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Working Paper
Evergreening
Sanchez, Juan M.; Paul, Pascal; Faria-e-Castro, Miguel (2023-01)
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm's debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher ...
Working Papers , Paper 2021-012

Working Paper
Considerations regarding the use of the discount window to support economic activity through a funding for lending program
Carlson, Mark A.; Zarutskie, Rebecca (2022-10)
This paper considers the use of the Federal Reserve's ability to provide loans to depository institutions under its discount window lending authority in support of achieving its monetary policy objectives through a funding for lending program. Broadly, a funding for lending program could be structured as one in which the Federal Reserve makes ample low-cost funding available to banks or a program in which the Federal Reserve only provides low-cost funding conditional on the banks meeting certain lending targets. We provide a general description of how a funding for lending program could be ...
Finance and Economics Discussion Series , Paper 2022-070

Working Paper
Shock Transmission through Cross-Border Bank Lending: Credit and Real Effect
Minoiu, Camelia; Kapan, Tumer; Hale, Galina (2016-02-04)
We study the transmission of financial sector shocks across borders through international bank connections. For this purpose, we use data on long-term interbank loans among more than 6,000 banks during 1997-2012 to construct a yearly global network of interbank exposures. We estimate the effect of direct (first-degree) and indirect (second-degree) exposures to countries experiencing systemic banking crises on bank profitability and loan supply. We find that direct exposures to crisis countries squeeze banks? profit margins, thereby reducing their returns. Indirect exposures to crisis ...
Working Paper Series , Paper 2016-1

Report
Accounting for Business Cycles
Chari, V. V.; McGrattan, Ellen R.; Kehoe, Patrick J.; Brinca, Pedro (2016-06-28)
We elaborate on the business cycle accounting method proposed by Chari, Kehoe, and McGrattan (2007), clear up some misconceptions about the method, and then apply it to compare the Great Recession across OECD countries as well as to the recessions of the 1980s in these countries. We have four main findings. First, with the notable exception of the United States, Spain, and Ireland, the Great Recession was driven primarily by the efficiency wedge. Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in ...
Staff Report , Paper 531

Working Paper
What is Certain about Uncertainty?
Cascaldi-Garcia, Danilo; Sarisoy, Cisil; Londono, Juan M.; Rogers, John H.; Datta, Deepa Dhume; Ferreira, Thiago Revil T.; Grishchenko, Olesya V.; Jahan-Parvar, Mohammad R.; Loria, Francesca; Ma, Sai; Rodriguez, Marius del Giudice; Zer, Ilknur (2020-07-16)
Researchers, policymakers, and market participants have become increasingly focused on the effects of uncertainty and risk on financial market and economic outcomes. This paper provides a comprehensive survey of the many existing measures of risk, uncertainty, and volatility. It summarizes what these measures capture, how they are constructed, and their effects, paying particular attention to large uncertainty spikes, such as those appearing concurrently with the outbreak of COVID-19. The measures are divided into three types: (1) news-based, survey- based, and econometric; (2) asset market ...
International Finance Discussion Papers , Paper 1294

Working Paper
Capital Taxation with Heterogeneous Discounting and Collateralized Borrowing
Biljanovska, Nina; Vardoulakis, Alexandros (2017-05-05)
We study optimal long-run capital taxation in a closed economy with heterogeneity in agents' time-discount factors where borrowing is allowed but restricted by a collateral constraint. Financial frictions distort intertemporal optimization margins and the tax system serves a dual role: first, it is used to finance government consumption; second, it serves to alleviate the distortions arising from the binding collateral constraint. The discrepancy between the private and the social discount factors pushes for a subsidy on capital, while the discrepancy introduced by the collateral constraint ...
Finance and Economics Discussion Series , Paper 2017-053

Working Paper
Evergreening
Sanchez, Juan M.; Paul, Pascal; Faria-e-Castro, Miguel (2023-08)
We develop a simple model of concentrated lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm’s debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher ...
Working Papers , Paper 2021-012

Working Paper
Bond Insurance and Public Sector Employment
Amornsiripanitch, Natee (2022-02-07)
This paper uses a unique data set of local governments’ bond issuance, expenditure, and employment to study the impact of the monoline insurance industry’s demise on local governments’ operations. To show causality, I use an instrumental variable approach that exploits persistent insurance relationships and the cross-sectional variation in insurers’ exposure to high-quality residential mortgage-backed securities. Governments associated with ailing insurers issued less debt, cut expenditures, and hired fewer workers. These effects are persistent. Partial equilibrium calculations show ...
Working Papers , Paper 22-03

Working Paper
Ramsey Taxation in the Global Economy
Chari, V. V.; Teles, Pedro; Nicolini, Juan Pablo (2017-12-11)
We study cooperative optimal Ramsey equilibria in the open economy addressing classic policy questions: Should restrictions be placed to free trade and capital mobility? Should capital income be taxed? Should goods be taxed based on origin or destination? What are desirable border adjustments? How can a Ramsey allocation be implemented with residence-based taxes on assets? We characterize optimal wedges and analyze alternative policy implementations.
Working Papers , Paper 745

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