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Series:Finance and Economics Discussion Series  Bank:Board of Governors of the Federal Reserve System (U.S.) 

Working Paper
Do actions speak louder than words? the response of asset prices to monetary policy actions and statements
We investigate the effects of U.S. monetary policy on asset prices using a high-frequency event-study analysis. We test whether these effects are adequately captured by a single factor--changes in the federal funds rate target-and find that they are not. Instead, we find that two factors are required. These factors have a structural interpretation as a "current federal funds rate target" factor and a "future path of policy" factor, with the latter closely associated with FOMC statements. We measure the effects of these two factors on bond yields and stock prices using a new intraday dataset going back to 1990. According to our estimates, both monetary policy actions and statements have important but differing effects on asset prices, with statements having a much greater impact on longer-term Treasury yields.
AUTHORS: Refet Gürkaynak; Sack, Brian P.; Swanson, Eric T.
DATE: 2004

Working Paper
The Political Origin of Home Bias: The Case of Europe
We show that politics is at the root of the banks-sovereign nexus that exacerbated the Eurozone crisis. First, government-owned banks or banks with politicians in the board of directors display higher home bias in sovereign debt compared to privately-owned banks throughout the 2010-2013 period. Second, only government-owned banks increased the home bias during the sovereign crisis (moral suasion). We exploit the fact that equity injections (bail-outs) by domestic governments were not directly targeted to politically connected banks to show that, upon receiving such assistance, only government-owned banks purchase domestic debt. Moral suasion is stronger in countries under stress.
AUTHORS: Filippo De Marco; Macchiavelli, Marco
DATE: 2016-07-08

Working Paper
Securitization, risk, and the liquidity problem in banking
AUTHORS: Berger, Allen N.; Gregory F. Udell
DATE: 1991

Working Paper
Did risk-based capital allocate bank credit and cause a credit crunch in the U.S.?
AUTHORS: Berger, Allen N.; Gregory F. Udell
DATE: 1993

Working Paper
A Generalized Approach to Indeterminacy in Linear Rational Expectations Models
We propose a novel approach to deal with the problem of indeterminacy in Linear Rational Expectations models. The method consists of augmenting the original state space with a set of auxiliary exogenous equations to provide the adequate number of explosive roots in presence of indeterminacy. The solution in this expanded state space, if it exists, is always determinate, and is identical to the indeterminate solution of the original model. The proposed approach accommodates determinacy and any degree of indeterminacy, and it can be implemented even when the boundaries of the determinacy region are unknown. Thus, the researcher can estimate the model using standard packages without restricting the estimates to the determinacy region. We apply our method to estimate the New-Keynesian model with rational bubbles by Gal (2017) over the period 1982:Q4 until 2007:Q3. We find that the data support the presence of two degrees of indeterminacy, implying that the central bank was not reacting strongly enough to the bubble component.
AUTHORS: Bianchi, Francesco; Nicolo, Giovanni
DATE: 2019-05

Working Paper
A Coherent Framework for Predicting Emerging Market Credit Spreads with Support Vector Regression
We propose a coherent framework using support vector regression (SRV) for generating and ranking a set of high quality models for predicting emerging market sovereign credit spreads. Our framework adapts a global optimization algorithm employing an hv-block cross-validation metric, pertinent for models with serially correlated economic variables, to produce robust sets of tuning parameters for SRV kernel functions. In contrast to previous approaches identifying a single "best" tuning parameter setting, a task that is pragmatically improbable to achieve in many applications, we proceed with a collection of tuning parameter candidates, employing the Model Confidence Set test to select the most accurate models from the collection of promising candidates. Using bond credit spread data for three large emerging market economies and an array of input variables motivated by economic theory, we apply our framework to identify relatively small sets of SVR models with su perior out-of-sample forecasting performance. Benchmarking our SRV forecasts against random walk and conventional linear model forecasts provides evidence for the notably superior forecasting accuracy of SRV-based models. In contrast to routinely used linear model benchmarks, the SRV-based models can generate accurate forecasts using only a small set of input variables limited to the country-specific credit-spread-curve factors, lending some support to the rational expectation theory of the term structure in the context of emerging market credit spreads. Consequently, our evidence indicates a better ability of highly flexible SVR to capture investor expectations about future spreads reflected in today's credit spread curve.
AUTHORS: Anderson, Gary S.; Audzeyeva, Alena
DATE: 2019-10-17

Working Paper
Collateral, loan quality, and bank risk
AUTHORS: Berger, Allen N.; Gregory F. Udell
DATE: 1988

Working Paper
Lines of credit, collateral, and relationship lending in small firm finance
AUTHORS: Berger, Allen N.; Gregory F. Udell
DATE: 1993

Working Paper
Wealth effects and the consumption of leisure: retirement decisions during the stock market boom of the 1900s
It is well accepted that households increase consumption of goods and services in response to an unexpected increase in wealth. Consensus estimates of this wealth effect are in the range of 3 to 5 cents of additional consumption spending in the long run for each additional dollar of wealth. Economic theory also suggests that consumption of leisure, like consumption of goods and services, should increase with positive shocks to wealth. In this paper, we ask whether the run-up in equity prices during the 1990s led older workers to retire earlier than they had previously planned. We identify the effect by exploiting unique data on retirement expectations from the Health and Retirement Survey. Our econometric results suggest that respondents who held corporate equity immediately prior to the bull market of the 1990s retired, on average, 7 months earlier than other respondents.
AUTHORS: Julia Lynn Coronado & Maria Perozek
DATE: 2003

Working Paper
The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle.
We examine the economics of financing small business in private equity and debt markets. Firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle. We show the sources of small business finance,and how capital structure varies with firm size and age. The interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment. We also analyze a number of research and policy issues, review the literature, and suggest topics for future research.
AUTHORS: Berger, Allen N.; Gregory F. Udell
DATE: 1998

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