets held by households. We present a ...
Working Papers , Paper 13-21

Working Paper
Vanishing procyclicality of productivity?: industry evidence

The robust performance of U.S. labor productivity (LP) early in the recovery from the Great Recession contrasts markedly with the sluggish growth of output, and even more with the lack of recovery in employment. This pattern has renewed interest in understanding why productivity has become much less procyclical in recent decades. This is an important topic because the cyclicality of productivity has implications for how we model business cycles, and our understanding of how they are propagated. The topic also has implications for monetary policy because it affects the trend-cycle ...
Working Papers , Paper 14-15

Working Paper
Merger-related cost savings in the production of bank services

This paper utilizes a new flow measure of the true output of bank services to analyze the impact of mergers on the cost and productivity of Bank Holding Companies (BHCs) over the period 1987-1999. It shows that there are conceptual problems in the output measures used in previous studies, which may be the reason for their paradoxical findings: Bank mergers are estimated to lead to significant increases in profit, without cost savings or increases in market power. This paper also points out the problematic understanding of diversification in previous studies. To remedy these problems, this ...
Working Papers , Paper 03-8

Working Paper
The cost of fiscal policy uncertainty: industry evidence of its impact on the labor market

The anemic pace of the recovery of the U.S. economy from the Great Recession has frequently been blamed on heightened uncertainty, much of which concerns the nation's fiscal policy. Intuition suggests that increased policy uncertainty likely has different impacts on industries with different exposure to government actions. Such heterogeneity can help identify the effect of shocks due to policy uncertainty. This study uses industry data to explore whether policy uncertainty indeed affects the dynamics of employment during this recovery, and particularly whether it has a differential impact on ...
Working Papers , Paper 13-22

Working Paper
Real output of bank services: what counts is what banks do, not what they own

The measurement of bank output, a difficult and contentious issue, has become even more important in the aftermath of the devastating financial crisis of recent years. In this paper, we argue that models of banks as processors of information and transactions imply a quantity measure of bank service output based on transaction counts instead of balances of loans and deposits. Compiling new and comparable output measures for the United States and a range of European countries, we show that our counts-based output series exhibit significantly different growth patterns from those of our ...
Working Papers , Paper 11-1

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