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Keywords:Assets (Accounting) 

Journal Article
Solving the present crisis and managing the leverage cycle

Yale University professor John Geanakoplos discusses implications of ?the leverage cycle??a phenomenon in which leverage is excessive prior to a financial crisis and unacceptably low during the crisis?for regulatory policy and reform. Presented as the keynote address at "Central Bank Liquidity Tools and Perspectives on Regulatory Reform" a conference sponsored by the Federal Reserve Bank of New York, February 19-20, 2009.
Economic Policy Review , Volume 16 , Issue Aug , Pages 101-131

Report
Financial intermediary leverage and value at risk

We study a contracting model for the determination of leverage and balance sheet size for financial intermediaries that fund their activities through collateralized borrowing. The model gives rise to two features: First, leverage is procyclical in the sense that leverage is high when the balance sheet is large. Second, leverage and balance sheet size are both determined by the riskiness of assets. For U.S. investment banks, we find empirical support for both features of our model, that is, leverage is procyclical, and both leverage and balance sheet size are determined by measured risks. In a ...
Staff Reports , Paper 338

Working Paper
Predictable dynamics in the S&P 500 index options implied volatility surface

One key stylized fact in the empirical option pricing literature is the existence of an implied volatility surface (IVS). The usual approach consists of fitting a linear model linking the implied volatility to the time to maturity and the moneyness, for each cross section of options data. However, recent empirical evidence suggests that the parameters characterizing the IVS change over time. In this paper we study whether the resulting predictability patterns in the IVS coefficients may be exploited in practice. We propose a two-stage approach to modeling and forecasting the S&P 500 index ...
Working Papers , Paper 2005-010

Report
How "unconventional" are large-scale asset purchases? The impact of monetary policy on asset prices

This paper examines the impact of large-scale asset purchases (LSAP) on U.S. asset prices (nominal and inflation-indexed bonds, stocks, and U.S. dollar spot exchange rates) using an event study with intraday data. The surprise component of LSAP announcements is identified from Financial Times articles. Estimation results show that the LSAP news has economically large and highly significant effects on asset prices, even after controlling for the surprise component of the Fed's conventional target rate decision and communication about its future path of policy. This study documents that the ...
Staff Reports , Paper 560

Working Paper
Measuring financial asset return and volatility spillovers, with application to global equity markets

The authors provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, they formulate and examine precise and separate measures of return spillovers and volatility spillovers. The authors framework facilitates study of both noncrisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of 19 global equity markets from the early 1990s to the present, they find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility ...
Working Papers , Paper 08-16

Working Paper
Foreign exchange volatility is priced in equities

This paper finds that standard asset pricing models fail to explain the significantly positive delta hedging errors from writing options on foreign exchange futures. Foreign exchange volatility does influence stock returns, however. The volatility of the JPY/USD exchange rate predicts the time series of stock returns and is priced in the cross-section of stock returns. Foreign exchange volatility risk might be priced because of its relation to foreign exchange level risk. ; Earlier title: Is foreign exchange delta hedging risk priced?
Working Papers , Paper 2004-029

Report
Financial amplification of foreign exchange risk premia

Theories of systemic risk suggest that financial intermediaries? balance-sheet constraints amplify fundamental shocks. We provide supporting evidence for such theories by decomposing the U.S. dollar risk premium into components associated with macroeconomic fundamentals and a component associated with financial intermediaries? balance sheets. Relative to the benchmark model with only macroeconomic state variables, balance sheets amplify the U.S. dollar risk premium. We discuss applications to systemic risk monitoring.
Staff Reports , Paper 461

Report
Financial intermediary balance sheet management

Conventional discussions of balance sheet management by nonfinancial firms take the set of positive net present value (NPV) projects as given, which in turn determines the size of the firm?s assets. The focus is on the composition of equity and debt in funding such assets. In contrast, the balance sheet management of financial intermediaries reveals that it is equity that behaves like the predetermined variable, and the asset size of the bank or financial intermediary is determined by the degree of leverage that is permitted by market conditions. The relative stickiness of equity reveals ...
Staff Reports , Paper 532

Speech
Lessons learned from the financial crisis

Remarks at the Eighth Annual BIS Conference, Basel, Switzerland.
Speech , Paper 4

Report
Financial amplification mechanisms and the Federal Reserve's supply of liquidity during the crisis

The small decline in the value of mortgage-related assets relative to the large total losses associated with the financial crisis suggests the presence of financial amplification mechanisms, which allow relatively small shocks to propagate through the financial system. We review the literature on financial amplification mechanisms and discuss the Federal Reserve's interventions during different stages of the crisis in light of this literature. We interpret the Fed's early-stage liquidity programs as working to dampen balance sheet amplifications arising from the positive feedback between ...
Staff Reports , Paper 431

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