Showing papers by "Federal Reserve System published in 2023"
TL;DR: The authors discusses how to successfully digitize large-scale historical micro-data by augmenting optical character recognition (OCR) engines with pre-and post-processing methods, which can be used for economic history.
2 citations
TL;DR: In this article , the authors examined how the suspension of bank-specific information affected depositors and the portfolio of assets held by banks and found that the behavior of bank deposits across both types of banks converged in 1934 after the introduction of the Federal Deposit Insurance Corporation.
2 citations
TL;DR: In this article , a basket-backed stablecoin is proposed to stabilize the value of the currency for which the basket was meant to substitute, limiting demand for the basket, and it is shown that this low demand from buyers would likely limit adoption by sellers.
1 citations
TL;DR: This paper examined how debt rollover risk affects firms' capital structure following aggregate profitability shocks and found that firms that are highly exposed to both rollover risks and aggregate shocks significantly raise leverage, compared to less exposed firms.
TL;DR: In this article , the consequences of asset bubbles for economies that are vulnerable to persistent stagnation are studied. But the authors focus on the case of a risky bubble that can collapse with positive probability rather than a safe bubble.
Abstract: Abstract This paper studies the consequences of asset bubbles for economies that are vulnerable to persistent stagnation. Stagnation is the result of a shortage of assets that creates an oversupply of savings and puts downward pressure on the level of interest rates. Once the zero lower bound on the nominal interest rate binds, the real rate cannot adjust further downward, forcing output to fall instead. In such context, bubbles are useful as they expand the supply of assets, absorb excess savings and raise the natural interest rate—the real rate that is compatible with full employment—, crowding in consumption and raising welfare. However, a risky bubble that can collapse with positive probability is smaller and less effective in doing so than a safe bubble. In this case, fiscal policy in the form of promised bailout transfers in case of a bubble collapse, can support an existing bubble and improve its size.
TL;DR: The authors found that half of banks' PPP loans went to borrowers within 2 miles of a branch, mostly driven by relationship lending, and that firms near less active lenders shifted to fintechs and other distant lenders, resulting in delays receiving credit but only slightly lower loan volumes.
Abstract: I study how bank relationships affected the timing and geographic distribution of Paycheck Protection Program (PPP) lending. Half of banks' PPP loans went to borrowers within 2 miles of a branch, mostly driven by relationship lending. Firms near less active lenders shifted to fintechs and other distant lenders, resulting in delays receiving credit but only slightly lower loan volumes. I estimate a structural model to fit the observed relationship between branch distance, bank PPP activity, and origination timing. I find that banks served relationship borrowers 5 to 9 days before other borrowers, an effect in line with reduced-form estimates using a sample of PPP borrowers with previous SBA lending relationships.
TL;DR: This article study a labor market in which identical workers search on- and off-the-job and heterogeneous firms employ using either an ex-ante posted wage or flexible wage contracts contingent on outside options.
01 Jan 2023
TL;DR: In this article , the authors argue that PE ownership leads to substantially higher levels of optimal (value-maximizing) leverage, by reducing the expected cost of financial distress, and they estimate a dynamic trade-off model where leverage is chosen by the PE investor.
Abstract: Detractors have warned that Private Equity (PE) funds tend to over-lever their portfolio companies because of an option-like payoff, building up default risk and debt overhang. This paper argues PE-ownership leads to substantially higher levels of optimal (value-maximizing) leverage, by reducing the expected cost of financial distress. Using data from a large sample of PE buyouts, I estimate a dynamic trade-off model where leverage is chosen by the PE investor. The model is able to explain both the level and change in leverage documented empirically following buyouts. The increase in optimal leverage is driven primarily by a reduction in the portfolio company's asset volatility and, to a lesser extent, an increase in asset return. Counterfactual analysis shows significant loss in firmvalue if PE sub-optimally chose lower leverage. Consistent with lower asset volatility, additional tests show PE-backed firms experience lower volatility of sales and receive greater equity injections for distress resolution, compared to non PE-backed firms. Overall, my findings broaden our understanding of factors that drive buyout leverage.
TL;DR: In this paper , the authors evaluate high-frequency bill of lading data for international trade research and demonstrate how U.S. buyers shifted their purchases across suppliers over time during the COVID-19 pandemic.
Abstract: We evaluate high-frequency bill of lading data for international trade research. These data offer some advantages over both other publicly accessible trade data and confidential datasets, but they also have drawbacks. We analyze three aspects of trade during the COVID-19 pandemic. First, we show how the high-frequency data capture the within-month collapse of trade between the United States and India that are not observable in official monthly data. Second, we demonstrate how U.S. buyers shifted their purchases across suppliers over time during the recovery. And third, we show how the data can measure vessel delivery bottlenecks in near real time.
TL;DR: In this article , the major drivers of macro aggregates and real exchange rate at business cycle frequencies in Group of Seven countries were uncovered, and the estimated drivers of key macro variables resemble each other and account for a modest fraction of the real currency exchange rate variances.
Abstract: Abstract We uncover the major drivers of macro aggregates and the real exchange rate at business cycle frequencies in Group of Seven countries. The estimated drivers of key macro variables resemble each other and account for a modest fraction of the real exchange rate variances. Dominant drivers of the real exchange rate are orthogonal to main drivers of business cycles, generate a significant deviation of the uncovered interest parity condition, and lead to small movements in net exports. We use these facts to evaluate international business cycle models accounting for the dynamics of both macro aggregates and the real exchange rate.