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63
Financial Intermediation and Macroeconomic Analysis
- Journal of Economic Perspectives, American Economic Association
, 2011
"... curriculum, but they have often been presented as mainly of historical interest, or primarily of relevance to emerging markets. However, the recent financial crisis has made it plain that even in economies like the United States, significant disruptions of financial intermediation remain a possibili ..."
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Cited by 31 (2 self)
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curriculum, but they have often been presented as mainly of historical interest, or primarily of relevance to emerging markets. However, the recent financial crisis has made it plain that even in economies like the United States, significant disruptions of financial intermediation remain a possibility. Understanding such phenomena and the possible policy responses requires the use of a macroeconomic framework in which financial intermediation matters for the allocation of resources. In this paper, I first discuss why neither standard macroeconomic models, that abstract from financial intermediation, nor traditional models of the “bank lending channel ” are adequate as a basis for understanding the recent crisis. I argue that instead we need models in which intermediation plays a crucial role, but in which intermediation is modeled in a way that better conforms to current institutional realities. In particular, we need models that recognize that a market-based financial system--- one in which intermediaries fund themselves by selling securities in competitive markets, rather than collecting deposits subject to reserve requirements--- is not the same as a frictionless system.
Implementing a macroprudential framework: Blending boldness and realism
, 2010
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Macroeconomic effects of unconventional monetary policy
- in the Euro Area, ECB Working Paper No. 1397
, 2011
"... An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the RePEc website: www.RePEc.org • from the CESifo website: Twww.CESifo-group.org/wp T CESifo Working Paper No. 3589 ..."
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Cited by 19 (0 self)
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An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the RePEc website: www.RePEc.org • from the CESifo website: Twww.CESifo-group.org/wp T CESifo Working Paper No. 3589
Monetary Policy and Long-Term Real Rates
- Journal of Financial Economics
, 2014
"... Abstract Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis point increase in the two-year nominal yield on a Federal Open Markets Committee announcement day is associated with a 42 basis point increase in the ten-year forward real r ..."
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Cited by 17 (2 self)
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Abstract Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis point increase in the two-year nominal yield on a Federal Open Markets Committee announcement day is associated with a 42 basis point increase in the ten-year forward real rate. This finding is at odds with standard macro models based on sticky nominal prices, which imply that monetary policy cannot move real rates over a horizon longer than that over which all prices in the economy can readjust. Instead, the responsiveness of long-term real rates to monetary shocks appears to reflect changes in term premia. One mechanism that could generate such variation in term premia is based on demand effects due to the existence of what we call yield-oriented investors. We find some evidence supportive of this channel. JEL classification: E43, E52, G12, G14
Credit Supply: Identifying Balance-Sheet
- Channels with Loan Applications and Granted Loans,” CEPR and ECB Working Paper
, 2010
"... In 2010 all ECB publications feature a motif taken from the €500 banknote. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. This paper can be dow ..."
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Cited by 9 (2 self)
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In 2010 all ECB publications feature a motif taken from the €500 banknote. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. This paper can be downloaded without charge from
Conventional and Unconventional Monetary Policy with Endogenous Collateral Constraints ∗
, 2013
"... We consider the effects of central-bank purchases of a risky asset, financed by issuing riskless nominal liabilities (reserves), as an additional dimension of policy alongside “conventional ” monetary policy (central-bank control of the riskless nominal interest rate), in a general-equilibrium model ..."
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Cited by 4 (1 self)
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We consider the effects of central-bank purchases of a risky asset, financed by issuing riskless nominal liabilities (reserves), as an additional dimension of policy alongside “conventional ” monetary policy (central-bank control of the riskless nominal interest rate), in a general-equilibrium model of asset pricing and risk sharing with endogenous collateral constraints of the kind proposed by Geanakoplos (1997). When sufficient collateral exists for collateral constraints not to bind for any agents, we show that central-bank asset purchases have no effects on either real or nominal variables, despite the differing risk characteristics of the assets purchased and the ones issued to finance these purchases. At the same time, the existence of collateral constraints allows our model to capture the common view that large enough central-bank purchases would eventually have to effect asset prices. But even when central-bank purchases raise the price of the asset, owing to binding collateral constraints, the effects need not be the ones commonly assumed. We show that under some circumstances, central-bank purchases relax financial constraints, increase aggregate demand, and may even achieve a Pareto improvement; but in other cases, they may tighten financial constraints, reduce aggregate demand, and lower welfare. The latter case is almost certain the one that arises if central-bank purchases are sufficiently large. We thank Kyle Jurado and Savitar Sundaresan for research assistance, and participants at
Banks ’ Financial Conditions and the Transmission of Monetary Policy: A FAVAR Approach ∗
, 2010
"... We propose a novel approach to assess whether banks’ financial conditions, as reflected by bank-level information, matter for the transmission of monetary policy, while reconciling the micro and macro levels of analysis. We include factors summarizing large sets of individual bank balance sheet rati ..."
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Cited by 3 (2 self)
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We propose a novel approach to assess whether banks’ financial conditions, as reflected by bank-level information, matter for the transmission of monetary policy, while reconciling the micro and macro levels of analysis. We include factors summarizing large sets of individual bank balance sheet ratios in a standard factor-augmented vector autoregression model (FAVAR) of the French economy. We first find that factors extracted from banks ’ liquidity and leverage ratios predict macroeconomic fluctuations. This suggests a potential scope for macroprudential policies aimed at dampening the procyclical effects of adjustments in banks ’ balance sheet structures. However, we also find that fluctuations in bank ratio factors are largely irrelevant for the transmission of monetary shocks. Thus, there is little point in monitoring the information
Heterogeneous monetary transmission process in the Eurozone: Does banking competition
"... matter? ..."
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Evaluating Macroprudential Policy with Financial Friction DSGE Model,” mimeo
, 2011
"... In general, macroprudential policy refers to a set of regulatory policy imposed mainly on financial institutions, for macroeconomic purposes. In this paper, I aim to provide a DSGE framework to assess issues regarding macroprudential policy. Based on New Keynesian setup, I embedded financial acceler ..."
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Cited by 2 (0 self)
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In general, macroprudential policy refers to a set of regulatory policy imposed mainly on financial institutions, for macroeconomic purposes. In this paper, I aim to provide a DSGE framework to assess issues regarding macroprudential policy. Based on New Keynesian setup, I embedded financial accelerator mechanism by Bernanke et al. (1999) in both business and household lending contract and designed bank capital func-tioning as a buffer stock. Then I evaluate the effectiveness of various macroprudential policy rules given different shocks, using a policy evaluation measure in terms of in-flation and output volatility. It turns out the target capital ratio reacting to output deviation performs the best, as it can reduce the volatility of inflation and output in most cases. LTV rule on household lending is in general not effective, as credit shifts away to the business sector.
A Model of Monetary Policy Shocks for Financial Crises and
, 2013
"... In late 2008, deteriorating economic conditions led the Federal Reserve to lower the federal funds rate to near zero and inject massive liquidity into the financial system through novel facili-ties. The combination of conventional and unconventional measures complicates the challenging task of chara ..."
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Cited by 1 (0 self)
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In late 2008, deteriorating economic conditions led the Federal Reserve to lower the federal funds rate to near zero and inject massive liquidity into the financial system through novel facili-ties. The combination of conventional and unconventional measures complicates the challenging task of characterizing the effects of monetary policy. We develop a novel method of identifying these effects that maintains the classic assumptions that a central bank reacts to output and the price level contemporaneously and may only affect these variables with a lag. A New-Keynesian DSGE model augmented with a representative financial structure motivates our empirical spec-ification. The equilibrium model provides theoretical support for our choice of different series to replace variables that were popular in models of monetary policy but became problematic in the aftermath of the 2008 financial crisis. One of our most important innovations is to utilize the Divisia M4 index of money as the policy indicator variable. The model is bolstered by its ability to produce plausible responses to a monetary policy shock in samples that include or
