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Working Paper
Did Doubling Reserve Requirements Cause the 1937-38 Recession? New Evidence on the Impact of Reserve Requirements on Bank Reserve Demand and Lending
Wheelock, David C.; Mason, Joseph R.; Calomiris, Charles W. (2022-05-04)
In 1936-37, the Federal Reserve doubled member banks' reserve requirements. Friedman and Schwartz (1963) famously argued that the doubling increased reserve demand and forced the money supply to contract, which they argued caused the recession of 1937-38. Using a new database on individual banks, we show that higher reserve requirements did not generally increase banks' reserve demand or contract lending because reserve requirements were not binding for most banks. Aggregate effects on credit supply from reserve requirement increases were therefore economically small and statistically zero.
Working Papers , Paper 2022-011

Journal Article
The Evolution of the Federal Reserve's Intraday Credit Policies
Coleman, Stacy Panigay (2002-02)
One of the Federal Reserve's roles is to provide payment services to depository institutions and to the U.S. Treasury. Many of the nation's transfers of funds--whether they are large-dollar payments for financial market transactions or small-value business and consumer payments--settle through depository institutions' accounts held at the Federal Reserve for reserve-maintenance purposes and transaction processing. If a depository institution has insufficient balances during the day to cover its debits, it will run a negative balance or "daylight overdraft" in its Federal Reserve account until ...
Federal Reserve Bulletin , Volume 88 , Issue 2 , Pages pp. 67-84

Working Paper
Inflation and Wage Growth Since the Pandemic
Nechio, Fernanda; Jordà, Òscar (2023-04-01)
Following the worst of the COVID-19 pandemic, inflation surged to levels last seen in the 1980s. Motivated by vast differences in pandemic support across countries, we investigate the subsequent response of inflation and its feedback to wages. We exploit the differences in pandemic support to identify the effect that these programs had on inflation and the passthrough to wages. Our empirical approach focuses on a novel dynamic difference-in-differences method based on local projections. Our estimates suggest that an increase of 5 percentage points in direct transfers (relative to trend) ...
Working Paper Series , Paper 2022-17

Working Paper
Lending Standards and Borrowing Premia in Unsecured Credit Markets
Dempsey, Kyle; Ionescu, Felicia (2021-06-24)
Using administrative data from Y-14M and Equifax, we find evidence for large spreads in excess of those implied by default risk in the U.S. unsecured credit market. These borrowing premia vary widely by borrower risk and imply a nearly flat relationship between loan prices and repayment probabilities, at odds with existing theories. To close this gap, we incorporate supply frictions – a tractably specified form of lending standards – into a model of unsecured credit with aggregate shocks. Our model matches the empirical incidence of both risk and borrowing premia. Both the level and ...
Finance and Economics Discussion Series , Paper 2021-039

Journal Article
How Mergers in the Farm Credit System Have Affected Ag Banks
Scott, Francisco (2023-07-06)
Commercial banks and the Farm Credit System (FCS) have been the most important sources of agricultural loans in the United States in recent decades. Since the 1990s, however, mergers and acquisitions have increasingly concentrated both the FCS and commercial banks, raising concerns about potential effects on the agricultural credit market. Starting in the 2000s, the FCS gained a substantial market share of total agricultural debt, lending credibility to these concerns. Thus far, however, how the FCS’s evolving size and scope affect agricultural bank operations, particularly through mergers, ...
Economic Review , Volume vol. 108 , Issue no. 3 , Pages 23

Discussion Paper
Did Changes to the Paycheck Protection Program Improve Access for Underserved Firms?
Kaplan, Nathan; Kramer, Claire; Sarkar, Asani (2022-07-06)
Prior research has shown that many small and minority-owned businesses failed to receive Paycheck Protection Program (PPP) loans in 2020. To increase program uptake to underserved firms, several changes were made to the PPP in 2021. Using data from the Federal Reserve Banks’ 2021 Small Business Credit Survey, we argue that these changes were effective in improving program access for nonemployer firms (that is, businesses with no employees other than the owner(s)). The changes may also have encouraged more applications from minority-owned firms, but they do not appear to have reduced ...
Liberty Street Economics , Paper 20220706

Working Paper
Embedded Supervision: How to Build Regulation into Blockchain Finance
Auer, Raphael (2019-10-01)
The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, i.e., a regulatory framework that provides for compliance in tokenized markets to be automatically monitored by reading the market?s ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralized market is modelled ...
Globalization Institute Working Papers , Paper 371

Working Paper
Credit booms, banking crises, and the current account
Phoa, Wesley; Mack, Adrienne; Vandenabeele, Anne; Davis, J. Scott (2014-05-13)
What is the marginal effect of an increase in the private sector debt-to-GDP ratio on the probability of a banking crisis? This paper shows that the marginal effect of rising debt levels depends on an economy's external position. When the current account is in surplus or in balance, the marginal effect of an increase in debt is rather small; a 10 percentage point increase in the private sector debt-to-GDP ratio increases the probability of a crisis by about 1 to 2 percentage points. However, when the economy is running a sizable current account deficit, implying that any increase in the debt ...
Globalization Institute Working Papers , Paper 178

Working Paper
Why Do Firms Pay Different Interest Rates on Their Bank Loans?
Amiti, Mary; Kashyap, Anil K.; Kovner, Anna; Weinstein, David E. (2026-02-20)
We document significant variation in interest rates among similar commercial and industrial loans using confidential supervisory data on the largest US banks. This dispersion does not appear to be due to risk. We rationalize the data using a search cost model and find that search costs are highest for smaller and riskier borrowers and lower for public firms, consistent with predictable differences in the costs of screening and monitoring. We find that search costs are substantial. Over a third of firms behave as if they do not comparison shop; half of all firms appear to only obtain two ...
Working Paper , Paper 26-03

Working Paper
Money Matters: Broad Divisia Money and the Recovery of Nominal GDP from the COVID-19 Recession
Bordo, Michael D.; Duca, John V. (2023-05-25)
The rise of inflation in 2021 and 2022 surprised many macroeconomists who ignored the earlier surge in money growth because past instability in the demand for simple-sum monetary aggregates had made these aggregates unreliable indicators. We find that the demand for more theoretically-based Divisia aggregates can be modeled and that their growth rates provide useful information for future nominal GDP growth.Unlike M2 and Divisia-M2, whose velocities do not internalize shifts in liabilities across commercial and shadow banks, the velocities of broader Divisia monetary aggregates are more ...
Working Papers , Paper 2306

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