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Working Paper
Too-Big-to-Fail before the Fed
Gorton, Gary; Tallman, Ellis W. (2016-05-06)
?Too-big-to-fail? is consistent with policies followed by private bank clearing houses during financial crises in the U.S. National Banking Era prior to the existence of the Federal Reserve System. Private bank clearing houses provided emergency lending to member banks during financial crises. This behavior strongly suggests that ?too-big-to-fail? is not the problem causing modern crises. Rather, it is a reasonable response to the threat posed to large banks by the vulnerability of short-term debt to runs.
Working Papers (Old Series) , Paper 1612

Working Paper
The Dynamics of Ample Reserves
Armenter, Roc (2026-07-15)
How monetary policy is implemented can have significant implications for the dynamics of the central bank’s balance sheet. If liquid deposits increase the demand for reserves (Lopez-Salido and Vissing-Jorgensen 2025), then the “ample” level of reserves needed to close the spread between the policy rate and interest on reserves is itself a function of liquid deposits. The supply of reserves will continue to normalize after first reaching ample levels and until liquid deposits return to trend as well. Furthermore, if the supply of reserves encourages deposit creation (Acharya et al. ...
Working Papers , Paper 26-34

Working Paper
Reforming Fiscal Institutions in Resource-Rich Arab Economies: Policy Proposals
Selim, Hoda; Nugent, Jeffrey B.; Mohaddes, Kamiar (2018-09-04)
This paper traces the evolution of fiscal institutions of Resource-Rich Arab Economies (RRAEs) over time since their pre-oil days, through the discovery of oil to their build-up of oil exports. It then identifies challenges faced by RRAEs and variations in their severity among the different countries over time. Finally, it articulates specific policy reforms, which, if implemented successfully, could help to overcome these challenges. In some cases, however, these policy proposals may give rise to important trade-offs that will have to be evaluated carefully in individual cases.
Globalization Institute Working Papers , Paper 346

Working Paper
Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers
Nugent, Jeffrey B.; Mohaddes, Kamiar; El-Anshasy, Amany (2017-04-01)
This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961-2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our ...
Globalization Institute Working Papers , Paper 310

Working Paper
Impacts of Monetary Stimulus on Credit Allocation and Macroeconomy: Evidence from China
Waggoner, Daniel F.; Zha, Tao; Higgins, Patrick C.; Chen, Kaiji (2016-09-01)
We develop a new empirical framework to identify and estimate the effects of monetary stimulus on the real economy. The framework is applied to the Chinese economy when monetary policy in normal times was switched to an extraordinarily expansionary regime to combat the impact of the 2008 financial crisis. We show that this unprecedented monetary stimulus accounted for as high as a 4 percent increase of real gross domestic product (GDP) growth rate by the end of 2009. Monetary transmission to the real economy was through bank credit allocated disproportionately to financing investment in real ...
FRB Atlanta Working Paper , Paper 2016-9

Working Paper
The Social Cost of Near-Rational Investment
Hassan, Tarek A.; Mertens, Thomas M. (2016-08-12)
We show that the stock market may fail to aggregate information even if it appears to be efficient, and that the resulting decrease in the information content of prices may drastically reduce welfare. We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors when forming expectations about future productivity. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When prices reflect less information, the conditional variance of stock returns rises, causing an ...
Working Paper Series , Paper 2016-16

Working Paper
Diamond-Dybvig and Beyond: On the Instability of Banking
Gu, Chao; Monnet, Cyril; Nosal, Ed; Wright, Randall (2023-02-13)
Are financial intermediaries—in particular, banks—inherently unstable or fragile, and if so, why? We address this question theoretically by analyzing whether model economies with financial intermediation are more prone than those without it to multiple, cyclic, or stochastic equilibria. We consider several formalizations: insurance-based banking, models with reputational considerations, those with fixed costs and delegated investment, and those where bank liabilities serve as payment instruments. Importantly for the issue at hand, in each case banking arrangements arise endogenously. ...
FRB Atlanta Working Paper , Paper 2023-02

Report
On the scale of financial intermediaries
Boyarchenko, Nina; Shin, Hyun Song; Adrian, Tobias (2015-10-01)
This paper studies the economic scale of financial institutions. We show that banks and security broker-dealers actively smooth book equity by adjusting payouts. The smoothing of book equity is associated with procyclical book leverage and procyclical net payouts. In contrast, market leverage largely reflects movements in valuation levels as measured by book-to-market ratios. The 2008 crisis caused a structural break, after which the growth rates of the banking and dealer sectors have been subdued relative to pre-crisis levels. We draw conclusions for theories of financial intermediation and ...
Staff Reports , Paper 743

Report
Uncertain booms and fragility
Lee, Michael Junho (2018-07-23)
I develop a framework of the buildup and outbreak of financial crises in an asymmetric information setting. In equilibrium, two distinct economic states arise endogenously: ?normal times,? periods of modest investment, and ?booms,? periods of expansionary investment. Normal times occur when the intermediary sector realizes moderate investment opportunities. Booms occur when the intermediary sector realizes many investment opportunities, but also occur when it realizes very few opportunities. As a result, investors face greater uncertainty in booms. During a boom, subsequent arrival of ...
Staff Reports , Paper 861

Working Paper
Real Rigidities, Firm Dynamics, and Monetary Nonneutrality: The Role of Demand Shocks
Aruoba, S. Boragan; Oue, Eugene; Saffie, Felipe; Willis, Jonathan L. (2023-04-21)
We propose a parsimonious framework for real rigidities, in the form of strategic complementarities, that can generate real and nominal dynamics and match key features of the data across several literatures. Existing menu-cost models featuring strategic complementarities require unrealistically volatile shocks to idiosyncratic productivity to be consistent with pricing moments. We develop a simple menu-cost model with strategic complementarities along with idiosyncratic productivity and demand shocks that are disciplined by the data. This approach allows us to overcome previous criticism from ...
FRB Atlanta Working Paper , Paper 2023-03

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