 [  Download ]1.27 Mb |
House Price Booms, Current Account Deficits, and Low Interest Rates Author: Andrea Ferrero |
||
| One of the most striking features of the period before the Great Recession is the strong positive correlation between house price appreciation and current account deficits, not only in the United States but also in other countries that have subsequently experienced the highest degree of financial turmoil. A progressive relaxation of credit standards can rationalise this empirical observation. Lower collateral requirements facilitate access to external funding and drive up house prices. The current account turns negative because households borrow from the rest of the world. | |||
 [ Download ]142 Kb |
What Do Drug Monopolies Cost Consumers in Developing Countries? Author: Rebecca Hellerstein |
||
| This paper quantifies the effects of drug monopolies and low per-capita income on pharmaceutical prices in developing economies using the example of the antiretroviral drugs (ARVs) used to treat HIV. | |||
 [ Download ]236 Kb |
The International Role of the Dollar: Does It Matter if This Changes? Author: Linda Goldberg |
||
| Linda GoldbergThere is often speculation that the international roles of currencies may be changing. This paper presents the current status of these roles. The US dollar continues to be the dominant currency across various uses. Yet, such a role may change over time. If this occurs, there could be consequences for seignorage returns, US funding costs, the dollar's value, US insulation from foreign shocks, and US global influence. The paper concludes with a discussion of recent research on related themes and questions for future study. | |||
[ Download ]598 Kb |
Productivity and the Density of Human Capital Authors: Jaison R. Abel, Ishita Dey, and Todd M. Gabe |
||
| We estimate a model of urban productivity in which the agglomeration effect of density is enhanced by a metropolitan area’s stock of human capital. Estimation accounts for potential biases due to the endogeneity of density and industrial composition effects. Using new information on output per worker for U.S. metropolitan areas along with a measure of density that accounts for the spatial distribution of population, we find that a doubling of density increases productivity by 2 to 4 percent. | |||
 [ Download ]635 Kb |
Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis Authors: Gara Afonso, Anna Kovner, and Antoinette Schoar |
||
| This paper examines the impact of the financial crisis of 2008, specifically the bankruptcy of Lehman Brothers, on the federal funds market. Following the Lehman bankruptcy, we find that amounts and spreads became more sensitive to a borrowing bank’s characteristics. While the market did not contract dramatically, lending rates increased. Further, the market did not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. | |||
 [ Download ]433 Kb |
Is the International Role of the Dollar Changing? Author: Linda S. Goldberg |
||
| Recently the U.S. dollar’s preeminence as an international currency has been questioned. The emergence of the euro, changes in the dollar’s value, and the financial market crisis have, in the view of many commentators, posed a significant challenge to the currency’s long-standing position in world markets. However, a study of the dollar across critical areas of international trade and finance suggests that the dollar has retained its standing in key roles. | |||
 [ Download ]588 Kb |
Financial Amplification Mechanisms and the Federal Reserve’s Supply of Liquidity during the Crisis Asani Sarkar and Jeffrey Shrader |
||
| 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. The paper reviews the literature on financial amplification mechanisms and discuss the Federal Reserve’s interventions during different stages of the crisis in light of this literature. |
|||
 [ Download ]2.42 Mb |
GCC Takaful industry to grow at a healthy pace Author: Dr. Burkhard Varnholt |
||
| This report caters to investors looking for investment opportunities in the Gulf Cooperation Council (GCC) Takaful (Islamic Insurance) industry. The focus of the report is on opportunities and challenges for growth of the industry, industry trends, financial performance, valuations, stock liquidity and governance & transparency. |
|||
 [ Download ]381 Kb |
What Fiscal Policy is Effective at Zero Interest Rates? Author: Gauti B. Eggertsson |
||
| Tax cuts can deepen a recession if the short-term nominal interest rate is zero, according to a standard New Keynesian business cycle model. An example of a contractionary tax cut is a reduction in taxes on wages. This tax cut deepens a recession because it increases deflationary pressures. | |||
 [ Download ]471 Kb |
The Determinants of International Flows of U.S. Currency Authors: Rebecca Hellerstein and William Ryan |
||
| This paper examines the determinants of cross-border flows of U.S. dollar banknotes, using a new panel data set of bilateral flows between the United States and 103 countries from 1990 to 2007. It shows that a gravity model explains international flows of currency as well as it explains international flows of goods and financial assets. | |||
 [ Download ]677 Kb |
Implications of the Financial Crisis for Potential Growth: Past, Present, and Future Author: Charles Steindel |
||
| The scale of the recent collapse in asset values and the magnitude of the recession suggest that activities connected to the increase in values over the 2002-07 period—notably, expansion of the financial markets, homebuilding, and real estate—were overstated. If this is true, aggregate U.S. economic growth would have been overstated, implying that previous rates of potential gross domestic product (GDP) growth may also have been overstated and that the trajectory of potential GDP may be slower going forward. | |||
 [ Download ]507 Kb |
Chips Supplemental Funding and its Effects on Chips, Overdrafts, and Fedwire Authors: Dennis Kuo, James McAndrews, and Clara Sheets |
||
| In 2008, the Clearing House Interbank Payments System (CHIPS) Funds Transfer Committee, which consists of major participants of CHIPS, was given responsibility for looking into various methods that would continue to improve payment throughput and address payments system risk concerns. On May 9, 2008, the committee agreed to begin a coordinated initiative of adding supplemental funds to CHIPS as one possible way to achieve these goals. | |||
 [ Download ]293 Kb |
Are Market Makers Uninformed and Passive? Signing Trades in the Absence of Quotes Authors: Michel van der Wel, Albert J. Menkveld, and Asani Sarkar |
||
| We develop a new likelihood-based approach to signing trades in the absence of quotes. This approach is equally efficient as the existing Markov-chain Monte Carlo methods, but more than ten times faster. It can address the occurrence of multiple trades at the same time and allows for analysis of settings in which trade times are observed with noise. We apply this method to a high-frequency data set of thirty-year U.S. Treasury futures to investigate the role of the market maker. | |||
 [ Download ]343 Kb |
Capital Constraints, Counterparty Risk, and Deviations from Covered Interest Rate Parity Authors: Niall Coffey, Warren B. Hrung, and Asani Sarkar |
||
| We provide robust evidence of a deviation in the covered interest rate parity (CIP) relation since the onset of the financial crisis in August 2007. The CIP deviation exists with respect to several different dollar-denominated interest rates and exchange rate pairings of the dollar vis-à-vis other currencies. The results show that our proxies for margin conditions and for the cost of capital are significant determinants of the CIP deviations, especially during the crisis period. |
|||
 [ Download ]182 Kb |
Liquidity Risk, Credit Risk, and the Federal Reserve’s Responses to the Crisis Author: Asani Sarkar |
||
| In responding to the severity and broad scope of the financial crisis that began in 2007, the Federal Reserve has made aggressive use of both traditional monetary policy instruments and innovative tools in an effort to provide liquidity. In this paper, I examine the Fed’s actions in light of the underlying financial amplification mechanisms propagating the crisis—in particular, balance sheet constraints and counterparty credit risk. The empirical evidence supports the Fed’s views on the primacy of balance sheet constraints in the earlier stages of the crisis and the increased prominence of counterparty credit risk as the crisis evolved in 2008. | |||
[ Download ]151 Kb |
Monetary Tightening Cycles and the Predictability of Economic Activity Authors: Arturo Estrella and Tobias Adrian |
||
| Eleven of fourteen monetary tightening cycles since 1955 were followed by increases in unemployment; three were not. The term spread at the end of these cycles discriminates almost perfectly between subsequent outcomes, but levels of nominal or real interest rates, as well as other interest rate spreads, generally do not. |
|||
[ Download ]202 Kb |
The Dynamics of Automobile Expenditures Author: Adam Copeland |
||
| This paper presents a dynamic model for light motor vehicles. Consumers solve an optimal stopping problem in deciding if they want a new automobile and when in the model year to purchase it. This dynamic approach allows for determining how the mix of consumers evolves over the model year and for measuring consumers’ substitution patterns across products and time. I find that temporal substitution is significant, driving consumers’ entry into and exit from the market. |
|||
[ Download ]350 Kb |
Bank Capital and Value in the Cross Section Authors: Hamid Mehran and Anjan Thakor |
||
| This report adresses two questions: (i) Are bank capital structure and value correlated in the cross section, and if so, how? (ii) If bank capital does affect bank value, how are the components of bank value affected by capital? We first develop a dynamic model with a dissipative cost of bank capital that is traded off against the benefits of capital: strengthened incentives for the bank to engage in value-enhancing loan monitoring and a higher probability of avoiding regulatory closure due to loan delinquencies. | |||
