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Jel Classification:D53 

Working Paper
Firm Networks and Asset Returns

This paper argues that changes in the propagation of idiosyncratic shocks along firm networks are important to understanding variations in asset returns. When calibrated to match key features of supplier-customer networks in the United States, an equilibrium model in which investors have recursive preferences and firms are interlinked via enduring relationships generates long-run consumption risks. Additionally, the model matches cross-sectional patterns of portfolio returns sorted by network centrality, a feature unaccounted for by standard asset pricing models.
Finance and Economics Discussion Series , Paper 2017-014

Working Paper
Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom

An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002?06 U.S. house price boom. Contrary to this belief, we show that the house price and subprime booms occurred in different places. Counties with the largest home price appreciation between 2002 and 2006 had the largest declines in the share of purchase mortgages to subprime borrowers. We also document that the expansion in speculative mortgage products and underwriting fraud was not concentrated among subprime borrowers.
FRB Atlanta Working Paper , Paper 2018-10

Journal Article
The G-Spread Suggests Federal Reserve Restored Calm to Treasury Markets

In March, the coronavirus pandemic led to a sell-off in Treasury markets and a subsequent period of financial stress. I use one measure of Treasury market pressure, the G-spread, to gauge how liquidity in Treasury markets changed in response to the pandemic and the Federal Reserve’s interventions. I find that timely Federal Reserve interventions restored calm to the Treasury market, and that these interventions stand out in speed and scale compared with interventions in the early days of the 2007–08 financial crisis.
Economic Bulletin

Working Paper
Real Effects of Foreign Exchange Risk Migration: Evidence from Matched Firm-Bank Microdata

When firms trade forward contracts with banks to protect foreign currency cash flows against exchange rate movements, foreign exchange risk migrates to the banking sector. We show how this migrated risk may induce systemic repercussions with severe implications for the real economy. For identification, we exploit the Brexit referendum in June 2016 as a quasi-natural experiment in combination with detailed microdata on forward contracts and the credit register in Germany. Before the referendum, firms substantially increased their use of derivatives in response to the heightened uncertainty; ...
Working Papers , Paper 20-8

Conference Paper
Designing Resilient Monetary Policy Frameworks for the Future : Economic Policy Symposium, Jackson Hole, Wyoming, August 25-27, 2016

Proceedings - Economic Policy Symposium - Jackson Hole

Working Paper
Default Risk and Private Student Loans: Implications for Higher Education Policies

The private market for student loans has become an important source of college financing in the United States. Unlike government student loans, the terms on student loans in the private market are based on credit status. We quantify the importance of the private market for student loans and of credit status for college investment in a general equilibrium heterogeneous life-cycle economy. We find that students with good credit status invest in more college education (compared to those with bad credit status) and that this effect is more pronounced for low-income students. Furthermore, results ...
Finance and Economics Discussion Series , Paper 2014-66

Discussion Paper
How Did Market Perceptions of the FOMC’s Reaction Function Change after the Fed’s Framework Review?

In late August, as part of the Federal Reserve’s review of Monetary Policy Strategy, Tools, and Communications, the Federal Open Market Committee (FOMC) published a revised Statement on Longer-Run Goals and Monetary Policy Strategy. As observers have noted, the revised statement incorporated important changes to the Federal Reserve’s approach to monetary policy. This includes emphasizing maximum employment as a broad-based and inclusive goal and focusing on “shortfalls” rather than “deviations” of employment from its maximum level. The statement also noted that, in order to anchor ...
Liberty Street Economics , Paper 20201218

Journal Article
To Improve the Accuracy of GDP Growth Forecasts, Add Financial Market Conditions

More timely data on current macroeconomic conditions can reduce uncertainty about forecasts, helping policymakers mitigate the risk of extreme economic outcomes. We find that incorporating financial market conditions along with current macroeconomic conditions improves the forecast accuracy of future GDP growth. Forecasts based only on current macroeconomic conditions eventually converge to those incorporating financial market conditions, lending further support to this approach.
Economic Bulletin , Issue June 2, 2021 , Pages 5

Report
Rollover risk as market discipline: a two-sided inefficiency

Why does the market discipline that financial intermediaries face seem too weak during booms and too strong during crises? This paper shows in a general equilibrium setting that rollover risk as a disciplining device is effective only if all intermediaries face purely idiosyncratic risk. However, if assets are correlated, a two-sided inefficiency arises: Good aggregate states have intermediaries taking excessive risks, while bad aggregate states suffer from costly fire sales. The driving force behind this inefficiency is an amplifying feedback loop between asset values and market discipline. ...
Staff Reports , Paper 597

Working Paper
An Information-Based Theory of Financial Intermediation

We advance a theory of how private information and heterogeneous screening ability across market participants shapes trade in decentralized asset markets. We solve for the equilibrium market structure and show that the investors who intermediate trade the most and interact with the largest set of counterparties must have the highest screening ability. That is, the primary intermediaries are those with superior information?screening experts. We provide empirical support for the model?s predictions using transaction-level micro data and information disclosure requirements. Finally, we study the ...
Working Paper , Paper 19-12

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