reduction in credit supply to firms that borrow in dollars. 4 to test the model ’ s implications, my coauthors and i focused on events in the second half of 2011, when the credit quality of a number of large euro - area banks became a concern and u. s. prime money market funds sharply reduced their lending to those banks. in a span of four months, the exposure of money funds to euro - area banks fell by half, from about $ 400 billion in may to about $ 200 billion in september. 5 coincident with this contraction in dollar funding, the cip basis widened in the direction predicted by our model, increasing the cost of obtaining synthetic dollars via the fx swap market. we used data from the international syndicated loan market to test the model ’ s predictions about the reaction of lending to this type of funding stress. we found that dollar - denominated lending by euro - area banks fell relative to their euro - denominated lending, while this result did not hold for u. s. banks. we also found that, even holding fixed the identity of the borrowing firm, a syndicate formed to make a dollar - denominated loan during this period was less likely to include euro - area banks, while the same was not true of syndicates making euro - denominated loans. finally, euro - area banks that relied most on funding from u. s. money market funds also cut back most sharply on their dollar - denominated lending. 6 this last result is similar to one in recent work by my fed colleagues ricardo correa, horacio sapriza, and andrei zlate. 7 they documented that the u. s. branches of foreign banks that experienced the most shrinkage in their dollar - denominated large time deposits – funding that had been mostly provided by money market funds prior to mid - 2011 – cut their u. s. - based commercial and industrial lending by more than banks that fared better on this score. taken together, these findings have two types of policy implications : one for central bank responses to dollar funding pressures and another for measures to regulate foreign banking firms that rely heavily on short - term wholesale funding. this analysis underscores that the federal reserve ’ s temporary dollar liquidity swap lines with the european central bank and other central banks are an effective response to stresses in dollar funding markets. last week, the fomc approved the extension of these swap lines through february 1, 2014. these lines have helped

the growth of nominal wages in the united states. however, a model of changes in aggregate labor compensation that is similar in structure to the price - inflation model that i described earlier does not detect a stable relationship between measures of globalization ( for example, import price changes or the bis estimates of the foreign output gap ) and aggregate wage dynamics in the united states. that said, the recent changes in some, though not all, measures of aggregate compensation seem to have been somewhat lower than such models would have predicted. of course, several purely domestic factors could help to account for any shortfall, such as the aftereffects of the unusually sluggish recovery in job growth early in this expansion or a possible downward drift in the nonaccelerating - inflation rate of unemployment. but it also is a pattern that would be consistent with downward pressures from an expansion in global labor supply. in support of this link, some cross - section studies have found a relationship between industry wage growth and import penetration, while the research on wage inequality tends to relate some of the relative decline in wages of low - skilled workers to trade, although in both types of studies the effects are generally relatively small. similarly, research from the federal reserve bank of new york shows a modest relationship between exchange rate fluctuations and wage growth, with larger effects evident for the wages of lower - skilled workers. 10 borio and filardo ( 2006 ) and gamber and hung ( 2001 ) found that foreign resource utilization had sizable effects on u. s. inflation, while tootell ( 1998 ) found little to no effect. refer to borio and filardo, " globalization and inflation " ; edward n. gamber and juann h. hung ( 2001 ), " has the rise in globalization reduced u. s. inflation in the 1990s? " economic inquiry, vol. 39 ( january ), pp. 58 - 73 ; and geoffrey m. b. tootell ( 1998 ), " globalization and u. s. inflation, " federal reserve bank of boston, new england economic review ( july / august ), pp. 21 - 33. see, for example, helbling, jaumotte, and sommer, " how has globalization affected inflation? " ; and william r. cline ( 1997 ), trade and income distribution ( washington : institute for international economics ). linda goldberg and joseph tracy ( 2003 ), " exchange rates and wages, " unpublished paper, federal reserve bank of new york.