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Working Paper
Optimal monetary policy in a currency union with interest rate spreads
Lee, Jae Won; Bhattarai, Saroj; Park, Woong Yong (2013)
We introduce ?financial imperfections? - asymmetric net wealth positions, incomplete risksharing, and interest rate spread across member countries - in a prototypical two-country currency union model and study implications for monetary policy transmission mechanism and optimal policy. In addition to, and independent from, the standard transmission mechanism associated with nominal rigidities, financial imperfections introduce a wealth redistribution role for monetary policy. Moreover, the two mechanisms reinforce each other and amplify the effects of monetary policy. On the normative side, ...
Globalization Institute Working Papers , Paper 150

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

Working Paper
How New Fed Corporate Bond Programs Dampened the Financial Accelerator in the COVID-19 Recession
Bordo, Michael D.; Duca, John V. (2020-11-19)
In the financial crisis and recession induced by the COVID-19 pandemic, many investment-grade firms became unable to borrow from securities markets. In response, the Fed not only reopened its commercial paper funding facility but also announced it would purchase newly issued and seasoned bonds of corporations rated as investment grade before the COVID pandemic. A careful splicing of different unemployment rate series enables us to assess the effectiveness of recent Fed interventions in these long-term debt markets over long sample periods, spanning the Great Depression, Great Recession and ...
Working Papers , Paper 2029

Working Paper
Long and Plosser Meet Bewley and Lucas
Wen, Yi; Dong, Feng (2018-04-01)
We develop a N-sector business cycle network model a la Long and Plosser (1983), featuring heterogenous money demand a la Bewley (1980) and Lucas (1980). Despite incomplete markets and a well-defined distribution of real money balances across heterogeneous households, the enriched N-sector network model remains analytically tractable with closed-form solutions up to the aggregate level. Relying on the tractability, we establish several important results: (i) The economy's input-output network linkages become endogenously time-varying over the business cycle?thanks to the influence of the ...
Working Papers , Paper 2018-8

Working Paper
Does Price Regulation Affect Competition? Evidence from Credit Card Solicitations
Ronen, Joshua; Li, Geng; Dou, Yiwei (2019-03-25)
We study the unintended consequences of consumer financial regulations, focusing on the CARD Act, which restricts consumer credit card issuers? ability to raise interest rates. We estimate the competitive responsiveness-the degree to which a credit card issuer changes offered interest rates in response to changes in interest rates offered by its competitors-as a measure of competition in the credit card market. Using small business card offers, which are not subject to the Act, as a control group, we find a significant decline in the competitive responsiveness after the Act. The decline in ...
Finance and Economics Discussion Series , Paper 2019-018

Working Paper
Central Bank Digital Currency: Financial Inclusion vs. Disintermediation
Banet, Jeremie; Lebeau, Lucie (2022-09-24)
An overlapping-generations model with income heterogeneity is developed to analyze the impact of introducing a Central Bank Digital Currency (CBDC) on financial inclusion, and its potential adverse effect on bank funding. We highlight the role of two design parameters: the fixed cost of CBDC usage and the interest rate it pays, and derive principles for maximum inclusion and for mitigating the inclusion-intermediation trade-off. Agents’ choice of money instrument is endogenously driven by income heterogeneity. Pre-CBDC, wealthier agents adopt deposits, while poorer agents adopt cash and ...
Working Papers , Paper 2218

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. (2023-08-15)
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 Recent Rise in US Inflation: Policy Lessons from the Quantity Theory
Gao, Han; Nicolini, Juan Pablo (2024-07-12)
We build a scenario for inflation in the United States in the years to come. Following Gao, Kulish, and Nicolini (2021), we use the quantity theory of money as a conceptual framework and confront the theory with evidence from both the United States and other OECD countries. We argue that a) the quantity theory of money works very well in the medium term, which we define to be close to four years; b) deviations from the inflation rate predicted by the quantity theory tend to disappear in the medium term; c) the burst in inflation that started in 2021 in the United States is a deviation from ...
Quarterly Review , Volume 44 , Issue 2

Working Paper
Deposit interest rate ceilings as credit supply shifters: bank level evidence on the effects of Regulation Q
Koch, Christoffer (2014-07-14)
Shocks emanating from and propagating through the banking system have recently gained interest in the macroeconomics literature, yet they are not a feature unique to the 2008/09 financial crisis. Banking disintermediation shocks occured frequently during the Great Inflation era due to fixed deposit rate ceilings. I estimate the effect of deposit rate ceilings inscribed in Regulation Q on the transmission of federal funds rate changes to bank level credit growth using a historic bank level data set spanning half a century from 1959 to 2013 with about two million observations. Measures of the ...
Working Papers , Paper 1406

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