Search Results
Working Paper
The time-varying price of financial intermediation in the mortgage market
The U.S. mortgage market links homeowners with savers all over the world. In this paper, we ask how much of the flow of money from savers to borrowers actually goes to the intermediaries that facilitate these transactions. Based on a new methodology and a new administrative dataset, we find that the price of intermediation, measured as a fraction of the loan amount at origination, is large?142 basis points on average over the 2008?2014 period. At daily frequencies, intermediaries pass on the price changes in the secondary market to borrowers in the primary market almost completely. At monthly ...
Working Paper
House Price Responses to Monetary Policy Surprises: Evidence from the U.S. Listings Data
Existing literature documents that house prices respond to monetary policy surprises with a significant delay, taking years to reach their peak response. We present new evidence of a much faster response. We exploit information contained in listings for the residential properties for sale in the United States between 2001 and 2019 from the CoreLogic Multiple Listing Service Dataset. Using high-frequency measures of monetary policy shocks, we document that a one standard-deviation contractionary monetary policy surprise lowers housing list prices by 0.2–0.3 percent within two weeks—a ...
Working Paper
Monetary Stimulus amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data
We study the impacts of the 2009 monetary stimulus and its interaction with infrastructure spending on credit allocation. We develop a two-stage estimation approach and apply it to China's loan-level data that covers all sectors in the economy. We find that except for the manufacturing sector, monetary stimulus itself did not favor state-owned enterprises (SOEs) over non-SOEs in credit access. Infrastructure investment driven by nonmonetary factors, however, enhanced the monetary transmission to bank credit allocated to local government financing vehicles in infrastructure and at the same ...
Working Paper
Monetary policy and global banking
Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross?currency flows are large, the hedging cost increases, diminishing the return on lending in foreign currency. We show that, in response to domestic monetary policy easing, global banks increase their foreign reserves in currency areas with the highest interest rate, while decreasing lending in these markets. We also find an increase in FX hedging ...
Report
The effect of monetary policy on bank wholesale funding
We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the retail deposit supply, banks try to substitute the deposit outflows with wholesale funding to smooth their lending. Banks have varying degrees of accessibility to wholesale funding owing to financial frictions, hence large banks, or those with a greater reliance on wholesale funding, increase their wholesale funding more. Consequently, monetary tightening increases both the reliance on and the concentration of wholesale funding within the banking sector. Our findings also ...
Discussion Paper
Mission Almost Impossible: Developing a Simple Measure of Pass-Through Efficiency
Short-term credit markets have evolved significantly over the past ten years in response to unprecedentedly high levels of reserve balances, a host of regulatory changes, and the introduction of new monetary policy tools. Have these and other developments affected the way monetary policy shifts “pass through” to money markets and, ultimately, to households and firms? In this post, we discuss a new measure of pass‑through efficiency, proposed by economists Darrell Duffie and Arvind Krishnamurthy at the Federal Reserve’s 2016 Jackson Hole summit.
Report
How do mortgage refinances affect debt, default, and spending? Evidence from HARP
We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing a mortgage on borrower balance sheet outcomes. We find that on average, refinancing into a lower-rate mortgage reduced borrowers' default rates on mortgages and nonmortgage debts by about 40 percent and 25 percent, respectively. Refinancing also caused borrowers to expand their use of debt instruments, such as auto loans, home equity lines of credit (HELOCs), and other consumer debts that are proxies for spending. All told, refinancing led to a net increase in debt equal to ...
Working Paper
MoNK: Mortgages in a New-Keynesian Model
We propose a tractable framework for monetary policy analysis in which both short- and long-term debt affect equilibrium outcomes. This objective is motivated by observations from two literatures suggesting that monetary policy contains a dimension affecting expected future interest rates and thus the costs of long-term financing. In New-Keynesian models, however, long-term loans are redundant assets. We use the model to address three questions: what are the effects of statement vs. action policy shocks; how important are standard New- Keynesian vs. cash flow effects in their transmission; ...
Report
Monetary policy, financial conditions, and financial stability
We review a growing literature that incorporates endogenous risk premiums and risk taking in the conduct of monetary policy. Accommodative policy can create an intertemporal trade-off between improving current financial conditions and increasing future financial vulnerabilities. In the United States, structural and cyclical macroprudential tools to reduce vulnerabilities at banks are being implemented, but they may not be sufficient because activities can migrate and there are limited tools for nonbank intermediaries and for borrowers. While monetary policy itself can influence ...
Report
Rate-Amplifying Demand and the Excess Sensitivity of Long-Term Rates
Long-term nominal interest rates are surprisingly sensitive to high-frequency (daily or monthly) movements in short-term rates. Since 2000, this high-frequency sensitivity has grown even stronger in U.S. data. By contrast, the association between low-frequency changes (at six- or twelve-month horizons) in long- and short-term rates, which was also strong before 2000, has weakened substantially. This puzzling post-2000 pattern arises because increases in short rates temporarily raise the term premium component of long-term yields, leading long rates to temporarily overreact to changes in short ...