Speech At the 2020 Virtual D.C. Summit, Institute of International Bankers, Washington, D.C. (via webcast)
Speech At the Urban Institute, Washington, D.C. (via webcast)
Speech At "How the Fed Will Respond to the COVID-19 Recession in an Era of Low Rates and Low Inflation," an event hosted by the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, Washington, D.C. (via webcast)
Speech At the Peterson Institute for International Economics, Washington, D.C. (via webcast)
Speech At "Navigating the Decade Ahead: Implications for Monetary Policy," an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming (via webcast)
Speech At the Kansas Bankers Association CEO and Senior Management Forum/Annual Meeting, Topeka, Kansas (via webcast)
Speech At the Outstanding Women of Kansas Awards Ceremony, Topeka, Kansas
Speech At the Federal Reserve Board and Federal Reserve Bank of San Francisco's Innovation Office Hours, San Francisco, California (via webcast)
Speech At the FedNow Service Webinar, Washington, D.C. (via webcast)
Speech At the Perspectives on the Pandemic Webinar Series, hosted by the National Association for Business Economics, Washington, D.C. (via webcast)
WASHINGTON – FINRA announced today that Michael Rufino will leave the organization at the end of this year after more than 32 years of dedicated service protecting investors and ensuring market integrity. Rufino most recently served as Head of Member Regulation (Sales Practice), where he guided and oversaw FINRA’s Sales Practice Examination, Risk Monitoring and Membership Application Programs in 14 District offices.
The FINRA Investor Education Foundation, in collaboration with researchers from Rush University Medical Center, released two studies today examining links among financial and health knowledge, cognitive health and financial and health decision making among older persons.
WASHINGTON, D.C.–New research from the FINRA Investor Education Foundation offers insights into the financial knowledge and habits of incarcerated women across multiple measures of financial capability and literacy, exposing the deep financial challenges facing women in prisons.
WASHINGTON—FINRA today published the 2020 FINRA Industry Snapshot, its annual statistical report on the brokerage firms, registered representatives and market activity that FINRA regulates.
WASHINGTON – FINRA announced today the results of its election of two Governors to its Board of Governors. At today’s Annual Meeting of FINRA firms, small firms elected Wendy Lanton, Chief Operations/Compliance Officer, Lantern Investments, Inc., as a Small Firm Governor.
WASHINGTON – Military service members and their families often face unique financial challenges complicated by frequent moves, cost of living adjustments and un- or underemployment of military spouses. In an ongoing effort to increase the financial capability of service members and their spouses, the FINRA Investor Education Foundation Military Spouse Fellowship awarded 50 fellowships to military spouses seeking to earn their AFC® (Accredited Financial Counselor®) designation.
WASHINGTON—FINRA announced today that Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC (Wells Fargo) have agreed to pay more than $1.4 million in restitution, plus interest, to approximately 100 customers and fines totaling $675,000 for failing to supervise recommendations that customers switch from variable annuities to investment company products.
WASHINGTON, D.C. – America’s older investors, many facing diminished financial knowledge and overconfidence in their ability to make sound investment decisions, may engage in more risky financial behaviors as they continue to age, according to new research from the FINRA Investor Education Foundation (FINRA Foundation), in collaboration with researchers from Duke University and Rush University Medical Center.
WASHINGTON—FINRA announced today that it has fined Interactive Brokers LLC $15 million for widespread failures in the firm’s anti-money laundering (AML) program, which persisted for more than five years. As part of the settlement, FINRA also required Interactive Brokers to certify that it will implement the recommendations of a third-party consultant to remedy the firm’s AML program failures.
WASHINGTON – FINRA’s Board of Governors met virtually on September 9 and 10. During the meeting, the Board approved two rulemaking items, and received updates on FINRA’s operations, including the Examination and Risk Monitoring Program Transformation and the Market Regulation Enforcement program.
The Securities and Exchange Commission today filed settled actions against two public companies for violations that resulted in the improper reporting of quarterly earnings per share (EPS) that met or exceeded analyst consensus estimates. The…
The Securities and Exchange Commission today announced two separate whistleblower awards for total payments of over $2.5 million.
In the first order, a whistleblower was awarded over $1.8 million for taking both personal and professional risks in…
The Securities and Exchange Commission today charged Mark Schena, the President and Chief Science Officer of Arrayit Corporation, for making allegedly false and misleading statements concerning Arrayit's development of a COVID-19 blood test and its…
The Securities and Exchange Commission today announced settled charges against Germany-based automaker BMW AG and two of its U.S. subsidiaries for disclosing inaccurate and misleading information about BMW’s retail sales volume in the U.S. while raising…
The Securities and Exchange Commission today announced that Chicago-area engine manufacturing company Power Solutions International Inc., has agreed to settle accounting fraud charges related to the company's overstatement of revenues by almost $25…
The Securities and Exchange Commission today charged Connecticut-based Revolution Lighting Technologies Inc. for an accounting fraud that falsely inflated its reported revenues over a four-year period. Four Revolution Lighting executives—CEO Robert…
The Securities and Exchange Commission today voted to adopt amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the…
The Securities and Exchange Commission today voted to adopt amendments to the rules governing its whistleblower program that are designed to provide greater clarity to whistleblowers and increase the program’s efficiency and transparency. …
The Securities and Exchange Commission today announced that it has obtained an asset freeze and other emergency relief to halt a series of microcap market manipulation schemes that defrauded retail investors.
According to the SEC’s complaint, from…
The Securities and Exchange Commission today charged Yinghang “James” Yang, a senior index manager at a globally recognized index provider, and his friend Yuanbiao Chen, a manager at a sushi restaurant, with perpetrating an insider-trading scheme that…
Federal Reserve Board amends implementation date of modifications to Reserve Bank payment services and corresponding changes to the Policy on Payment System Risk
Federal Reserve Board issues Advance Notice of Proposed Rulemaking on an approach to modernize regulations that implement the Community Reinvestment Act
Federal Reserve Board updates frequently asked questions to clarify the Board and Department of Treasury’s expectations regarding lender underwriting for the Main Street Lending Program
Federal Reserve Board issues Report on the Economic Well-Being of U.S. Households
Federal Reserve Board releases hypothetical scenarios for second round of bank stress tests
Federal Reserve Board and Federal Open Market Committee release economic projections from the September 15-16 FOMC meeting
Federal Reserve issues FOMC statement
Federal Reserve Board appoints Trevor Reeve as director of the Division of Monetary Affairs
Federal Reserve Board announces termination of enforcement action with Allied First Bancorp, Inc.
Federal Reserve Board releases corrected stress test results stemming from an error in projected trading losses and as a result, revised the capital requirements for two banks
The United States Attorney's Office announced that ARVIND "MIKE" VIRA ("VIRA"), age 74, a resident of New Orleans, Louisiana, pled guilty today to a years-long conspiracy with First NBC Bank president Ashton J. Ryan to defraud the New Orleans-based bank that failed in April 2017.
Two New York brothers were charged in a criminal complaint unsealed today for their alleged participation in a scheme to file fraudulent loan applications seeking nearly $7 million in forgivable Paycheck Protection Program (PPP) loans guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, announced Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department's Criminal Division and U.S. Attorney James P. Kennedy, Jr. of the U.S. Attorney's Office for the Western District of New York.
The United States Attorney's Office announced that WARREN G. TREME ("TREME"), age 55, a resident of Metairie, Louisiana, pleaded guilty today to conspiracy to defraud First NBC Bank, the New Orleans-based bank that failed in April 2017.
A former bank president admitted in federal court on Wednesday that he embezzled from the Kentucky bank where he was the president.
The United States Attorney's Office announced that GARY R. GIBBS ("GIBBS"), age 66, a resident of Niceville, Florida, pled guilty today to conspiracy to defraud First NBC Bank, the New Orleans-based bank that failed in April 2017.
We began an evaluation in December 2019 to assess the efficiency and effectiveness of the Bureau's personnel security program for employee and contractor background investigations. The Bureau recently completed an internal review of the program, which identified other areas for improvement, and the Office of Personnel Management launched a separate review in March 2020. Because the Bureau needs time to fully address these efforts, we are suspending our evaluation.
As part of our scoping efforts for this suspended evaluation, we found that the Bureau does not have measurable objectives to evaluate its performance related to reducing its adjudication backlog or a plan with measurable objectives to manage the background investigation process going forward. In addition, the agency does not have processes to reconcile its personnel security data.
This memorandum includes recommendations to strengthen the Bureau's performance monitoring capabilities for the personnel security program and improve processes related to data accuracy. We intend to monitor the Bureau's progress in implementing our recommendations and will assess the need to reinitiate our evaluation at a later date.
As part of our 2019 audit of the Bureau's information security program, we tested technical controls for the agency's Legal Enclave, which includes systems and processes that are used to collect, store, process, and transmit critical information related to investigations and litigation.
We found several security vulnerabilities in the Legal Enclave. Although the Bureau was aware of several of these issues, it had not taken timely action to mitigate their risks. We are making recommendations to help strengthen the agency's technical security controls.
Given the sensitivity of our review, this memorandum is restricted.
The Bureau is funded primarily through transfers from the Board, averaging $487.1 million a year from FY 2012 to FY 2019. We chose to review the Bureau's budget and funding processes.
We determined that the Bureau designed and implemented controls over its budget and funding request processes and the Board designed and implemented controls over the funds transfer process to fulfill the agencies' respective responsibilities outlined in the Dodd-Frank Act. In addition, the Bureau generally complied with legal requirements to produce certain budget- and funding-related information and report it to certain stakeholders.
An Open Board meeting of the Board of Governors of the Federal Reserve System was held at 10:00 a.m. on September 21, 2020. Matter(s) considered: Advance Notice of Proposed Rulemaking on the Community Reinvestment Act Regulation.
A closed meeting of the Board of Governors of the Federal Reserve System will be held at 11:30 a.m. on July 20, 2020. Matter(s) considered: Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.
A closed meeting of the Board of Governors of the Federal Reserve System was held at 10:00 a.m. on July 15, 2020. Matter(s) considered: Periodic Briefing and Discussion on Financial Markets, Institutions, and Infrastructure.
Mathias Kronlund, Veronika K. Pool, Clemens Sialm, and Irina Stefanescu | We examine the effects of a 2012 regulatory reform that mandated fee and performance disclosures for the investment options in 401(k) plans. We show that participants became significantly more attentive to expense ratios and short-term performance after the reform. The disclosure effects are stronger among plans with large average contributions per participant and weaker for plans with many investment options. Additionally, these results are not driven by secular changes in investor behavior or sponsor-initiated changes to the investment menus. Our findings suggest that providing salient fee and performance information can mitigate participants' inertia in retirement plans.
Jonathan Goldberg, Elizabeth Klee, Edward Simpson Prescott, and Paul Wood | This paper examines potential interactions between financial stability and the monetary policy strategies and tools considered in the Federal Reserve’s review of monetary policy strategy, tools, and communication practices. Achieving the Federal Reserve’s goals of full employment and price stability promotes financial stability. A key concern, however, is that with a low equilibrium real interest rate, a low policy rate will be necessary, and in turn, these low rates may contribute to an increase in financial system vulnerabilities. Our analysis suggests that there are typically significant macroeconomic and financial stability benefits of using these tools and strategies, but there are plausible situations in which financial vulnerabilities are such that it would be desirable to limit their use. A clear communications strategy can help minimize financial vulnerabilities. Should vulnerabilities arise, they are often best addressed with macroprudential tools.
Richard K. Crump, Christopher J. Nekarda, and Nicolas Petrosky-Nadeau | This paper discusses various concepts of unemployment rate benchmarks that are frequently used by policymakers for assessing the current state of the economy as it relates to the pursuit of both price stability and maximum employment. In particular, we propose two broad categories of unemployment rate benchmarks: (1) a longer-run unemployment rate expected to prevail after adjusting to business cycle shocks and (2) a stable-price unemployment rate tied to inflationary pressures. We describes how various existing measures used as benchmark rates fit within this taxonomy with the goal of facilitating the use of a common set of terms for assessments of the current state of the economy and deliberations among policymakers.
Jeffrey Campbell, Thomas B. King, Anna Orlik, and Rebecca Zarutskie | We review two nonstandard uses of the policy rate tool, which provide additional stimulus when interest rates are close to or at the effective lower bound—forward guidance and negative interest rate policy. In particular, we survey the use of these tools since the start of the Great Recession, review evidence of their effectiveness, and discuss key considerations that confront monetary policymakers while using them.
Mark Carlson, Stefania D’Amico, Cristina Fuentes-Albero, Bernd Schlusche, and Paul Wood | This paper considers various ways of using balance sheet policy (BSP) to provide monetary policy stimulus, including the BSPs put in place by the Federal Reserve in the wake of the Global Financial Crisis, the choice between fixed-size and flow-based asset purchase programs, policies targeting interest rate levels rather than the quantity of asset purchases, and programs aimed at increasing more direct lending to households and firms. For each of these BSP options, we evaluate benefits and costs. We conclude by observing that BSPs’ relative effectiveness and thus optimal configuration will depend on the shocks affecting the economy. Consequently, it would be valuable for the Federal Reserve to keep a variety of tools at its disposal and employ the ones that best fit the situation that it faces.
Dario Caldara, Etienne Gagnon, Enrique Martínez-García, and Christopher J. Neely | We review macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools.
Hess Chung, Brian M. Doyle, James Hebden, and Michael Siemer | We consider three ways that a monetary policy framework may employ a range for inflation outcomes: (1) ranges that acknowledge uncertainty about inflation outcomes (uncertainty ranges), (2) ranges that define the scope for intentional deviations of inflation from its target (operational ranges), and (3) ranges over which monetary policy will not react to inflation deviations (indifference ranges). After defining these three ranges, we highlight a number of costs and benefits associated with each. Our discussion of the indifference range is accompanied by simulations from the FRB/US model, illustrating the potential for long-term inflation expectations to drift within the range.
Laura Feiveson, Nils Goernemann, Julie Hotchkiss, Karel Mertens, and Jae Sim | We show that makeup strategies, such as average inflation targeting and price-level targeting, can be more effective than a flexible inflationtargeting strategy in overcoming the obstacles created by the effective lower bound in a heterogeneous agent New Keynesian (HANK) model. We also show that the macroeconomic stabilization benefits from such alternative strategies can be substantially larger in a HANK environment than in a representative agent New Keynesian model. We argue that gains in employment outcomes from switching to an alternative strategy would generate disproportionate improvements for historically disadvantaged households and thus have potentially long-lasting effects on the economic well-being of these groups.
Fernando Duarte, Benjamin K. Johannsen, Leonardo Melosi, and Taisuke Nakata | We analyze the framework for monetary policy in view of the effective lower bound (ELB). We find that the ELB is likely to bind in most future recessions and propose some ways that theoretical models imply that the framework could be strengthened. We also discuss ways that commitment strategies, which are not part of the framework, may improve economic outcomes. These policies can suffer from a time-inconsistency problem, which we analyze.
Jonas Arias, Martin Bodenstein, Hess Chung, Thorsten Drautzburg, and Andrea Raffo | Several structural developments in the U.S. economy—including lower neutral interest rates and a flatter Phillips curve—have challenged the ability of the current monetary policy framework to deliver on the Federal Open Market Committee’s (FOMC) dual-mandate goals. This paper explores whether makeup strategies, in which policymakers seek to stabilize average inflation around the inflation target over some horizon, could strengthen the FOMC’s ability to fulfill its dual mandate. The quantitative analysis discussed here suggests that credible makeup strategies may provide some moderate stabilization gains. The practical implementation of these strategies, however, faces a number of challenges that would have to be surmounted for the full benefit of these strategies to be realized.
Yeonwoo Rho, Yun Liu, and Hie Joo Ahn | This paper proposes a new nonparametric mixed data sampling (MIDAS) model and develops a framework to infer clusters in a panel regression with mixed frequency data. The nonparametric MIDAS estimation method is more flexible and substantially simpler to implement than competing approaches. We show that the proposed clustering algorithm successfully recovers true membership in the cross-section, both in theory and in simulations, without requiring prior knowledge of the number of clusters. This methodology is applied to a mixed-frequency Okun’s law model for state-level data in the U.S. and uncovers four meaningful clusters based on the dynamic features of state-level labor markets.
Ryan A. Decker, Meagan McCollum, and Gregory B. Upton Jr. | The shale oil and gas boom in the U.S. provides a unique opportunity to study economic growth in a "boom town" environment, to derive insights about economic expansions more generally, and to obtain clean identification of the causal effects of economic growth on specific margins of business adjustment. The creation of new business establishments--separate from the expansion of existing establishments--accounts for a disproportionate share of the multi-industry employment growth sparked by the shale boom, an intuitive but not inevitable empirical result that is broadly consistent with canonical models of firm dynamics. New firms, in particular, contribute nearly half of the cumulative economic growth resulting from the shale boom.
Carolina Caetano, Gregorio Caetano, and Eric Nielsen | We show that in models with endogeneity, bunching at the lower or upper boundary of the distribution of the treatment variable may be used to build a correction for endogeneity. We derive the asymptotic distribution of the parameters of the corrected model, provide an estimator of the standard errors, and prove the consistency of the bootstrap. An empirical application reveals that time spent watching television, corrected for endogeneity, has roughly no net effect on cognitive skills and a significant negative net effect on non-cognitive skills in children.
Wayne Passmore and Judit Temesvary | We construct a model of a bank's optimal funding choice, where the bank negotiates with both safety-driven short-term bondholders and (mostly) risk-taking long-term bondholders. We establish that investor demands for safety create a negative relationship between the bank's capital choices and short-term funding, as well as negative relationships between capital and common measures of bank liquidity. Consistent with our model, our bank-level empirical analysis of these capital-liquidity tradeoffs show (1) that bank liquidity measures have a strong and negative relationship to its capital ratio for both large and small banks, and (2) that this relationship has weakened with the advent of stronger liquidity regulation. Our results suggest that the safety concerns of bank debt investors may underlie capital-liquidity tradeoffs and that a bank's share of collateralized short-term debt may be a more robust measure of bank liquidity.
Christopher D. Carroll, Edmund Crawley, Jiri Slacalek, Matthew N. White | To predict the effects of the 2020 U.S. CARES Act on consumption, we extend a model that matches responses of households to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during the lockdown, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear when it is lifted. We estimate that, if the lockdown is short-lived, the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift recovery in consumer spending to its pre-crisis levels. If the lockdown lasts longer, an extension of enhanced unemployment benefits will likely be necessary if consumption spending is to recover.
David S. Miller | This paper measures the probability of rare disasters by measuring the probability of the intermeeting federal funds rate cuts they provoke. Differentiating between months with Federal Open Market Committee (FOMC) meetings and months without identifies excess returns on federal funds futures averaging -1.5 bps per horizon month-ahead at short horizons, corresponding to a 3-5% per month risk-neutral probability of an intermeeting rate cut. The excess returns differ between months with and without meetings, suggesting a positive risk premium associated with meetings. The federal funds excess returns explain a significant portion of equity excess returns, and hence the equity premium puzzle.
Don H. Kim and Marcel A. Priebsch | We examine the structural stability of Gaussian shadow rate term structure models of Treasury yields over a sample that includes the period from 2008 onwards during which the U.S. policy rate was at its effective lower bound. After a conceptual discussion of several potential sources of a structural break in the context of the shadow rate model, we document various pieces of evidence for structural instability based on predictive tests and Lagrange multiplier tests, as well as with separate estimations of the pre-ELB and post-ELB subsamples. In order to overcome the diffculties associated with the latent-factor nature of the model in testing for a structural break, we focus on objects that can be given intuitive interpretation, such as principal components, or that are constructed to be invariant to factor rotations.
Etienne Gagnon, Benjamin Johannsen, and David López-Salido | We use an overlapping-generations model to explore the implications of mortality during pandemics for the economy's productive capacity. Under current epidemiological projections for the progression of COVID-19, our model suggests that mortality will have, in itself, at most small effects on output and factor prices. The reason is that projected mortality is small in proportion to the population and skewed toward individuals who are retired from the labor force. That said, we show that if the spread of COVID-19 is not contained, or if the ongoing pandemic were to follow a mortality pattern similar to the 1918–1920 Great Influenza pandemic, then the effects on the productive capacity would be economically significant and persist for decades.
Sriya Anbil, Mark Carlson, Christopher Hanes, and David C. Wheelock | This article describes the origins and development of the federal funds market from its inception in the 1920s to the early 1950s. We present a newly digitized daily data series on the federal funds rate from April 1928 through June 1954. We compare the behavior of the funds rate with other money market interest rates and the Federal Reserve discount rate. Our federal funds rate series will enhance the ability of researchers to study an eventful period in U.S. financial history and to better understand how monetary policy was transmitted to banking and financial markets. For the 1920s and 1930s, our series is the best available measure of the overnight risk-free interest rate, better than the call money rate which many studies have used for that purpose. For the 1940s-1950s, our series provides new information about the transition away from wartime interest-rate pegs culminating in the 1951 Treasury-Federal Reserve Accord.
Matthew Canzoneri, Behzad Diba, Luca Guerrieri, Arsenii Mishin | We build a quantitatively relevant macroeconomic model with endogenous risk-taking. In our model, deposit insurance and limited liability can lead banks to make risky loans that are socially ineficient. This excessive risk-taking can be triggered by aggregate or sectoral shocks that reduce the return on safer loans. Excessive risk-taking can be avoided by raising bank capital requirements, but unnecessarily tight requirements lower welfare by limiting liquidity producing bank deposits. Consequently, optimal capital requirements are dynamic (or state contingent). We provide examples in which a Ramsey planner would raise capital requirements: (1) during a downturn caused by a TFP shock; (2) during an expansion caused by an investment specific shock; and (3) during an increase in market volatility that has little effect on the business cycle. In practice, the economy is driven by a constellation of shocks, and the Ramsey policy is probably beyond the policymaker's ken; so, we also consider implementable policy rules. Some rules can mimic the optimal policy rather well but are not robust to all the calibrations we consider. Basel III guidance calls for increasing capital requirements when the credit to GDP ratio rises, and relaxing them when it falls; this rule does not perform well. In fact, slightly elevated static capital requirements generally do about as well as any implementable rule.
Alvaro Garcia-Marin, Santiago Justel, and Tim Schmidt-Eisenlohr | Trade credit is the most important form of short-term finance for firms. In 2019, U.S. non-financial firms had about $4.5 trillion in trade credit outstanding equaling 21 percent of U.S. GDP. This paper documents two striking facts about trade credit use. First, firms with higher markups supply more trade credit. Second, trade credit use increases in relationship length, as firms often switch from cash in advance to trade credit but rarely away from trade credit. These two facts can be rationalized in a model where firms learn about their trading partners, sellers charge markups over production costs, and financial intermediation is costly. The model also shows that saving on financial intermediation costs provides a strong rationale for the dominance of trade credit. Using Chilean data at the firm-product-level and the trade-transaction level, we find support for all predictions of the model.
Colin R. Weiss | Financial intermediary balance sheets matter for asset returns even when these intermediaries do not directly participate in the relevant asset markets. During the National Banking Era, liquidity conditions for the New York Clearinghouse (NYCH) banks forecast excess returns for stocks, bonds, and currencies. The NYCH banks had little to no direct participation in these markets; their main link to these markets was through securities financing. Liquidity conditions affect asset prices through the credit growth of the NYCH banks, which shapes marginal investors' discount rates. I use institutional features of this era to provide evidence in favor of this mechanism.
Nils Gornemann, Pablo Guerron-Quintana, and Felipe Saffie | Real exchange rates (RERs) display sizable uctuations not only over the business cycle, but also at lower frequencies, resulting in large and persistent swings over decades|facts that many business cycle models struggle to match. We propose an international macroeconomics model with endogenous productivity to rationalize these facts. In the model, endogenous growth amplifies stationary uctuations generating persistent productivity differences between countries that trigger low-frequency cycles in the RER. The estimated model effortlessly replicates the empirical spectrum, autocorrelation, and half-life of the RER. In addition, we document that low frequency movements in aggregate trade ows are crucial to discipline the RER cycles. Finally, we validate the model-implied co-movement between relative prices and technology differentials using a panel of cross industry-country data on patent and industry prices.
Jiajun Jiang, Qi Liu, and Bo Sun | Discretionary accruals are positively associated with stock returns at the aggregate level but negatively so in the cross section. Using Baker-Wurgler investor sentiment index, we find that a significant presence of sentiment-driven investors is important in accounting for both patterns. We document that the aggregate relation is only prominent during periods of high investor sentiment. Similarly, the cross-section relation is considerably stronger in high-sentiment periods in both economic magnitude and statistical significance. We then embed investor sentiment into a stylized model of earnings management, and illustrate that a positive (negative) relationship between stock returns and earnings management can endogenously emerge in the aggregate (cross section). Our analysis suggests that the (discretionary) accrual-return relation at both the aggregate and firm levels at least partially reflects mispricing that is related to market-wide investor sentiment.
Bo Sun, Xuan Tam, and Eric Young | We construct new indicators of financial regulatory intensity and find evidence that a "regulatory sine curve" generally exists: regulatory oversight increases following a recession and wanes as the economy returns to normalcy. We then build an asset pricing model, based on the idea that regulatory oversight both deters incentives to commit fraud ex ante and reveals hidden negative information ex post. Our calibration suggests that these mechanisms can be quantitatively important for stock price dynamics.
Sebastian Graves | In this paper, I show that the decline in household consumption during unemployment spells depends on both liquid and illiquid asset positions. I also provide evidence that unemployment spells predict the withdrawal of illiquid assets, particularly when households have few liquid assets. Motivated by these findings, I embed endogenous unemployment risk in a two-asset heterogeneous-agent New Keynesian model. The model is consistent with the above evidence and provides a new propagation mechanism for aggregate shocks due to a flight-to-liquidity that occurs when unemployment risk rises. This mechanism implies that unemployment insurance plays an important role as an automatic stabilizer, particularly when monetary policy is constrained
Demian Pouzo and Ignacio Presno | How are the optimal tax and debt policies affected if the government has the option to default on its debt? We address this question from a normative perspective in an economy with noncontingent government debt, domestic default and labor taxes. On one hand, default prevents the government from incurring future tax distortions that would come along with the service of the debt. On the other hand, default risk gives rise to endogenous credit limits that hinder the government's ability to smooth taxes. We characterize the fiscal policy and show how the option to default alters the near-unit root component of taxes in the economy with risk-free borrowing. When we allow the government to default and calibrate the model to Spain, fiscal policies are more volatile, borrowing costs are higher, indebtness and welfare are both lower than in two alternatives economies, one with only risk-free debt available and the other with government's commitment to the default strategy.
Feras A. Batarseh, Munisamy Gopinath, and Anderson Monken | International trade policies remain in the spotlight given the recent rethink on the benefits of globalization by major economies. Since trade critically affects employment, production, prices and wages, understanding and predicting future patterns of trade is a high-priority for decision making within and across countries. While traditional economic models aim to be reliable predictors, we consider the possibility that Artificial Intelligence (AI) techniques allow for better predictions and associations to inform policy decisions. Moreover, we outline contextual AI methods to decipher trade patterns affected by outlier events such as trade wars and pandemics. Open-government data are essential to providing the fuel to the algorithms that can forecast, recommend, and classify policies. Data collected for this study describe international trade transactions and commonly associated economic factors. Models deployed include Association Rules for grouping commodity pairs; and ARIMA, GBoosting, XGBoosting, and LightGBM for predicting future trade patterns. Models and their results are introduced and evaluated for prediction and association quality with example policy implications.
The New York Fed today announced that Michael Strine, first vice president and chief operating officer, will retire from the New York Fed on February 28th, 2021, when he completes his current term.
Effective September 16, 2020, the Federal Open Market Committee directed the Open Market Trading Desk at the Federal Reserve Bank of New York to continue to increase the System Open Market Account holdings of Treasury securities and agency mortgage-backed securities at the current pace.
The New York Fed today announced the first wave of additional counterparties that it has selected to support the Commercial Paper Funding Facility (CPFF) and the Secondary Market Corporate Credit Facility (SMCCF).
The New York Fed today announced that it is looking to expand the approved counterparties for the Open Market Trading Desk's purchases of agency commercial mortgage-backed securities (agency CMBS).
The New York Fed today announced that it is looking to expand its counterparties and agents, as applicable, for the Commercial Paper Funding Facility (CPFF), the Secondary Market Corporate Credit Facility (SMCCF) and the Term Asset-Backed Securities Loan Facility (TALF).
The New York Fed today updated its Statement of Compliance with the IOSCO Principles for Financial Benchmarks.
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