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Jel Classification:G01 

Working Paper
Catalytic IMF? a gross flows approach

The financial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic effect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital inflow to study instead the IMF?s catalytic role in the context of gross capital flows. Using fixed-effects regressions, instrumental variables and local projection methods, we find significant differences in how resident and foreign investors react to IMF programs as well as in inward and outward flows. While IMF lending does not catalyze ...
Globalization Institute Working Papers , Paper 254

Working Paper
Interest Rates or Haircuts? Prices Versus Quantities in the Market for Collateralized Risky Loans

Markets for risky loans clear on two dimensions - an interest rate (or equivalently a spread above the riskless rate) and a specification of the amount of collateral per dollar of lending. The latter is summarized by the margin or "haircut" associated with the loan. Some key models of endogenous collateral constraints imply that the primary equilibrating force will be in the form of haircuts rather than movements in interest rate spreads. Indeed, an important benchmark model, derived in a two-state world, implies that haircuts will adjust to render all lending riskless, and that a loss of ...
Working Paper Series , Paper WP-2016-19

Report
Informational contagion in the laboratory

We study the informational channel of financial contagion in the laboratory. In our experiment, two markets with correlated fundamentals open sequentially. In both markets, subjects receive private information. Subjects in the market opening second also observe the history of trades and prices in the first market. We find that although in both markets private information is only imperfectly aggregated, subjects are able to make correct inferences based on the public information coming from the market that opens first. As a result, we observe financial contagion in the laboratory: Indeed, the ...
Staff Reports , Paper 715

Working Paper
Market Power, Inequality, and Financial Instability

Over the last four decades, the U.S. economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.
Finance and Economics Discussion Series , Paper 2020-057

Journal Article
Literature review on the stability of funding models

Financial intermediaries have an important role as liquidity providers?they perform maturity and liquidity transformation by issuing liquid, short-term liabilities while holding illiquid, long-term assets. But there is an inherent fragility associated with this role. This article provides a review of the economics literature on the stability of banks and other financial intermediaries, with a policy-oriented focus on their funding models. Yorulmazer employs the standard framework used in the literature to examine the fragility of intermediaries that conduct maturity and liquidity ...
Economic Policy Review , Issue Feb , Pages 3-16

Discussion Paper
Financial Stability and the Coronavirus Pandemic

The Atlanta Fed recently helped organize a conference titled "Financial Stability and the Coronavirus Pandemic." The conference had three sessions devoted to problems focusing on various aspects of how the markets for corporate credits responded to the COVID-19 shock including corporate bond investment funds, the corporate bond market, and the corporate loan market. This article summarizes some of the important findings of the papers presented at the conference.
Policy Hub , Paper 2020-13

Working Paper
Where Are All the New Banks? The Role of Regulatory Burden in New Charter Creation

New bank formation in the U.S. has declined dramatically since the financial crisis, from well over 100 new banks per year to less than 1. Many have suggested that this is due to newly-instituted regulation, but the current weak economy and low interest rates (which both depress banking profits) could also have played a role. We estimate a model of bank entry decisions on data from 1976 to 2013 which indicates that at least 75% of the decline in new bank formation would have occurred without any regulatory change. The standalone effect of regulation is more difficult to quantify.
Finance and Economics Discussion Series , Paper 2014-113

Report
Bank holding company dividends and repurchases during the financial crisis

Many large U.S. bank holding companies (BHCs) continued to pay dividends during the 2007-09 financial crisis, even as financial market conditions deteriorated, large losses accumulated, and emergency capital and liquidity were being provided by the official sector. In contrast, share repurchases by these BHCs dropped sharply in the early part of the crisis. Documenting this divergent behavior is one of the key contributions of this paper. The paper also examines the role that repurchases played in large BHCs? decisions to reduce or eliminate dividends. The key findings are that smaller BHCs ...
Staff Reports , Paper 666

Working Paper
The Real Effects of Credit Line Drawdowns

Do firms use credit line drawdowns to finance investment? Using a unique dataset of 467 COMPUSTAT firms with credit lines, we study the purpose of drawdowns during the 2007-2009 financial crisis. Our data show that credit line drawdowns had already increased in 2007, precisely when disruptions in bank funding markets began to squeeze aggregate liquidity. Consistent with theory, our results confirm that firms use drawdowns to sustain investment after an idiosyncratic liquidity shock. Using an instrumental variable approach based on institutional features of credit line contracts, we find that ...
Finance and Economics Discussion Series , Paper 2015-7

Working Paper
Preventing Controversial Catastrophes

In a market-based democracy, we model different constituencies that disagree regarding the likelihood of economic disasters. Costly public policy initiatives to reduce or eliminate disasters are assessed relative to private alternatives presented by financial markets. Demand for such public policies falls as much as 40% with disagreement, and crowding out by private insurance drives most of the reduction. As support for disaster-reducing policy jumps in periods of disasters, costly policies may be adopted only after disasters occur. In some scenarios constituencies may even demand policies ...
Finance and Economics Discussion Series , Paper 2018-052

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