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Working Paper
The Risk-Adjusted Monetary Policy Rule
Schmidt, Sebastian; Nakata, Taisuke (2016-07)
Macroeconomists are increasingly using nonlinear models to account for the effects of risk in the analysis of business cycles. In the monetary business cycle models widely used at central banks, an explicit recognition of risk generates a wedge between the inflation-target parameter in the monetary policy rule and the risky steady state (RSS) of inflation---the rate to which inflation will eventually converge---which can be undesirable in some practical applications. We propose a simple modification to the standard monetary policy rule to eliminate the wedge. In the proposed risk-adjusted ...
Finance and Economics Discussion Series , Paper 2016-061

Journal Article
Bank capital standards for foreign exchange and other market risks
Levonian, Mark E. (1994)
The Basle Committee on Banking Supervision has proposed methods for incorporating consideration of market risks--exchange rate, interest rate, and equity price risks--into risk-based capital standards for banks. This paper shows that the separate and seemingly different proposed approaches to the three sources of risk are consistent with one another, reflecting a single unifying theme. That theme is the measurement of risk through a weighting of two different measures of portfolio size, the gross position and the net position. A simple theoretical model demonstrates that such an approach ...
Economic Review

Working Paper
Debt maturity, risk, and asymmetric information
Espinosa-Vega, Marco A.; Frame, W. Scott; Miller, Nathan H.; Berger, Allen N. (2004)
We test the implications of Flannery's (1986) and Diamond's (1991) models concerning the effects of risk and asymmetric information in determining debt maturity, and we examine the overall importance of informational asymmetries in debt maturity choices. We employ data on over 6,000 commercial loans from 53 large U.S. banks. Our results for low-risk firms are consistent with the predictions of both theoretical models, but our findings for high-risk firms conflict with the predictions of Diamond's model and with much of the empirical literature. Our findings also suggest a strong quantitative ...
Finance and Economics Discussion Series , Paper 2004-60

Journal Article
Did you know? A primer on credit default swaps
anonymous (2008)
A credit default swap, an over-the-counter financial contract that allows for the transfer of credit risk from one party to another, is one way financial institutions mitigate and diversify credit risk.
Financial Update , Volume 21 , Issue 2

Journal Article
Revisions to policy statement on payments system risk
anonymous (2004-10)
Federal Reserve Bulletin , Issue Aut , Pages 464

Conference Paper
The cosmic risk: an essay on global imbalances and treasuries
Dooley, Michael P.; Garber, Peter M. (2005-02)
Proceedings , Issue Feb

Report
What was the market's view of U.K. monetary policy? Estimating inflation risk and expected inflation with indexed bonds
Remolona, Eli M.; Gong, Frank F.; Wickens, Michael (1998)
A measure of the credibility of monetary policy is the inflation risk premium in nominal yields. This will be time varying and can be estimated by combining the information in the nominal term structure with that in the real term structure. We estimate these risk premia using a generalized CIR affine-yield model, with one factor driving the real term structure of monthly observations on two-year, five-year and ten-year UK index-linked debt and two factors driving the term structure of the corresponding nominal yields. Our estimates show that the inflation risk premium contributes on average ...
Staff Reports , Paper 57

Working Paper
The Pass-Through of Sovereign Risk
Bocola, Luigi (2015-04-16)
This paper examines the macroeconomic implications of sovereign credit risk in a business cycle model where banks are exposed to domestic government debt. The news of a future sovereign default hampers financial intermediation. First, it tightens the funding constraints of banks, reducing their available resources to finance firms (liquidity channel). Second, it generates a precautionary motive for banks to deleverage (risk channel). I estimate the model using Italian data, finding that i) sovereign credit risk was recessionary and that ii) the risk channel was sizable. I then use the model ...
Working Papers , Paper 722

Conference Paper
Corporate growth and risk around the world
Djankov, Simeon; Claessens, Stijn; Nenova, Tatiana (1999-09)
Proceedings , Issue Sep

Journal Article
Global payments in the 21st century: a central banker's view
Parry, Robert T. (1996)
FRBSF Economic Letter

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