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on Banking |
| By: | Robert J R Elliott (University of Birmingham); Fabio Gatti (University of Bern); Eric Strobl (University of Bern & University of Birmingham) |
| Abstract: | This paper quantifies the impact of the 1630-1631 Italian plague on the business activities of the Florentine merchant-bank Saminiati & Guasconi. Employing AI for handwriting recognition on over 6, 000 bank letters we show that letters and goods transactions decreased by two-thirds when a merchant lived in an infected town although this negative effect was halved when the correspondent also resided in an infected town. Mentions of precious coins however increased reflecting a flight to the safety of hard currency. The plague also shifted the bank’s merchant network towards Southern and Eastern Europe and away from the Atlantic Coast. |
| Keywords: | merchants, plague, trade |
| JEL: | N00 N73 N83 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:hes:wpaper:0271 |
| By: | Michael J. Lamla; Damjan Pfajfar; Lea Rendell |
| Abstract: | We explore the consequences of losing confidence in the price stability objective of central banks by studying the resulting inflation and deflationary biases in medium-run inflation expectations. In a model with heterogeneous household perceptions of an occasionally binding zero-lower-bound constraint and of monetary policy objectives, we show that the estimated model-implied distribution of households' inflation expectations matches several characteristics of the empirical distribution when featuring both inflation and deflationary biases. We then directly identify these biases using unique individual-level survey data on medium-run inflation expectations across nine countries and over time. Both inflation and deflationary biases are important features of the distribution of medium-run inflation expectations. |
| Keywords: | inflation bias; deflationary bias; confidence in central banks; effective lower bound; inflation expectations; microdata |
| JEL: | E31 E37 E58 D84 |
| Date: | 2024–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:99150 |
| By: | Karau, Sören |
| Abstract: | I show that the majority of short-term nominal exchange rate fluctuations among large economies can be explained by changes in the relative stance of their monetary policies. Adapting recently developed instrumental variable techniques for shock identification, I find that monetary policy shocks of the US relative to the euro area account for 76 percent of the short-term fluctuations of the USD-EUR exchange rate over a one-month horizon - substantially more than previously documented. Similar results are obtained for exchange rates involving the British pound and Japanese yen. Relative monetary policy shocks explain a larger fraction of variability of the exchange rate than of interest rate differentials throughout the yield curve, and small changes in risk-free rates are associated with sizable jumps in the exchange rate. Identifying US and euro area shocks separately reveals that both are important for the USD-EUR rate. Taken together, these findings speak to the significance of (not only US) monetary policy in driving frictions in interest parity relations that have recently been found to be crucial for understanding exchange rate behavior from a theoretical perspective. |
| Keywords: | Monetary Policy, Exchange Rates, Proxy VAR |
| JEL: | E44 E52 F31 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:305278 |
| By: | Neil Bhutta; Lauren Lambie-Hanson |
| Abstract: | Although rising mortgage interest rates between 2022 and 2023 captured headlines, the cost of upfront mortgage fees also increased significantly during that time. Using new Home Mortgage Disclosure Act data on fees, collected since 2018, we estimate that borrowers’ out-of-pocket upfront costs for getting a home purchase mortgage rose nearly 33 percent from 2021 to 2023, to almost $6, 500. We document that the main driver of this increase has been rising payments of “discount points, ” as opposed to other types of lender fees and third-party fees. We show that loans originated by nonbanks, in particular, have seen large increases in discount points and yet also carry the highest interest rates, on average, after accounting for borrower and loan traits that influence risk premia. |
| Keywords: | mortgage; closing costs; nonbanks; FinTech |
| JEL: | G21 G51 |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpdp:99047 |
| By: | William M. Doerner (Federal Housing Finance Agency); Scott Susin (Federal Housing Finance Agency) |
| Abstract: | Mortgage appraisal accuracy became a major concern following the global financial crisis in the late 2000s. Legislative standards and industry guidance have adjusted professional practices to improve inefficiencies and inequities. Nonetheless, systematic misvaluation continues to be documented for single-family residential homes, which creates problems when appraisals are used by financial lenders to gauge potential risk and an asset's worth. Real estate prices have been appreciating continuously over the last dozen years, which means comparable sales and benchmark indices merit revisions to reflect fair market conditions, but it only happens for around 10% of properties. We sample from a uniform appraisal database of over 45 million records from "subject" single-family properties and 228 million records from "comparable" homes covering the entire United States from 2015 through 2023. This paper asks whether time adjustments are made, if they improve fair market measurements, and whether they fix neighborhood appraisal disparities. Results show these readily available corrections are underutilized, too small, applied less frequently in minority areas, and cure half of initial underappraisals. The limited usage of time adjustment accounts for as much as 67% of the underappraisal bias in Black neighborhoods and 49% of the disparity in Hispanic neighborhoods. |
| Keywords: | appraisal, mortgage, racial disparities, time adjustment, valuation |
| JEL: | D53 G21 G50 L85 R31 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:hfa:wpaper:24-07 |
| By: | Diaz, Adriano |
| Abstract: | Deflation represents an increase in consumer wealth through postponed consumption decisions. State-imposed "monetary policies" not only expropriate this increase in wealth attributed to deflation (a fiscal motive) but also penalize consumers for postponing their consumption of goods and services (a form of social engineering). Consequently, there is a shortfall in the state's legal frameworks adequately protecting consumer freedom and property rights. In response, the Bitcoin network has emerged as a private currency governed by a distinct legal framework rooted in proof-of-work. Consumers holding Bitcoin benefit from the economic advantages of global deflation-advantages often usurped by central banks-and experience enhanced freedom to delay consumption, navigating their life paths free from the constraints of social engineering. Thus, Bitcoin contributes value by addressing the shortfall in state legal systems that safeguard consumer freedom and property rights |
| Date: | 2024–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:5dv9s |
| By: | Olivier Armantier; Marco Cipriani; Asani Sarkar |
| Abstract: | We study Discount Window (DW) stigma, the reluctance to access the Federal Reserve’s lender-of-last resort facility, between 2014 and 2024. Despite increased usage since 2020, we find conclusive evidence that the DW is stigmatized, especially among smaller banks and when financial markets experience disruptions. In particular, evidence of DW stigma emerged months before the 2023 banking turmoil and had not subsided a year later. We also identify new determinants and consequences of DW stigma. The implications of these results for the provision of emergency liquidity are discussed. |
| Keywords: | discount window; lender of last resort; stigma |
| JEL: | E52 G21 G28 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99159 |
| By: | Matteo Crosignani; Thomas M. Eisenbach; Fulvia Fringuellotti |
| Abstract: | After a period of relative stability, a series of bank failures in 2023 renewed questions about the fragility of the banking system. As in previous years, we provide in this post an update of four analytical models aimed at capturing different aspects of the vulnerability of the U.S. banking system using data through 2024:Q2 and discuss how these measures have changed since last year. |
| Keywords: | banking system vulnerability; bank capital; fire-sale risk; liquidity risk; run risk |
| JEL: | G01 G21 |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99056 |
| By: | Janet Hua Jiang; Rupal Kamdar; Kelin Lu; Daniela Puzzello |
| Abstract: | We disentangle the channels through which inflation expectations affect household spending. We conduct a survey featuring hypothetical scenarios that generate a controlled increase in inflation expectations. For 74% of households, current spending is unresponsive, typically due to fixed budget plans or irrelevance of inflation expectations. About 20% of households reduce spending, often citing wealth effects, nominal income rigidity, and inflation hedging. Only 6% increase spending, mostly due to intertemporal substitution or stockpiling. Respondents who expect other economic variables to deteriorate are more likely to reduce spending. Our findings suggest manipulating inflation expectations to boost consumer spending may not be an effective policy tool. |
| Keywords: | Central bank research; Inflation and prices; Inflation targets; Monetary policy; Monetary policy transmission |
| JEL: | D15 D84 E2 E52 E7 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-44 |
| By: | Chris Lam |
| Abstract: | Alternative data provides valuable insights for lenders to evaluate a borrower's creditworthiness, which could help expand credit access to underserved groups and lower costs for borrowers. But some forms of alternative data have historically been excluded from credit underwriting because it could act as an illegal proxy for a protected class like race or gender, causing redlining. We propose a method for applying causal inference to a supervised machine learning model to debias alternative data so that it might be used for credit underwriting. We demonstrate how our algorithm can be used against a public credit dataset to improve model accuracy across different racial groups, while providing theoretically robust nondiscrimination guarantees. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.22382 |
| By: | Isabel Gödl-Hanisch; Ron Mau; Jonathan Rawls |
| Abstract: | We study monetary policy in a New Keynesian model with a variable credit spread and scope for central bank asset purchases to matter. A novel financial and labor market interaction generates an endogenous cost-push channel in the Phillips curve and a credit wedge in the IS curve. These channels arise due to a liquidity premium to long-term debt present in our model. The “divine coincidence” holds with the nominal short rate and central bank balance sheet available as policy tools—dual-instrument policy. Targeting the liquidity premium using balance sheet policy provides a determinate equilibrium with a fixed policy rate, as does inflation-targeting balance sheet policy. While the liquidity premium in our model depends on unobservable components, the slope of the yield curve serves as a proxy for the liquidity premium when thinking about implementable monetary policy strategies that respond to observable variables alone. We quantify the welfare costs to various monetary policy strategies relative to the analytically derived optimal dual-instrument policy. |
| Keywords: | unconventional monetary policy; optimal monetary policy; New Keynesian model; policy rate; Interest rate |
| JEL: | E43 E52 E58 |
| Date: | 2024–11–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99106 |
| By: | Marina Azzimonti-Renzo; Nirvana Mitra |
| Abstract: | We examine how the post-pandemic trajectory of risk-free rates—from historically low levels in 2020 to a steep rise in 2022—affects sovereign debt management and default risk in emerging markets (EMs). Using a dynamic political economy model, we show that weak institutional environments with political incentives to engage in corruption spending lead to over-borrowing and increased default risk, especially during low-rate periods. As rates rise, EMs face high risks of default or the need for austerity programs, depending on the severity of productivity shocks. While International Financial Institution (IFI) lending provides short-term relief, it can fuel moral hazard and corruption. Making IFI loans contingent on anti-corruption efforts reduces default risk. However, even full monitoring cannot eliminate the incentives for fiscal mismanagement, as governments may still over-borrow during favorable periods without addressing sustainability. We also find that Quantitative Performance Criteria (QPC), such as a debt-ceiling rule, are less effective as they leave room for corruption that creates default risk and can generate welfare losses relative to a scenario without IFI debt. |
| Keywords: | Sovereign Debt Crises; Institutions; Corruption; Sovereign Default; IFI loans; Emerging Markets |
| JEL: | D72 E43 F34 E62 F41 |
| Date: | 2024–10–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:99074 |
| By: | Andrew F. Haughwout; Donghoon Lee; Daniel Mangrum; Joelle Scally; Wilbert Van der Klaauw |
| Abstract: | U.S. household debt balances grew by $147 billion (0.8 percent) over the third quarter, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Balances on all loan products recorded moderate increases, led by mortgages (up $75 billion), credit cards (up $24 billion), and auto loans (up $18 billion). Meanwhile, delinquency rates have also risen over the past two years, returning to roughly pre-pandemic levels (and exceeding them in the case of credit cards and auto loans), though there are some signs of stabilization this quarter. Are rising aggregate debt burdens sustainable? Or is this expansion to be expected given increases in aggregate income and population size? In this post, we take a look at debt balances scaled by income, tracking the evolution of this ratio over the past twenty-five years. |
| Keywords: | household finance |
| JEL: | G5 |
| Date: | 2024–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99097 |
| By: | Scott St. Louis |
| Abstract: | Fed librarians help connect readers with scholarly economic research from Reserve bank economists through a new monthly email digest of working papers. |
| Keywords: | economic information services; research curation |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:99079 |
| By: | Carlos F. Avenancio-León; Alessio Piccolo; Leslie Sheng Shen |
| Abstract: | After the gender pay gap narrows, what labor choices do men and women make? Several factors contribute to the persistence of the pay gap, such as workplace flexibility, systemic discrimination, and career costs of family. We show that how the labor market responds to the narrowing of the gap is just as pivotal for understanding this persistence. When the gender pay gap declines in a specific sector, women are relatively more likely to seek jobs in that sector, while men readjust their search to less equitable sectors. These compositional effects decrease female participation in less equitable sectors, which typically offer higher wages, reinforcing gender stereotypes and social norms that contribute to the glass ceiling. Through these effects, the same forces that reduce the gender pay gap at the bottom of the pay distribution also contribute to the persistence of gender inequities at the top. This self-reinforcing cycle underscores the need for reforms that are cross-sectoral and comprehensive to effectively achieve meaningful reductions in gender inequities across the labor market. |
| Keywords: | gender pay gap; bank deregulation |
| JEL: | J16 J71 O16 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:99067 |
| By: | Congressional Budget Office |
| Abstract: | Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that purchase mortgages from lenders, package them into securities to be sold to investors, and guarantee the timely payment of those securities, charging fees in exchange for that guarantee. By law and regulation, the GSEs must allocate a share of their purchases to mortgages made to low-income families and certain underserved populations. The details of that allocation are described in directives known as housing goals. |
| JEL: | G21 G28 H53 I38 |
| Date: | 2024–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:cbo:report:60190 |
| By: | Khanh, Huyen Ngo |
| Abstract: | This paper examines the operational efficiency of commercial banks through the lens of the Data Envelopment Analysis (DEA) model, highlighting its significance in assessing banking performance in a rapidly evolving financial landscape. By analyzing key literature and trends, the study identifies critical factors influencing bank efficiency, including technological advancements, sustainability, and regulatory frameworks. It also explores the impact of digital transformation on traditional banking operations and emphasizes the importance of customer-centric approaches in enhancing service efficiency. Furthermore, the paper discusses future research directions, such as the integration of artificial intelligence and big data analytics, cross-country comparisons, and the relationship between operational efficiency and risk management. Ultimately, this study aims to provide insights for scholars and practitioners seeking to enhance the competitiveness and resilience of commercial banks in an increasingly complex global environment. |
| Date: | 2024–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:uy9mx |
| By: | Kerstin Bernoth; Helmut Herwartz; Lasse Trienens |
| Abstract: | Using a data-driven approach to identify structural vector autoregressive models, we examine key factors influencing the US dollar exchange rate across eight advanced economies from 1980 to 2022. We find that shocks to inflation expectations, which are closely tied to unfunded government transfer payments, have a pronounced effect on the US dollar’s value. This underscores the fiscal dimension of exchange rates. External shocks, related to the convenience yield investors forgo to hold US dollar assets, have emerged over time as the most powerful driver of US dollar exchange rate fluctuations. These findings provide new insights into the complex interplay of monetary policy, fiscal dynamics, and global market forces in shaping US dollar exchange rates. |
| Keywords: | Exchange rates, convenience yield, inflation expectations, monetary policy, fiscal policy, unfunded government transfer payment, monetary-fiscal policy mix |
| JEL: | E52 C32 E43 F31 G15 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2100 |
| By: | Swapan-Kumar Pradhan; Elod Takats; Judit Temesvary |
| Abstract: | We use a rarely accessed BIS database on bilateral cross-border bank claims by bank nationality to examine the interaction of monetary and fiscal policies. We find significant interactions: the transmission of the monetary policies of major currency issuers is significantly influenced by the fiscal stance of source (home) lending banking systems. Fiscal consolidation in a source country amplifies the effect of currency issuers' monetary policy on lending. For instance, a reduction in the German debt-to-GDP ratio amplifies the negative impact of US monetary policy tightening on USD-denominated cross-border bank lending. |
| Keywords: | monetary policy, government debt, cross-border claims, difference-in-differences |
| JEL: | E63 F34 F42 G21 G38 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1226 |
| By: | Samuel Mann; Alexis Meyer-Cirkel |
| Abstract: | In early 2021, as monetary policy tightening reversed a multi-year trend of Metical depreciation, the exchange rate vis-à-vis the US dollar de facto stabilized. This report discusses elements of the market structure and other drivers of Metical stability since mid-2021. The particularities of Mozambique, a small open economy with an export sector that has a strong foreign currency cost structure, provide important insights into that discussion, as does the structure and development of the Foreign Exchange (FX) market. |
| Keywords: | Mozambique; Foreign Exchange Stability; Exchange Rate Regimes; Central Bank Policy; FX Market Structure; Market Intervention |
| Date: | 2024–11–08 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/233 |
| By: | Jonathan Hartley; Nuno Paixão |
| Abstract: | This note analyzes mortgage stress tests, a macroprudential tool. We find that when mortgage stress tests are applied to all mortgage purchase originations, they improve credit quality and reduce credit and house price growth. They also improve the resilience of borrowers to financial shocks, such as the large increase in interest rates during 2022–23. |
| Keywords: | Credit and credit aggregates; Financial institutions; Financial system regulation and policies; Monetary policy |
| JEL: | E5 E52 G2 G21 G28 G5 G50 G51 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:24-25 |
| By: | John Muellbauer |
| Abstract: | Housing has been heavily implicated in many financial crises, e.g. in the Global Financial Crisis of 2008-9. Since the GFC, new macroprudential frameworks have been introduced across the globe, with housing-related tools prominent. This paper explains how the housing-related financial accelerator operates, and discusses institutional differences affecting the transmission and amplification of house price and credit shocks and therefore risks to the financial system and to the resilience of households. The objectives of housing-related macroprudential policy are discussed and research on diagnosing potential housing risk critically reviewed. Limitations of the literature on the effectiveness of housing-related macroprudential tools in international panel studies are examined, including from the neglect of country-heterogeneity, except in fixed effects. How aggregate cost-benefit analyses of the consequences of macroprudential policies has benefitted from the development of the Growth-at-Risk framework is explained. Research is reviewed on the distributional implications, often negative in the short-run, for example, on access to credit of lower income and first-time buyer households, but beneficial in the longer run. The importance of a general equilibrium approach integrating micro and macro data is emphasised, and developments in the agent-based modelling approach are discussed. The need to coordinate macroprudential policies with other housing-related policies is highlighted. |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1056 |
| By: | Daniel Grodzicki (Federal Housing Finance Agency); Sean Cannon (Federal Housing Finance Agency); Christopher W. Davis (Federal Housing Finance Agency); Ken Lam (Federal Housing Finance Agency) |
| Abstract: | We study the impact of neighborhoods' race composition on appraisers' valuation decisions in home purchase appraisals. Controlling for many appraisal inputs, including the appraiser themselves, we find that low appraisals (below the contract price) are at least 23 percent more likely in majority African American neighborhoods relative to neighborhoods with no African American residents. Instrumental variable estimates, based on historical race shares, indicate an impact of at least 13 percent. However, this effect dissipates when appraisers work in neighborhoods in which they have appraised before or in which many appraisals were recently completed, facts consistent with information based models of discrimination. |
| Keywords: | appraisal, discrimination, mortgage |
| JEL: | R30 J15 G21 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:hfa:wpaper:24-06 |
| By: | Motta Café, Renata |
| Abstract: | Limited access to credit has been identified as a major constraint to sustainable municipal development, but empirical evidence on the effectiveness of credit operations remains inconclusive. This paper evaluates the impact of federal government guaranteed loans on public expenditures. Using data from Brazilian municipalities and a regression discontinuity design that leverages a discontinuity in the eligibility criteria for federal government guarantees, I show that the loans have a positive impact on the quality of local expenditure and social outcome indicators. This impact is characterized by a significant increase in investment while keeping personnel expenditures stable. |
| Keywords: | State capacity;Access to credit;public expenditure;municipal development |
| JEL: | H71 H75 R51 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13819 |
| By: | Jongrim Ha; Dohan Kim; M. Ayhan Kose; Eswar S. Prasad |
| Abstract: | Conventional empirical models of monetary policy transmission in emerging market economies produce puzzling results: monetary tightening often leads to an increase in prices (the price puzzle) and depreciation of the currency (the FX puzzle). We show that incorporating forward-looking expectations into standard open economy structural VAR models resolves these puzzles. Specifically, we augment the models with novel survey-based measures of expectations based on consumer, business, and professional forecasts. We find that the rise in prices following monetary tightening is related to currency depreciation, so eliminating the FX puzzle helps solve the price puzzle. |
| Keywords: | monetary policy, emerging market economies, prize puzzle, foreign exchange puzzle |
| JEL: | E31 E32 Q43 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-67 |