u s monetary policy and emerging market credit cycles abstract foreign banks lending to firms in emerging market economies emes is large and denominated predominantly in u s dollars this creates a direct connection between u s monetary policy and eme credit cycles we estimate that over a typical u s monetary easing cycle eme borrowers experience a 32 percentage point greater increase in the volume of loans issued by foreign banks than do borrowers from developed markets followed by a fast credit contraction of a similar magnitude upon reversal of the cycle consistent with a risk driven credit supply adjustment we show that the spillover is stronger for riskier emes and within countries for higher risk firms

subjective stochastic dominance put writing and stock purchases with extensions to option pricing and portfolio composition initially an investor has the choice of two risky assets writing a european put option or buying the underlying share under broad conditions a risk averse investor will be subjectively better off writing the put when homogeneous expectations are invoked an upper bound for the put premium is obtained a numerical example using the lognormal density function illustrates the broad conditions for risk averters subjectively preferring the put writing strategy additional conditions permit this preference for writing puts to be extended to the portfolio context transactions costs only reinforce this preference in the one period horizon considered

the channel of monetary transmission to demand evidence from the market for automobile credit in response to tight money both consumer loans and consumption fall the author asks whether there is any causality running from loans to consumption by focusing on how the composition of automobile finance between bank and nonbank sources of credit changes in response to unanticipated innovations in monetary policy the results indicate that contractionary monetary policy produces a statistically significant reduction in the relative supply of bank consumer loans which in turn produces a decline in real consumption the evidence therefore supports the existence of a credit channel of monetary transmission to aggregate consumption moreover the nature of automobile finance is uniquely suited to identifying which of two possible sub channels of the broader credit channel is relatively more important and suggests the results are more likely consistent with a bank lending channel than with a pure balance sheet channel however the findings also indicate that the quantitative effects of the lending channel on the aggregate economy though precisely estimated may be quite small

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

bank loan portfolios and the monetary transmission mechanism abstract we study the portfolio behavior of bank loans following a monetary tightening and find that real estate and consumer loans sharply decrease while commercial and industrial c i loans increase these responses are compared with responses following non monetary shocks which also reduce output but keep interest rates roughly unchanged during such a non monetary downturn c i loans sharply decrease while real estate and consumer loans show no substantial response these responses together with the responses of relevant lending rates are hard to reconcile with a decline in the supply of c i bank loans during a monetary downturn as stressed by the bank lending channel several arguments are presented explaining why the supply of c i loans may actually increase after a monetary contraction

bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

oil prices and inflation dynamics evidence from advanced and developing economies abstract we study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015 we find that a 10 increase in global oil inflation increases on average domestic inflation by about 0 4 percentage points on impact with the effect vanishing after two years and being similar between advanced and developing economies we also find that the effect is asymmetric with positive oil price shocks having a larger effect than negative ones the impact of oil price shocks however has declined over time due in large part to a more credible monetary policy and less reliance on energy imports we further examine the transmission channels of oil price shocks on domestic inflation during the recent decades by making use of a monthly dataset from 2000 to 2015 the results suggest that the share of transport in the cpi basket and energy subsidies are the most robust factors in explaining cross country variations in the effects of oil price shocks during the period

international bank lending channel of monetary policy abstract how does domestic monetary policy in systemic countries spillover to the rest of the world this paper examines the transmission channel of domestic monetary policy in the cross border context we use exogenous shocks to monetary policy in systemically important economies including the u s and local projections to estimate the dynamic effect of monetary policy shocks on bilateral cross border bank lending we find robust evidence that an increase in funding costs following an exogenous monetary tightening leads to a statistically and economically significant decline in cross border bank lending the effect is weakened during periods of high uncertainty in contrast the effect is found to not vary according to the degree of borrower country riskiness further weakening support for the international portfolio rebalancing channel

how do banks respond to shocks a dynamic model of deposit taking institutions abstract this paper proposes a dynamic model of the optimal choices of a bank that benefits from market power and takes into account the impact of the deposit generation process interbank lending borrowing emerges as a buffer that assists the bank in smoothing intertemporal adjustments in interdependent loan and deposit choices the bank smooths the impact of interest rates shocks on its customers to minimize the adjustments over time of the stocks of deposits and loans it does not however provide insurance against negative shocks of real origin that increase its expected default costs the predictions of the model help to shed light on the available empirical evidence and to analyze some recent developments of the banking industry

consumer rationality and credit cards borrowing on credit cards at high interest rates might appear irrational however even low transactions costs can make credit cards attractive relative to bank loans credit cards also provide liquidity services by allowing consumers to avoid some of the opportunity costs of holding money the effect of alternative interest rates on the demand for card debits can explain why credit card interest rates only partially reflect changes in the cost of funds credit card interest rates that are inflexible relative to the cost of funds are not inconsistent with a competitive equilibrium that yields zero profits for the marginal entrant

learning by imitation abstract this paper introduces a learning algorithm that allows for imitation in recursive dynamic games the kiyotaki wright model of money is a well known example of such decision environments in this context learning by experience has been studied before here we introduce imitation as an additional channel for learning in numerical simulations we observe that the presence of imitation either speeds up social convergence to the theoretical markov nash equilibrium or leads every agent of the same type to the same mode of suboptimal behavior we observe an increase in the probability of convergence to equilibrium as the incentives for optimal play become more pronounced

search evolution and money abstract this paper describes a search theoretic model that can be used to determine which objects serve as media of exchange or money existing versions of the model are generalized to allow arbitrary distributions of agents who specialize in different consumption production activities i characterize the way the numbers of consumers and producers of the various goods help determine which goods serve as money the distribution is then endogenized so that agents can choose their type this generates a unique equilibrium outcome ideas from evolutionary dynamics are employed as a way to interpret the model and to compute equilibria

fickle capital flows and retrenchment evidence from bilateral banking data abstract we empirically examine the response of cross border capital flows to economic uncertainty using bilateral banking flow data we show that while banks reduce their exposure to a foreign country when it becomes more risky they tend to increase their exposure to their home country in bad times a retrenchment to further understand this puzzle we examine how the differential response to foreign and domestic uncertainty is affected by country specific characteristics bilateral characteristics and crises our analysis suggests that most of the current theories based on either information asymmetries between foreign and domestic investors or institutional risk cannot explain bilateral data well on the other hand our results show that global crises have an asymmetric impact on the risk attitudes of banking institutions towards country specific uncertainty global crises make investors more risk averse towards foreign uncertainty but have no effect on the responsiveness to domestic uncertainty

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

transmission of monetary policy through global banks whose policy matters abstract this paper explores the basic question of whose monetary policy matters for banks international lending in the international context monetary policies from several countries could come into play the lender s the borrower s and that of a third country the issuer of the currency in which cross border lending is denominated using the rich dimensionality of the bis international banking statistics we find significant effects for all three policies us monetary easing fuels cross border lending in us dollars as befits a global funding currency at the same time a tightening in the lender or the borrower country reinforces international dollar lending as global banks turn to the greenback for cheaper funding and toward borrowers abroad our results also show that stronger capitalization and better access to funding sources mitigate the frictions underpinning the transmission channels analogous results for euro denominated lending confirm that global funding currencies play a key role in international monetary policy transmission

entrepreneurial moral hazard and bank monitoring a model of the credit channel abstract this paper develops a model of the choice between bank and market finance by entrepreneurial firms that differ in the value of their net worth the monitoring associated with bank finance ameliorates a moral hazard problem between the entrepreneurs and their lenders the model is used to analyze the different strands of the credit view of the transmission of monetary policy in particular we derive the empirical implications of a broad credit channel and compare them to those obtained when the model is extended to incorporate some elements of the bank lending channel

the effects of monetary policy shocks on inequality abstract this paper provides new evidence of the effect of conventional monetary policy shocks on income inequality we construct a measure of unanticipated changes in policy rates changes in short term interest rates that are orthogonal to unexpected changes in growth and inflation news for a panel of 32 advanced and emerging market countries over the period 1990 2013 our main finding is that contractionary monetary policy shocks increase income inequality on average the effect is asymmetric tightening of policy raises inequality more than easing lowers it and depends on the state of the business cycle we find some evidence that the effect increases with the share of labor income and is mitigated by redistribution policies finally while an unexpected increase in policy rates increases inequality changes in policy rates driven by an increase in growth and inflation are associated with lower inequality

money as a medium of exchange in an economy with artificially intelligent agents abstract we study the exchange economies of kiyotaki and wright 1989 in which agents must use a commodity or fiat money as a medium of exchange if trade is to occur our agents are artificially intelligent and are modeled as using classifier systems to make decisions in the assignment of credit within the classifier systems we introduce some innovations designed to study sequential decision problems in a multi agent environment for most economies that we have simulated trading and consumption patterns converge to a stationary nash equilibrium even if agents start with random rules in economies with multiple equilibria the only equilibrium that emerges in our simulations is the one in which goods with low storage costs play the role of medium of exchange i e the fundamental equilibrium of kiyotaki and wright

consumer credit liquidity and the transmission mechanism of monetary policy i introduction despite calls for its obsolescence the lending channel of the monetary transmission mechanism continues to generate interest among monetary economists recently den haan sumner and yamashiro 2007 find the loan supply effect is evident for consumer lending and real estate loans in data up to 2004 the loan supply effect or lending channel arises in the transmission mechanism if tight monetary policy forces banks to contract the supply of loans independent of a direct interest rate effect i e the liquidity effect and such a contraction has real effects for bank dependent borrowers although some such as perez 1998 and ashcraft 2006 have emphasized the lending channel s lack of relevance for the monetary transmission mechanism den haan sumner and yamashiro s 2007 results support a number of recent papers that offer detailed and disaggregated reasons why the channel is alive and well for certain lenders and borrowers for recent examples see nilsen 2004 and peek rosengren and tootell 2003 den haan sumner and yamashiro s 2007 findings suggest that the role of the consumer in the lending channel may be deserving of more attention 1 this paper asks whether consumer lending is or has become a significant component of the lending channel even if it was not thought crucial in lending channel studies published in the 1990s specifically i take a closer look at the statistical and possible economic significance of the consumer loan supply effect with disaggregated monthly consumer credit data from both commercial bank and nonbank sources and for the nonrevolving and revolving components of consumer credit from each source with this array of data i test the assumptions of the channel by considering whether households are forced to use more expensive nonbank credit as bank credit declines or that a household might switch into more costly revolving credit as installment loans decline to examine the consumer lending channel i estimate impulse response functions for the disaggregated consumer loan components mentioned above with the monthly data spanning 1968 2006 the sources of which are discussed later this strategy follows the examples of numerous lending channel studies that analyze the responses of disaggregated data to a monetary policy shock to discern evidence of the loan supply effect den haan sumner and yamashiro 2007 e g compare the behavior of commercial and industrial loans with real estate and consumer loans i follow the methods of previous studies in order to compare as closely as possible the results of this paper with the rich body of lending channel literature for robustness this paper estimates the impulse response functions from both a typical vector autoregression var model and using jorda s 2005 linear projection technique the latter method provides impulse response functions less prone to misspecification than in a var along with conditional standard errors to aid in the statistical inference of the responses see also jorda 2009 and further discussion in section iii finally for additional robustness i employ den haan sumner and yamashiro s 2007 identification strategy for isolating the loan supply effect in preview of the results ultimately the consumer credit data analyzed in this paper suggest that both the statistical and by extension the economic significance of the consumer loan supply effect is weak in the least the effect has weakened over time although monthly consumer credit data from commercial banks from 1968 through 2006 substantiate previous research on consumer lending matching the decline documented by gertler and gilchrist 1993 and den haan sumner and yamashiro 2007 after 1984 the responses of both nonrevolving and revolving consumer bank credit are not consistent with the lending channel instead both series increase similar to the result found by den haan sumner and yamashiro 2007 for commercial lending in fact total nonrevolving and revolving consumer credit increase for 2 yr after the monetary shock

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

monetary policy in exceptional times this paper describes the way in which the european central bank ecb the federal reserve and the bank of england conducted monetary policy since the beginning of the financial crisis in august 2007 we argue that both quantitative easing and the other non standard measures introduced by central banks that changed the composition of the asset side of their balance sheets so called qualitative easing acted mainly through their effects on interest rates and in particular on money market spreads rather than solely through quantity effects in terms of the money supply we perform a quantitative exercise on the euro area which estimates the effect of the reduction of these spreads to the broader economy michele lenza huw pill and lucrezia reichlin

the credit channel of monetary policy transmission evidence from stock returns christophre georges this paper offers a novel test of the credit view of the monetary policy transmission mechanism using stock market returns we identify fed policy shocks using newspaper accounts and track daily stock prices immediately following the shocks if the credit channel is important then firms that are dependent on bank credit and internal funds should receive a relatively greater benefit loss from a fed easing tightening than firms with access to nonbank credit at favorable terms we identify ten policy shocks during the expansion of 1993 94 and the credit crunch period of the 1990 91 recession and find little evidence supportive of an operative credit channel jel e5 i introduction recently there has been renewed interest in the mechanism by which monetary policy innovations are transmitted into changes in aggregate output according to the traditional money view monetary policy influences market interest rates inducing changes in interest sensitive spending and consequently changes in output by assumption there is no distinction between financial assets and thus bank loans and internal funds are of no special interest in contrast the credit view e g bernanke and blinder 1988 assumes that bank loans are special due to information asymmetries some businesses are dependent on banks for loanable funds a withdrawal of reserves by the fed causes the supply of bank loans to fall and bank dependent businesses consequently reduce their spending a broader version of this view e g gertler and gilchrist 1993 bernanke and gertler 1995 claims that credit market imperfections contribute to the propagation of monetary policy shocks without working exclusively through the su pply of bank loans tight monetary policy may for example cause a deterioration of borrowers net worth thereby increasing external finance premia in either case this transmission mechanism operates through firms that are credit constrained in the sense that nonbank credit is an imperfect substitute for internal funds and bank loans empirical evidence on the transmission mechanism has been mixed see bernanke and blinder 1992 ramey 1993 kashyap et al 1993 gertler and gilchrist 1993 1994 christiano et al 1996 oliner and rudebusch 1995 1996 kashyap and stein 2000 two fundamental problems make direct tests of the credit view difficult the difficulty of identifying exogenous monetary policy shocks and the difficulty of identifying the relationship between these shocks and subsequent real activity this article offers a novel empirical test of the credit view using stock market returns if the credit channel is important then firms that are credit constrained should receive a relatively greater benefit loss from a fed easing tightening than firms with access to nonbank credit at favorable terms this relative benefit loss should be reflected in the behavior of stock prices immediately following news of the fed policy change we therefore identify changes in market expectations of fed policy calculate abnormal returns the deviations of the actual returns from the returns predicted by an asset pricing model for individual securities immediately following these innovations and test for systematic relationships between these abnormal returns and indicators of credit constraints at the firm level this approach is more indirect than others in the literature but has the advantage of mitigating the two identification problems noted above first the policy shocks that we use are changes in stock market expectations of fed policy we can identify these closely using daily accounts in the business press 1 second because the stock market reacts quickly to changes in expectations of future profitability we observe near contemporaneous responses of stock prices to policy shocks regardless of when in the future profits are expected to be altered

the bank lending channel a favar analysis we examine the bank lending channel blc of monetary transmission in a factor augmented vector autoregression favar a favar exploits large numbers of macro economic indicators and allows us to consider an alternative identification of monetary shocks and analyze the lending response of banks at the aggregate and individual levels we find that the existence of the blc is more prevalent than previously thought using aggregated lending data while the lending response of individual banks are driven more by specific innovations than monetary shocks nonetheless the average individual bank response to a monetary shock is consistent with the existence of a blc

bank leverage cycles and the external finance premium by combining the approaches of gertler and karadi 2011 and bernanke et al 1999 i develop a dsge model with leverage constraints both in the banking and in the non financial firm sector i calibrate this full model to us data in a world with only a monetary policy and a productivity shock the full model matches the relative volatility of the external finance premium while a bgg model generates too low volatility the full model also matches the procyclicality of bank leverage unlike the gk model for a reasonably calibrated combination shocks to the net worth of banks and non financial firms the model reproduces a substantial share of the contraction increase of investment the external finance premium observed during the great recession

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

anxious periods and bank lending we examine the lending behavior of banks during anxious periods the main characteristic of anxious periods is that the perceptions and expectations about economic conditions worsen for economic agents even though the economy is not in a recession we identify distinct periods of anxiety for consumers ceos firms and analysts subsequently we study the lending behavior of us banks during the anxious quarters from 1985 to 2010 using bank level data the results show that banks lending falls when consumers and analysts are anxious and this effect is more pronounced when banks hold a higher level of credit risk these effects are more pronounced in anxious periods that were followed by recessions and in these periods loan growth also responds negatively to the anxiety of ceos yet these effects are quite less prevalent in the period after 2001

why do companies pay dividends this paper presents a simple model of market equilibrium to explain why firms that maximize the value of their shares pay dividends even though the funds could instead be retained and subsequently distributed to shareholders in a way that would allow them to be taxed more favorably as capital gains the two principal ingredients of our explanation are 1 the conflicting preferences of shareholders in different tax brackets and 2 the shareholders desire for portfolio diversification we show that companies will pay a positive fraction of earnings in dividends we also provide some comparative static analysis of dividend behavior with respect to tax parameters and to the conditions determining the riskiness of the securities this abstract was borrowed from another version of this item

uncertainty and cross border banking flows abstract while global uncertainty measured by the vix has proven to be a robust global push factor of international capital flows there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows this paper examines the effects of higher country specific uncertainty on cross border banking flows using data from the bank for international settlements locational banking statistics the bilateral structure of this data allows disentangling supply factors from demand factors thereby helping identify the effect of higher uncertainty on cross border banking flows from other confounding factors the results of this analysis suggest that i uncertainty in a source country domestic economy is both a lender specific push and pull factor that robustly predicts a decrease in outflows cross border lending and inflows cross border borrowing ii the decline in cross border borrowing is larger than the decline in cross border lending that is the net cross border position of the banking sector increases iii despite a decline in cross border bank lending in the absolute sense the share of cross border bank lending in total bank lending increases suggesting a portfolio rebalancing iv this rebalancing occurs only when banks are lending to borrowers in advanced economies but not to those in emerging market economies

option pricing bounds in discrete time upper and lower bounds are derived for call options traded at discrete intervals these bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being non negative beta the development of the bounds relies on the single price law and arbitrage arguments both single period and multiperiod results are produced and put option bounds follow by extension the bounds exist as equilibrium values given a consensus on stock price distribution they are also valid for empirical studies being adjustable for dividends and commissions following the impetus of the black scholes pricing model the majority of option analyses have been in continuous time such approaches have relied on the formation of perfect riskless hedges involving the option its underlying security and a riskless asset since the hedge must be continuously revised and maintained while actual trading opportunities are discrete this crucial assumption limits the accuracy and applicability of the black scholes and related formulae in fact the black scholes formula can only be considered as a valid approximation to the discrete time solution merton 8 p 663 while the closeness of that approximation has not been ascertained in general 1 earlier discrete models such as boness 3 and samuelson 12 have been succeeded by those of brennan 5 cox et al 6 and rubinstein 11 in which distributional restrictions are imposed on share returns usually the discrete formula converges to the black scholes expression under appropriate limit conditions using the rubinstein 11 approach we derive upper and lower bounds for option prices with both a general price distribution and discrete trading opportunities the bounds are functions of the share and exercise prices the riskless rate of interest the distribution of the share price change per period and the number of periods of expiration of the option the lower bound is tighter than that of merton 7 derived from more general arbitrage considerations while being less exact than the results already mentioned for restricted distributions

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

identifying the balance sheet and the lending channels of monetary transmission a loan level analysis abstract we make a novel attempt at comparing the strength of the lending and balance sheet channels of monetary transmission to make this comparison we use loan level data to determine how borrower balance sheets and bank liquidity are related to bank lending decisions and how monetary policy can affect these relationships the key innovation in this paper is the use of loan level data this enables us to measure the independent effects of the two channels and directly account for borrower balance sheets and lender liquidity instead of using proxies our results show that the balance sheet channel is the main mechanism through which monetary policy shocks are transmitted to the economy and that the lending channel does not play a significant role

a comparative assessment of the spillovers of us monetary policy shocks and its mitigation abstract we conduct a comparative assessment of the spillovers of three types of fed s monetary policy surprises i e fed funds rate ffr forward guidance fg and large scale asset purchases lsap on monetary autonomy in the periphery economies pes we find these shocks to be significant in causing loss of monetary autonomy in the pes we also find that the macroprudential tools mitigate the degree of such impairment this holds for two types of macroprudential policies i e borrower targeted and financial institutions targeted we find both of them to be most effective against the ffr shocks comparing the macroprudential tools we find the financial institutions targeted tools to be more effective than the borrower targeted ones in mitigating the degree of impairment against all types of fed shocks

credit market imperfections and the heterogeneous response of firms to monetary shocks this paper assesses the bank lending channel interpretation of evidence on the heterogeneous response of firms to monetary shocks to do so the author develops a quantitative general equilibrium model of the bank lending channel with imperfect credit markets the calibrated model s steady state supports a common identification strategy adopted in the literature small firms are credit constrained and large firms are not for some parameter values the model reproduces the cyclical observations viewed as supporting the lending view of the monetary transmission mechanism and for others it does not the parameter values consistent with the lending view appear to be implausible

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

real interest rates leverage and bank risk taking do low interest rate environments lead to greater bank risk taking we show that when banks can adjust their capital structures reductions in real interest rates lead to greater leverage and higher risk for any downward sloping loan demand function however if the capital structure is fixed the effect depends on the degree of leverage following a decrease in interest rates well capitalized banks increase risk while highly levered banks may decrease it if loan demand is linear or concave further the capitalization cutoff depends on the degree of bank competition this effect therefore should vary across countries and over time

rising bank concentration abstract concentration of insured deposit funding among the top four commercial banks in the u s has risen from 15 in 1984 to 44 in 2018 a roughly three fold increase regulation has often been attributed as a factor in that increase the riegle neal interstate banking and branching efficiency act of 1994 removed many of the restrictions on opening bank branches across state lines we interpret the riegle neal act as lowering the cost of expanding a bank s funding base in this paper we build an industry equilibrium model in which banks endogenously climb a funding base ladder rising concentration occurs along a transition path between two steady states after branching costs decline

learning to speculate experiments with artificial and real agents abstract this paper employs an artificial agent based computational approach to understanding and designing laboratory environments in which to test kiyotaki and wright s search model of money the behavioral rules of the artificial agents are modeled on the basis of prior evidence from human subject experiments simulations of the artificial agent based model are conducted in two new versions of the kiyotaki wright environment and yield some testable predictions these predictions are examined using data from new human subject experiments the results are encouraging and suggest that artificial agent based modeling may be a useful device for both understanding and designing human subject experiments

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

u s monetary policy and fluctuations of international bank lending abstract there is no consensus in the empirical literature on the direction in which u s monetary policy affects cross border bank lending we find robust evidence that the impact of the u s federal funds rate on cross border bank lending in a given period depends on the prevailing international capital flows regime and on the level of the two main components of the federal funds rate macroeconomic fundamentals and the monetary policy stance during episodes in which bank lending from advanced to emerging economies is booming the relationship between the federal funds rate and cross border bank lending is positive and mostly driven by the macroeconomic fundamentals component which is consistent with a search for yield behavior by internationally active banks in contrast during episodes of stagnant growth in bank lending from advanced to emerging economies the relationship between the federal funds rate and bank lending is negative mainly due to the monetary policy stance component of the federal funds rate the latter set of results is most pronounced for lending to emerging markets which is consistent with the international bank lending channel and flight to quality behavior by internationally active banks

the effects of government spending on real exchange rates evidence from military spending panel data abstract using panel data on military spending for 125 countries we document new facts about the effects of changes in government purchases on the real exchange rate consumption and current accounts in both advanced and developing countries while an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries it causes real exchange rates to depreciate and decreases consumption in advanced countries the current account decreases in both groups of countries these findings are not consistent with standard international business cycle models we discuss potential sources of the differences between advanced and developing countries in the responses to spending shocks

emergence of money as a medium of exchange an experimental study findings are reported from an experiment that implements a search theoretic model of money as a medium of exchange the question is whether subjects learn to adopt the same commodities as media of exchange that the model predicts will be used in equilibrium it is reported that subjects have a strong tendency to play fundamental rather than speculative strategies even in environments where speculative strategies yield higher payoffs some possible motivations for subjects behavior are examined and it is concluded that subjects are mainly motivated by past payoff experience as opposed to the marketability considerations that the theory emphasizes

playing with money abstract experimental work in monetary economics is usually based on theory that incorporates an infinite horizon yet hard constraints on laboratory sessions lead to finite times when the game must with probability 1 end and then simple backward induction implies monetary equilibria cannot exist hence these experiments cannot evaluate subjects ability to settle on the use of money as a medium of exchange that ameliorates trading frictions as an equilibrium outcome to address this we present some finite horizon games where monetary exchange is an equilibrium outcome and report some experimental results using these games

experimental evidence on money as a medium of exchange abstract this paper presents an experimental examination of kiyotaki and wright s 1989 model of how money can arise as a medium of exchange while the results generally support the hypothesis that individuals are willing to utilize a good as a medium of exchange the trading patterns of a portion of the individuals deviated from the predicted patterns simulation studies suggest that while these deviations may have initially been a rational response by these subjects they persisted after they became less than optimal

learning about learning in games through experimental control of strategic interdependence we report experiments in which humans repeatedly play one of two games against a computer program that follows either a reinforcement learning or an experience weighted attraction algorithm our experiments show these learning algorithms detect exploitable opportunities more sensitively than humans also learning algorithms respond to detected payo increasing opportunities systematically however the responses are too weak to improve the algorithms payos human play against various decision maker types doesn t vary signicantly these factors lead to a strong linear relationship between the humans and algorithms action choice proportions that is suggestive of the algorithm s best response correspondence these properties are revealed only by our human versus computer experiments and not by our standard human versus human experiments nor our model simulations jel classication c72 c92 c81

credit reallocation deleveraging and financial crises this paper studies how the process of reallocation of credit across firms behaves before and after financial crises applying the methodology typically used for measuring job reallocation we track credit reallocation across korean firms for over three decades 1980 2012 the credit boom preceding the 1997 crisis featured a slowdown of credit reallocation after the crisis and the associated reforms the creditless recovery deleveraging masked a dramatic intensification and increased procyclicality of credit reallocation the findings suggest that the intensification of reallocation was efficiency enhancing

output spillovers from fiscal policy in this paper we estimate the cross country spillover effects of government purchases on output for a large number of oecd countries following the methodology in auerbach and gorodnichenko 2012a b we allow these multipliers to vary smoothly according to the state of the economy and use real time forecast data to purge policy innovations of their predictable components we also consider the responses of other key macroeconomic variables our findings suggest that cross country spillovers have an important impact and also confirm those of our earlier papers that fiscal shocks have a larger impact when the affected country is in recession

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

financial institutions business models and the global transmission of monetary policy abstract global financial institutions play an important role in channeling funds across countries and therefore transmitting monetary policy from one country to another in this paper we study whether such international transmission depends on financial institutions business models in particular we use dutch spanish and u s confidential supervisory data to test whether the transmission operates differently through banks insurance companies and pension funds we find marked heterogeneity in the transmission of monetary policy across the three types of institutions across the three banking systems and across banks within each banking system while insurance companies and pension funds do not transmit home country monetary policy internationally banks do with the direction and strength of the transmission determined by their business models and balance sheet characteristics

introduction to the special issue on agent based computational economics abstract a brief overview of agent based computational economics ace is given followed by a synopsis of the articles included in this special issue on ace and in a companion special issue on ace scheduled to appear in computational economics

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

economic policy uncertainty and the supply of business loans abstract using a vector autoregressive framework of analysis we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty this contraction takes two main distinct forms on the one hand banks restrict their supply of spot funds which we document using flows of loans and term loan originations on the other hand banks also curtail their provision of liquidity insurance reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers drawing down on the lines at the peak of the responses we find that a one standard deviation increase in epu causes a contraction in the supply of business loans between 3 and 5 on the extensive margin