Search Results
Working Paper
Financial frictions and the reaction of stock prices to monetary policy shocks
This paper reveals and tests a new theoretical implication of the credit channel of monetary policy: as financial frictions (monitoring or auditing costs) increase, the reaction of stock prices to monetary policy shocks decreases. Correspondingly, towards the end of the Enron accounting scandal, the stock prices of firms sharing the same auditor as Enron responded by about 50 to 60 basis points less than other firms to a 10 basis point reduction in the federal funds target rate. This effect is particularly strong among more opaque firms for which financial statements likely provide a more ...
Speech
Concluding remarks at the Monetary Policy Implementation in the Long Run Conference, Federal Reserve Bank of Minneapolis
Remarks at the Monetary Policy Implementation in the Long Run Conference, Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota.
Working Paper
Assessing Targeted Macroprudential Financial Regulation: The Case of the 2006 Commercial Real Estate Guidance for Banks
In January 2006, federal regulators issued guidance requiring banks with specific high concentrations of commercial real estate (CRE) loans to tighten managerial controls. This paper shows that banks with concentrations in excess of the thresholds set in the guidance subsequently experienced slower growth in their CRE portfolios than can be explained by changes in bank or economic conditions. Moreover, banks above the CRE thresholds tended to have slower commercial and industrial loan growth but faster household loan growth following issuance of the guidance. The results highlight the ...
Working Paper
Land prices and unemployment
We integrate the housing market and the labor market in a dynamic general equilibrium model with credit and search frictions. The model is confronted with the U.S. macroeconomic time series. Our estimated model can account for two prominent facts observed in the data. First, the land price and the unemployment rate tend to move in opposite directions over the business cycle. Second, a shock that moves the land price is capable of generating large volatility in unemployment. Our estimation indicates that a 10 percent drop in the land price leads to a 0.34 percentage point increase in the ...
Working Paper
The Bank Lending Channel Is Back
The period following the global financial crisis was marked by low interest rates and low responsiveness of bank lending to monetary policy. This led some to conclude that the bank lending channel for monetary policy to influence economic activity had weakened. This paper revisits the responsiveness of the bank lending channel using a bank-level panel of US Call Report data and updated measures of U.S. monetary policy shocks. Results indicate that the efficacy of the bank lending channel increased over our sample period. We find tepid responses in bank lending to monetary shocks from 2012H1 ...