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Jel Classification:N20 

Report
Central bank macroeconomic forecasting during the global financial crisis: the European Central Bank and Federal Reserve Bank of New York experiences

This paper documents macroeconomic forecasting during the global financial crisis by two key central banks: the European Central Bank and the Federal Reserve Bank of New York. The paper is the result of a collaborative effort between the two institutions, allowing us to study the time-stamped forecasts as they were made throughout the crisis. The analysis does not focus exclusively on point forecast performance. It also examines density forecasts, as well as methodological contributions, including how financial market data could have been incorporated into the forecasting process.
Staff Reports , Paper 680

Journal Article
The political origins of Section 13(3) of the Federal Reserve Act

At the height of the financial crisis of 2007-09, the Federal Reserve conducted emergency lending under authority granted to it in the third paragraph of Section 13 of the Federal Reserve Act. This article explores the political and legislative origins of the section, focusing on why Congress chose to endow the central bank with such an authority. The author describes how in the initial passage of the act in 1913, Congress demonstrated its steadfast commitment to the ?real bills? doctrine in two interrelated ways: 1) by limiting what assets the Fed could purchase, discount, and use as ...
Economic Policy Review , Issue 24-1 , Pages 1-33

Report
Zombies at Large? Corporate Debt Overhang and the Macroeconomy

With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near-universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when ...
Staff Reports , Paper 951

Working Paper
Betting the House

Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection ...
Working Paper Series , Paper 2014-28

Working Paper
How Cyclical Is Bank Capital?

The alleged pro-cyclicality of bank capital (high in good times, low in bad) has received some blame for the recent financial crisis. Others blame the countercyclicality of capital regulations: too low in high times and too high in bad. To address this problem, Basel III has introduced countercyclical capital buffers for large banks. But just how cyclical is bank capital? We look at the question from several vantage points, using both detailed recent data on risk-weighted assets and several sources of annual data going back to 1834. To help understand the historical data, we provide a short ...
Working Papers (Old Series) , Paper 1504

Working Paper
Leveraged bubbles

What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms,asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous ...
Working Paper Series , Paper 2015-10

Working Paper
Money, Banking, and Old-School Historical Economics

We review developments in the history of money, banking, and financial intermediation over the last twenty years. We focus on studies of financial development, including the role of regulation and the history of central banking. We also review the literature of banking and financial crises. This area has been largely unaffected by the so-called new econometric methods that seek to prove causality in reduced form settings. We discuss why historical macroeconomics is less amenable to such methods, discuss the underlying concepts of causality, and emphasize that models remain the backbone of our ...
Working Paper Series , Paper WP-2020-28

Working Paper
The Great Mortgaging: Housing Finance, Crises, and Business Cycles

This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks? balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a ...
Working Paper Series , Paper 2014-23

Working Paper
Historical Patterns of Inequality and Productivity around Financial Crises

To understand the determinants of financial crises, previous research focused on developments closely related to financial markets. In contrast, this paper considers changes originating in the real economy as drivers of financial instability. Based on long-run historical data for advanced economies, I find that rising top income inequality and low productivity growth are robust predictors of crises ? even outperforming well known early-warning indicators such as credit growth. Moreover, if crises are preceded by such developments, output declines more during the subsequent recession. In ...
Working Paper Series , Paper 2017-23

Working Paper
Bank Capital Redux: Solvency, Liquidity, and Crisis

Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies between 1870 and 2013 and for the post-WW2 period, and holds both within and between countries. We reach this startling conclusion using newly collected data on the liability side of banks? balance sheets in 17 countries. A solvency indicator, the capital ratio has no value as a crisis predictor; but we find that liquidity indicators such as the loan-to-deposit ratio and the share of non-deposit funding do signal financial fragility, although they add ...
Working Paper Series , Paper 2017-6

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