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Journal Article
Slow Credit Recovery and Excess Returns on Capital
During the recovery from the Great Recession, real interest rates on government securities have stayed low, but real returns on capital have rebounded. Although this divergence is puzzling in light of standard economic theory, it can be explained by credit market imperfections that raise the cost of capital and depress aggregate investment. The unusually slow credit market recovery is likely to have contributed to the diverging paths of the risk-free rate and returns on capital. It may have also contributed to a slow recovery in investment and output.
Working Paper
International Transmission of Japanese Monetary Shocks Under Low and Negative Interest Rates: A Global Favar Approach
We examine the implications of Japanese monetary shocks under recent very low and sometimes negative interest rates to the Japanese economy as well as three of its major trading partners: Korea, China and the United States. We follow the literature in using movements in 2-year Japanese government bond rates as proxies for changes in monetary conditions in the neighborhood of the zero lower bound. We examine the implications of shocks to the 2-year rate in a series of factor-augmented vector autoregressive?or FAVAR?models, in which both local and global conditions are proxied by latent factors ...
Working Paper
Measuring the Effects of Dollar Appreciation on Asia: A Favar Approach
Exchange rate shocks have mixed effects on economic activity in both theory and empirical VAR models. In this paper, we extend the empirical literature by considering the implications of a positive shock to the U.S. dollar in a factor-augmented vector autoregression (FAVAR) model for the U.S. and three large Asian economies: Korea, Japan and China. The FAVAR framework allows us to represent a country?s aggregate economic activity by a latent factor, generated from a broad set of underlying observable economic indicators. To control for global conditions, we also include in the FAVAR a ?global ...