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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
The Collateral Premium and Levered Safe-Asset Production
Ross, Chase P. (2022-07-12)
Banks are vital suppliers of money-like safe assets, which they produce by issuing short-term liabilities and pledging collateral. But their ability to create safe assets varies over time as leverage constraints fluctuate. I present a model to describe private safe-asset production when intermediaries face leverage constraints. I measure bank leverage constraints using bank-intermediated basis trades. The collateral premium â€” a strategy long Treasuries used more often as repo collateral and short Treasuries used less often â€” has a positive expected return of 22 basis points per ...
Finance and Economics Discussion Series , Paper 2022-046

Working Paper
Sovereigns versus Banks: Credit, Crises, and Consequences
Taylor, Alan M.; Jordà, Òscar; Schularick, Moritz (2013)
Two separate narratives have emerged in the wake of the Global Financial Crisis. One speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies. However, the two may interact in important and understudied ways. This paper studies the co-evolution of public and private sector debt in advanced countries since 1870. We find that in advanced economies financial stability risks have come from private sector credit booms ...
Working Paper Series , Paper 2013-37

Discussion Paper
Where Have the Paycheck Protection Loans Gone So Far?
Liu, Haoyang; Volker, Desi (2020-05-06)
The Paycheck Protection Program (PPP) is a central piece of the CARES Act. In the program’s first round, $349 billion in forgivable government-guaranteed loans were extended to small businesses to cover costs related to payroll and utilities, as well as mortgage and rent payments. The program opened for applications on April 3 and was oversubscribed by April 16. Because of its popularity, lawmakers passed a new bill replenishing the fund with another $310 billion and the Small Business Administration (SBA) started approving loans again on April 27. With a new round of PPP lending underway, ...
Liberty Street Economics , Paper 20200506

Working Paper
Misallocation Costs of Digging Deeper into the Central Bank Toolkit
Zeke, David; Kurtzman, Robert J. (2017-08-03)
Central bank large-scale asset purchases, particularly the purchase of corporate bonds of nonfinancial firms, can induce a misallocation of resources through their heterogeneous effect on firms cost of capital. First, we analytically demonstrate the mechanism in a static model. We then evaluate the misallocation of resources induced by corporate bond buys and the associated output losses in a calibrated heterogeneous firm New Keynesian DSGE model. The calibrated model suggests misallocation effects from corporate bond buys can be large enough to make them less effective than government bond ...
Finance and Economics Discussion Series , Paper 2017-076

Working Paper
Two Illustrations of the Quantity Theory of Money Reloaded
Gao, Han; Kulish, Mariano; Nicolini, Juan Pablo (2020-12-15)
In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. We conclude that the low-frequency behavior of these series maintains a close relationship, as predicted by standard quantity theory models. In an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver very different high-frequency dynamics. We argue that these relationships are useful for policy design aimed at controlling inflation.
Working Papers , Paper 774

Discussion Paper
Who Benefited from PPP Loans by Fintech Lenders?
Godin, Nathan Y.; Battisto, Jessica; Sarkar, Asani; Kramer, Claire (2021-05-27)
In the previous post, we discussed inequalities in access to credit from the Paycheck Protection Program (PPP), showing that, although fintech lenders had a small share of total PPP loan volumes, they provided important support for underserved borrowers. In this post, we ask whether smaller firms received the amount of PPP credit that they requested, and whether loans went to the hardest-hit areas and mitigated job losses. Our results indicate that fintech providers were a key channel in reaching minority-owned firms, the smallest of small businesses, and borrowers most affected by the ...
Liberty Street Economics , Paper 20210527c

Report
Karl Brunner's Contributions to the Theory of the Money Supply
Nicolini, Juan Pablo (2019-04-23)
In this paper, I revisit some recent work on the theory of the money supply, using a theoretical framework that closely follows Karl Brunner's work. I argue that had his research proposals been followed by the profession, some of the misunderstandings related to the instability of the money demand relationship could have been avoided.
Staff Report , Paper 582

Working Paper
Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data
Kudlyak, Marianna; Mondragon, John; Coibion, Olivier; Gorodnichenko, Yuriy (2014-01-10)
One suggested hypothesis for the dramatic rise in household borrowing that preceded the financial crisis is that low-income households increased their demand for credit to finance higher consumption expenditures in order to "keep up" with higher-income households. Using household level data on debt accumulation during 2001-2012, we show that low-income households in high-inequality regions accumulated less debt relative to income than their counterparts in lower-inequality regions, which negates the hypothesis. We argue instead that these patterns are consistent with supply-side ...
Working Paper , Paper 14-1

Discussion Paper
A CCP Is a CCP Is a CCP
Cox, Robert; Steigerwald, Robert (2017-04-01)
Central counterparties (CCPs) are an important part of contemporary financial market infrastructure. The orderly risk management operations and financial resilience of CCPs and other market infrastructures are essential for financial stability.Regulators and other policymakers face a major challenge constructing appropriate regulatory frameworks for central clearing, given unique features of CCP risk profiles and, in particular, the mutualization of default losses. While CCPs may have superficial similarities to other infrastructures and exposed to risks like those borne by banks and other ...
Policy Discussion Paper Series

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