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Discussion Paper
The Growing Risk of Spillovers and Spillbacks in the Bank‑NBFI Nexus
Acharya, Viral V.; Cetorelli, Nicola; Tuckman, Bruce (2024-06-20)
Nonbank financial institutions (NBFIs) are growing, but banks support that growth via funding and liquidity insurance. The transformation of activities and risks from banks to a bank-NBFI nexus may have benefits in normal states of the world, as it may result in overall growth in (especially, credit) markets and widen access to a wide range of financial services, but the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes. In this post, we consider the systemic implications of the observed build-up of bank-NBFI connections ...
Liberty Street Economics , Paper 20240620

Discussion Paper
Assessing Contagion Risk in a Financial Network
Duarte, Fernando M.; Ruela, Francisco; Jones, Collin (2019-06-24)
Since the 2008 financial crisis, there has been an explosion of research trying to understand and quantify the default spillovers that can arise through counterparty risk. This first of two posts delves into the analysis of financial network contagion through this spillover channel. The authors introduce a framework, originally developed by Eisenberg and Noe, that is useful for thinking about default cascades.
Liberty Street Economics , Paper 20190624

Working Paper
A Market Interpretation of Treatment Effects
Minton, Robert; Mulligan, Casey B. (2024-12-20)
Markets, likened to an invisible hand, often appear to contradict econometric assumptions that rule out spillovers of one person’s treatment on another’s outcomes. This paper provides a simple statistical framework highlighting that controls are indirectly affected by the treatment through the market. Further, the effect of the treatment on the treated reveals only part of the consequence for the treated of treating the entire market. When combined with economic theory, our framework leads to a new application of Marshall’s Laws of Derived Demand that relates econometric estimates of ...
Finance and Economics Discussion Series , Paper 2024-096

Working Paper
Monetary Policy Spillovers, Capital Controls and Exchange Rate Flexibility, and the Financial Channel of Exchange Rates
Zhu, Feng; Georgiadis, Georgios (2019-05-05)
We assess the empirical validity of the trilemma (or impossible trinity) in the 2000s for a large sample of advanced and emerging market economies. To do so, we estimate Taylor-rule type monetary policy reaction functions, relating the local policy rate to real-time forecasts of domestic fundamentals, global variables, as well as the base-country policy rate. In the regressions, we explore variations in the sensitivity of local to base-country policy rates across different degrees of exchange rate flexibility and capital controls. We find that the data are in general consistent with the ...
Globalization Institute Working Papers , Paper 363

Working Paper
Interregional Migration and Housing Vacancy: Theory and Empirics
Cohen, Jeffrey P.; Crews, Jonas C.; Coughlin, Cletus C. (2020-10-16)
We examine homeowner vacancy rate interdependencies over time and space through the channel of migration. Our theoretical analysis extends the Wheaton (1990) search and matching model for housing by incorporating interregional spillovers due to some households’ desires to migrate between regions and by allowing for regime-switching behavior. Our empirical analysis of vacancy rates for the entire U.S. and for Census regions provides visual evidence for the possibility of regime-switching behavior. We explicitly test our model by estimating basic Vector Autoregression (VAR) and ...
Working Papers , Paper 2018-007

Report
Global Supply Chain Pressures, International Trade, and Inflation
di Giovanni, Julian; Kalemli-Ozcan, Sebnem; Silva, Alvaro; Yildirim, Muhammed A. (2022-07-01)
We study the impact of the COVID-19 pandemic on euro area inflation and how it compares to the experiences of other countries, such as the United States, over the two-year period 2020-21. Our model-based calibration exercises deliver four key results: (1) compositional effects, or the switch from services to goods consumption, are amplified through global input-output linkages, affecting both trade and inflation; (2) inflation can be higher under sector-specific labor shortages relative to a scenario with no such supply shocks; (3) foreign shocks and global supply chain bottlenecks played an ...
Staff Reports , Paper 1024

Working Paper
Differential Treatment in the Bond Market: Sovereign Risk and Mutual Fund Portfolios
Converse, Nathan L.; Mallucci, Enrico (2019-10-18)
How does sovereign risk affect investors' behavior? We answer this question using a novel database that combines sovereign default probabilities for 27 developed and emerging markets with monthly data on the portfolios of individual bond mutual funds. We first show that changes in yields do not fully compensate investors for additional sovereign risk, so that bond funds reduce their exposure to a country's assets when its sovereign default risk increases. However, the magnitude of the response varies widely across countries. Fund managers aggressively reduce their exposure to high-debt ...
International Finance Discussion Papers , Paper 1261

Working Paper
The Global Transmission of Real Economic Uncertainty
Londono, Juan M.; Wilson, Beth Anne; Ma, Sai (2021-04-30)
Using a sample of 30 countries representing about 65% of the global GDP, we find that real economic uncertainty (REU) has negative long-lasting domestic economic effects and transmits across countries. The international spillover effects of REU are (i) additional to those of domestic REUs, (ii) statistically significant, and (iii) economically meaningful. Trade ties play a key role in explaining why uncertainty generated in one country can affect economic outcomes in other countries. Based on this evidence, we construct a novel index for global REU as the trade-weighted average of all ...
International Finance Discussion Papers , Paper 1317

Journal Article
Dealing with Monetary Policy Spillovers
Sablik, Timothy (2019-01)
Fed policy has effects outside U.S. borders, but what can monetary policymakers here and abroad do about it?
Econ Focus , Issue 1Q , Pages 3-5

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