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Working Paper
Fiscal Multipliers and Financial Crises
Faria-e-Castro, Miguel (2021-10-20)
I study the effects of the US fiscal policy response to the Great Recession, accounting both for standard tools and financial sector interventions. A nonlinear model calibrated to the US allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been almost 50% larger in the absence of that response for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages ...
Working Papers , Paper 2018-023

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

Working Paper
A Model of Slow Recoveries from Financial Crises
Queraltó, Albert (2013-12-18)
This paper documents highly persistent effects of financial crises on output, labor productivity and employment in a sample of emerging economies. To address these facts, it introduces a quantitative macroeconomic model that includes endogenous TFP growth through firm creation. Firm creators obtain funding from a financial intermediation sector which is subject to frictions. These frictions become especially severe in a financial crisis, increasing the cost of credit for firm creators and thereby lowering the growth rate of aggregate TFP. As a consequence, the model produces medium-run ...
International Finance Discussion Papers , Paper 1097

Working Paper
Wholesale Banking and Bank Runs in Macroeconomic Modeling of Financial Crises
Gertler, Mark; Kiyotaki, Nobuhiro; Prestipino, Andrea (2016-01-29)
There has been considerable progress in developing macroeconomic models of banking crises. However, most of this literature focuses on the retail sector where banks obtain deposits from households. In fact, the recent financial crisis that triggered the Great Recession featured a disruption of wholesale funding markets, where banks lend to one another. Accordingly, to understand the financial crisis as well as to draw policy implications, it is essential to capture the role of wholesale banking. The objective of this paper is to characterize a model that can be seen as a natural extension of ...
International Finance Discussion Papers , Paper 1156

Swap lines curbed global dollar shortages, appreciation during COVID-19 crisis
Davis, J. Scott; Sagnanert, Pon (2024-05-21)
During the initial weeks of the COVID-19 crisis, imbalances in the offshore dollar funding market led to safe-haven appreciation of the dollar. Fed swap lines between the U.S. central bank and counterparts abroad addressed these imbalances, subsequently helping reduce the cost of offshore dollar borrowing, reversing dollar appreciation and providing liquidity.
Dallas Fed Economics

Anticipatory discount window stigma
Schulhofer-Wohl, Sam (2024-09-06)
Observers often assert that stigma—a perception that depositors, investors or others will penalize an institution for borrowing from the discount window—keeps banks from borrowing when they should, making the facilities less effective. Dallas Fed Senior Vice President Sam Schulhofer-Wohl argues that some harms of discount window stigma can be mitigated regardless of whether stigma itself persists.
Dallas Fed Economics

Working Paper
Why Do We Need Both Liquidity Regulations and a Lender of Last Resort? A Perspective from Federal Reserve Lending during the 2007-09 U.S. Financial Crisis
Carlson, Mark A.; Duygan-Bump, Burcu; Nelson, William R. (2015-02-10)
During the 2007-09 financial crisis, there were severe reductions in the liquidity of financial markets, runs on the shadow banking system, and destabilizing defaults and near-defaults of major financial institutions. In response, the Federal Reserve, in its role as lender of last resort (LOLR), injected extraordinary amounts of liquidity. In the aftermath, lawmakers and regulators have taken steps to reduce the likelihood that such lending would be required in the future, including the introduction of liquidity regulations. These changes were motivated in part by the argument that central ...
Finance and Economics Discussion Series , Paper 2015-11

Emerging-market countries insulate themselves from Fed rate hikes
Davis, J. Scott; Sagnanert, Pon (2023-08-08)
Earlier episodes of sizable Fed tightening preceded destabilizing currency devaluations in emerging markets, precipitating sovereign debt and banking crises in many of those economies
Dallas Fed Economics

Working Paper
A Quantitative Theory of Relationship Lending
Dempsey, Kyle; Faria-e-Castro, Miguel (2022-09-23)
Banks' loan pricing decisions reflect the fact that borrowers tend to have long-lasting relationships with lenders. Therefore, pricing decisions have an inherently dynamic component: high interest rates may yield higher static profits per loan, but in the long run they erode a banks' customer base and reduce future profitability. We study this tradeoff using a dynamic banking model which embeds lending relationships using deep habits (“customer capital”) and costs of adjusting loan portfolio composition. High customer capital raises the level and decreases the interest rate elasticity of ...
Working Papers , Paper 2022-033

Discussion Paper
How (Un-)Informed Are Depositors in a Banking Panic? A Lesson from History
Blickle, Kristian S.; Brunnermeier, Markus K.; Luck, Stephan (2022-02-17)
How informed or uninformed are bank depositors in a banking crisis? Can depositors anticipate which banks will fail? Understanding the behavior of depositors in financial crises is key to evaluating the policy measures, such as deposit insurance, designed to prevent them. But this is difficult in modern settings. The fact that bank runs are rare and deposit insurance universal implies that it is rare to be able to observe how depositors would behave in absence of the policy. Hence, as empiricists, we are lacking the counterfactual of depositor behavior during a run that is undistorted by the ...
Liberty Street Economics , Paper 20220217

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