A dynamic theory of sovereign debt and structural reforms with three interacting frictions: limited enforcement, limited commitment, and incomplete markets.
Consumption and house prices in the Great Recession: model meets evidenceADEMU_Project
From the ADEMU project series of lectures, Greg Kaplan, Kurt Mitman and Gianluca Violante examine the property boom-bust, and ask whether it could have been cushioned by a debt-forgiveness policy. Taken from the New Developments in Macroeconomics lecture at UCL London, November 2016
A dynamic theory of sovereign debt and structural reforms with three interacting frictions: limited enforcement, limited commitment, and incomplete markets.
Consumption and house prices in the Great Recession: model meets evidenceADEMU_Project
From the ADEMU project series of lectures, Greg Kaplan, Kurt Mitman and Gianluca Violante examine the property boom-bust, and ask whether it could have been cushioned by a debt-forgiveness policy. Taken from the New Developments in Macroeconomics lecture at UCL London, November 2016
HLEG thematic workshop on "Intra-generational and Inter-generational Sustaina...StatsCommunications
Presentation at the HLEG thematic workshop on "Intra-generational and Inter-generational Sustainability", 22-23 September 2014, Rome, Italy, http://oe.cd/StrategicForum2014
On 8 March 2017, Professor Enrique G Mendoza, Presidential Professor of Economics at the University of Pennsylvania, delivered his lecture ‘The Public Debt Crisis of the United States’ at the European University Institute (EUI).
Hosted by the EUI Economics Department and the Robert Schuman Centre, the lecture formed one of a series of events staged by ADEMU, which also include workshops, conferences and seminars held across Europe.
Professor Mendoza’s lecture examined the five debt crises the United States has experienced since the birth of the republic, defined as year-on-year increases in net federal debt in the 95-percentile.
Sovereign credit risk, liquidity, and the ecb intervention: deus ex machina? ...SYRTO Project
Sovereign credit risk, liquidity, and the ecb intervention: deus ex machina? - Loriana Pelizzon, Marti Subrahmanyam, Davide Tomio, Jun Uno. June, 5 2014. First International Conference on Sovereign Bond Markets.
W(h)ither Yields? Dividend Capacity & BDC Stock Prices: A Mortgage REIT Case ...Mercer Capital
The sustained low yield environment is pressuring BDC earnings. If business development companies implement modest dividend cuts, will stock prices decline to maintain investor yield, or will investors accept lower stock yields amid a dearth of compelling alternative income plays? The experience of mortgage REITs examined in this whitepaper, published September, 2014, suggests that erosion of NAV per share from credit-related writedowns is a bigger threat to stock prices over time.
Business development companies are an important and growing source of funding for middle market companies. Along with private equity and other investment funds, BDCs provide billions of dollars of investment capital to private companies in every segment of the economy.
For over thirty years, Mercer Capital has met the valuation needs of the same middle market companies to which BDCs and other funds provide capital.
Fiat value in the theory of value, by Edward C Prescott (Arizona State Univer...ADEMU_Project
Technology is rapidly advancing in the information processing area, which is changing the monetary/payment system. It's now technically feasible to have a currency–less monetary system; Professor Prescott explores such a system.
Question 1Response 1Development inside and out effects t.docxaudeleypearl
Question 1:
Response 1:
Development inside and out effects the entire country's economy. It impacts the managing body, regardless the clearly irrelevant subtleties in the average person's dependably life. Both a conditions and clear deferred results of how the economy is getting along, swelling has the two its fans and spoilers. Distinctive envisions that particular degrees of swelling are helpful for a prospering economy, yet that progressively critical rates raise concerns. It can degrade the money basically and, at logically lamentable, has been a key part to subsidences.
Swelling, as referenced, is the rate a worth ascensions, and fundamentally how much the dollar is worth at a given moment concerning checking. The idea behind swelling being an impact for good in the economy is that a reasonable enough rate can nudge financial movement without debasing the money so much that it ends up being basically vain (Kohn, 2006).
Swelling can in like manner falter from asset for asset. Subordinate upon the season, the expense of gas could go up independently from with everything considered headway as it routinely does as summer moves close. In reality, there is even a term - focus improvement - for swelling that parts in everything except for sustenance and imperativeness (gas and oil), as these regions have separate factors that add to them. There are a wide degree of sorts of swelling, subordinate upon what remarkable is being viewed comparatively as what the development rate truly is by all accounts. For example, what happens if the swelling rate is well over the Fed's normal goal? At a higher rate, yet still in the single digits, that is known as walking swelling. It is seen as concerning yet sensible (Ball, 2006).
Swelling is generally depicted reliant on its rate and causes. By and large, Inflation happens in an economy when vitality for thing and experiences outmaneuvers the supply of yield. in this manner, clarifications behind Inflation have different sides, the intrigue side and supply side. The widely inclusive activity of hazard premiums in driving enlargement pay over the scope of advancing years is dependable with secured budgetary improvement and inside and out oblige cash related procedure events in the moved economies. The degree for further fitting budgetary enabling seen with money related stars seems to have declined amidst the enough low advance charges and gigantic monetary records of national banks (Bodie, 2016).
In relentless time, the correspondence of perils has wound up being constantly phenomenal, the general point of view has lit up, and money related conditions have engaged on net. With the work superstar proceeding to reinforce, and GDP improvement expected to keep up a vital good ways from back in the consequent quarter, it likely will be fitting soon to change the affiliation supports rate. Likewise, if the economy propels as shown by the SEP concentrate way, the affiliation supports rate will probably app ...
HLEG thematic workshop on "Intra-generational and Inter-generational Sustaina...StatsCommunications
Presentation at the HLEG thematic workshop on "Intra-generational and Inter-generational Sustainability", 22-23 September 2014, Rome, Italy, http://oe.cd/StrategicForum2014
On 8 March 2017, Professor Enrique G Mendoza, Presidential Professor of Economics at the University of Pennsylvania, delivered his lecture ‘The Public Debt Crisis of the United States’ at the European University Institute (EUI).
Hosted by the EUI Economics Department and the Robert Schuman Centre, the lecture formed one of a series of events staged by ADEMU, which also include workshops, conferences and seminars held across Europe.
Professor Mendoza’s lecture examined the five debt crises the United States has experienced since the birth of the republic, defined as year-on-year increases in net federal debt in the 95-percentile.
Sovereign credit risk, liquidity, and the ecb intervention: deus ex machina? ...SYRTO Project
Sovereign credit risk, liquidity, and the ecb intervention: deus ex machina? - Loriana Pelizzon, Marti Subrahmanyam, Davide Tomio, Jun Uno. June, 5 2014. First International Conference on Sovereign Bond Markets.
W(h)ither Yields? Dividend Capacity & BDC Stock Prices: A Mortgage REIT Case ...Mercer Capital
The sustained low yield environment is pressuring BDC earnings. If business development companies implement modest dividend cuts, will stock prices decline to maintain investor yield, or will investors accept lower stock yields amid a dearth of compelling alternative income plays? The experience of mortgage REITs examined in this whitepaper, published September, 2014, suggests that erosion of NAV per share from credit-related writedowns is a bigger threat to stock prices over time.
Business development companies are an important and growing source of funding for middle market companies. Along with private equity and other investment funds, BDCs provide billions of dollars of investment capital to private companies in every segment of the economy.
For over thirty years, Mercer Capital has met the valuation needs of the same middle market companies to which BDCs and other funds provide capital.
Fiat value in the theory of value, by Edward C Prescott (Arizona State Univer...ADEMU_Project
Technology is rapidly advancing in the information processing area, which is changing the monetary/payment system. It's now technically feasible to have a currency–less monetary system; Professor Prescott explores such a system.
Question 1Response 1Development inside and out effects t.docxaudeleypearl
Question 1:
Response 1:
Development inside and out effects the entire country's economy. It impacts the managing body, regardless the clearly irrelevant subtleties in the average person's dependably life. Both a conditions and clear deferred results of how the economy is getting along, swelling has the two its fans and spoilers. Distinctive envisions that particular degrees of swelling are helpful for a prospering economy, yet that progressively critical rates raise concerns. It can degrade the money basically and, at logically lamentable, has been a key part to subsidences.
Swelling, as referenced, is the rate a worth ascensions, and fundamentally how much the dollar is worth at a given moment concerning checking. The idea behind swelling being an impact for good in the economy is that a reasonable enough rate can nudge financial movement without debasing the money so much that it ends up being basically vain (Kohn, 2006).
Swelling can in like manner falter from asset for asset. Subordinate upon the season, the expense of gas could go up independently from with everything considered headway as it routinely does as summer moves close. In reality, there is even a term - focus improvement - for swelling that parts in everything except for sustenance and imperativeness (gas and oil), as these regions have separate factors that add to them. There are a wide degree of sorts of swelling, subordinate upon what remarkable is being viewed comparatively as what the development rate truly is by all accounts. For example, what happens if the swelling rate is well over the Fed's normal goal? At a higher rate, yet still in the single digits, that is known as walking swelling. It is seen as concerning yet sensible (Ball, 2006).
Swelling is generally depicted reliant on its rate and causes. By and large, Inflation happens in an economy when vitality for thing and experiences outmaneuvers the supply of yield. in this manner, clarifications behind Inflation have different sides, the intrigue side and supply side. The widely inclusive activity of hazard premiums in driving enlargement pay over the scope of advancing years is dependable with secured budgetary improvement and inside and out oblige cash related procedure events in the moved economies. The degree for further fitting budgetary enabling seen with money related stars seems to have declined amidst the enough low advance charges and gigantic monetary records of national banks (Bodie, 2016).
In relentless time, the correspondence of perils has wound up being constantly phenomenal, the general point of view has lit up, and money related conditions have engaged on net. With the work superstar proceeding to reinforce, and GDP improvement expected to keep up a vital good ways from back in the consequent quarter, it likely will be fitting soon to change the affiliation supports rate. Likewise, if the economy propels as shown by the SEP concentrate way, the affiliation supports rate will probably app ...
Ibrahim Elbadawi - Economic Research Forum
Raimundo Soto - Pontificia Universidad Católica, Chile
Hoda Youssef - World Bank
ERF Conference on “Arab Oil Exporters: Coping with a New Global Oil Order”
Kuwait, November 26-27, 2017
www.erf.org.eg
The Contagious Effect Of The US Subprime Crisis On Gulf CountriesSana Khelifi
This study tests for financial contagion impact of the US Subprime crisis on Gulf economies both theoretically and empirically.
Theoretically, it investigates the possible connections that could move the Subprime crisis to the Gulf market, by identifying the bridge of channels between the US and GCC countries.
Fundamental channels: the securitization, oil channel and some other commons shocks like the Fed interest rate and the US dollar.
Psychological channels: the herding behavior due to the shift in investor sentiment which is manifested by the massive liquidation and capital outflows.
Empirically, Gaussian Copula has been used to analyze the change in dependence structure from the pre-crisis to the crisis period. Results show significant level of contagion in Kuwait, Dubai stock markets and Saudi market which displays the strongest level.
Contagion signs should be taken into consideration by the portfolio managers (ineffectiveness of the diversification strategies)
Our results can be handy for Gulf central banks who decide for the bailout.
Some limits:
Theoretically: Lack of transparency and sophistication in gulf markets
Empirically: one Gaussian copula out of many was adopted basing on graphical insight.
Liquidity Risk Reporting, Measurement and Managementaseemelahi
The objective of this paper is to demonstrate an implementation model for LCR reporting requirements with descriptions, their respective calculations, and caps and haircuts applied to each source of funding and use of liquidity in arriving at the ratio.
Pacific Asset Management is sub-advisor to the AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT)*
2014 has seen the consensus of higher Treasury yields and economic activity fail to materialize. Lower rates and risk premiums have led to strong returns year-to-date. In this commentary, Portfolio Managers David Weismiller, Michael Marzouk, and Bob Boyd discuss the current market environment, outlook, and portfolio positioning.
*Effective but not available for sale at this time. Go to www.advisorshares.com for more information.
Ademu at the European Parliament, 27 March 2018ADEMU_Project
ADEMU scientific co-ordinator Ramon Marimon joined Marco Buti, director general of DG-ECFIN, DG Economic and Financial Affairs, Roberto Gualtieri, MEP and chair of the Committee on Economic and Monetary Affairs at the European Parliament, Maria Kayamanidou, deputy head of DG Research and Innovation at the EC, and Vincenzo Grassi, secretary general of the European University Institute, to discuss ADEMU's proposals for the European Unemployment Insurance System (EUIS) and the European Stability Fund (ESF).
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
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@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
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@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
where can I find a legit pi merchant onlineDOT TECH
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Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
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Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
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How can i find a pi vendor/merchant?
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Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
The secret way to sell pi coins effortlessly.DOT TECH
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when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
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But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
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The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.
Credit risk appetite and monetary policy transmission
1. Credit, Risk Appetite,
and Monetary Policy
Transmission
D AV I D A I K M A N , A N D R EA S L E H N E RT, N E L L I E L I A N G , M I C H E L E M O D U G N O
J U N E 5 , 2 0 1 7
V I E W S E X P R E S S E D A R E O U R O W N A N D N O T N E C E S S A R I L Y T H E V I E W S O F T H E F E D E R A L R E S E R V E B O A R D , B A N K O F E N G L A N D , O R S T A F F
2. Motivation
The global financial crisis highlighted the potential role of financial factors for the real economy
Long tradition linking risk appetite to business fluctuations (Keynes “animal spirits”)
High credit and asset valuations predict subpar economic performance (Borio and Lowe, 2002;
Drehmann and Juselius, 2015; Schularick and Taylor, 2012)
High credit growth and asset bubbles lead to weaker economic recoveries (Jorda, et al 2013)
Credit is a commonly cited financial imbalance: how do macroeconomic dynamics change if it is
elevated?
◦ Response to risk appetite shocks
◦ Monetary policy transmission
3. Outline
We characterize the time series of the credit-to-GDP gap and “risk appetite,” 1975 to 2014
We estimate VAR models of the macroeconomy and monetary policy
◦ Augmented with our risk appetite measure and the credit-to-GDP gap
◦ Threshold VAR allows for nonlinear dynamics
We characterize the response to
◦ Risk appetite shock
◦ Monetary policy shock
We split the sample into periods when the credit-to-GDP gap is high or low to test for
nonlinearities
4. Key empirical results
Our risk appetite measure (“ALLM”)
◦ Is an indicator of financial conditions and is expansionary
◦ But it can lead to a higher credit-to-GDP gap and recession
Dynamics are nonlinear depending on nonfinancial credit-to-GDP gap. When gap is high:
◦ ALLM shocks lead to recessions
◦ Monetary policy effect is attenuated
When the credit gap is high, monetary policy:
◦ Does not affect GDP, unemployment or inflation
◦ Does not affect our risk appetite measure
◦ Using Hanson-Stein (2015) framework, less transmission to yields 5 to 9 years out
Policy attenuation result also holds when the credit gap is growing (can’t stop the boom)
5. Recent papers on similar topics
Alpanda and Zubairy (March 2017)
◦ Monetary policy transmission varies with level of household debt
Ottonello and Winberry (May 2017)
◦ The level and distribution of business debt affects monetary policy transmission
◦ Rates ↓ → more indebted firms pay down debt, less indebted firms increase investment
Brunnermeier, Palia, Sastry, and Sims (April 2017)
◦ 10 variable VAR identified using Rigobon (2003) heteroskedasticity strategy – some periods see more
volatile shocks
◦ Includes HH & business credit, GZ, spreads, monetary policy, real activity
◦ Shocks that matter: monetary policy, financial stress
◦ Shocks that don’t matter: credit (household or business)
◦ Business credit does matter in a small system – y, p, BC, HHC
6. ALLM is in the tradition of financial
conditions indexes (FCIs)
•FCIs attempt to measure stimulus/contraction from financial conditions – private borrowing
rates, stock prices, the exchange value of the dollar
•Monetary policy → conditions → real economy
• Magnitude, timing potentially time-varying
•Post-crisis a resurgence of interest in FCIs including financial stress indexes:
• Broad review, focus on macro forecasting performance, “neoclassical” vs “non-neoclassical” variables
(Hatzius, Hooper, Mishkin, Schoenholz, and Watson 2010).
• A number of FCIs developed and routinely updated: Aramonte, Rosen, Schindler 2013 evaluate 12
separate indexes and evaluate them as early warning indicators and coincident indicator
• Some indexes rooted in theory, e.g. Gilchrist and Zakrajsek (2012)’s excess bond premium, which uses
micro data on credit spreads to measure the residual after controlling for default risk
7. Constructing ALLM: Variables related to
lenders’ willingness to make riskier loans
Thought exercise: Want variables that measure lenders’ appetite for risk in making loans to
households and (nonfinancial) businesses (including commercial real estate)
1. Equity markets: stock market volatility and the S&P 500 price-earnings ratio.
2. Business credit: Triple-B corporate bond spread to Treasury, the share of nonfinancial
corporate bond issuance that is speculative-grade, and the index of credit availability from
the NFIB survey of small businesses.
3. Commercial real estate: a commercial real estate price index deflated into real terms and
commercial real estate debt growth.
4. Household: the residential price-to-rent ratio and lending standards for consumer
installment loans from the Senior Loan Officer Opinion Survey (SLOOS).
8. ALLM v1.0 and v2.0
ALLM v1.0 contains asset prices (VIX, P/E) and sentiment variables
So shocks to ALLM v1.0 could be:
◦ Valuation shocks: Investor risk sentiment or appetite (separate from financial accelerator effects)
◦ Lending standards shocks: Profitability of intermediaries (He and Krishnamurthy (2012, 2013) and
Gilchrist and Zakrajsek (2012))
Ongoing work exploring separating valuation and lending standards terms
◦ Identification is cleaner
Showing you results from ALLM v1.0 today
9. VAR specification
U.S. macro data 1975:Q1 to 2014:Q4
Log real GDP, GDP deflator, Unemployment rate
Credit-to-GDP gap
◦ Household vs. business
◦ Bank vs. nonbank
Risk appetite – asset valuations and lending standards
Federal funds rate
We define a measure to be a vulnerability if an impulse to the measure leads to an economic
contraction
10. VAR dynamics
Shocks are identified using the Cholesky decomposition with shocks ordered as in the monetary
policy literature
◦ Monetary policy reacts to all shocks in a period
◦ ALLM reacts to all shocks within a quarter save monetary policy
◦ The unemployment rate, the GDP deflator, and real GDP react to shocks to the vulnerability measure
and monetary policy with a one-quarter lag
Estimate the VAR following Giannone, Lenza, and Primiceri (2015)
◦ Bayesian technique specifies a prior that each variable follows a random walk, possibly with a drift; this
reduces estimation uncertainty and leads to more stable inference.
11. Threshold VAR
Nonlinear estimations – often speak of financial imbalances as “high” or “low”
◦ Dynamics could differ for a variety of reasons
Effectively estimate system on disjoint sets depending on whether the credit gap is above/below its
mean
Not model transitions from one state to another
𝑦𝑡 = 𝑐 𝑗
+ 𝐴 𝐿 𝑗
𝑦𝑡−1 + 𝑢 𝑡
𝑗 𝑗 = high,if 𝐶𝑌𝑡 > 0.
𝑗 = low, if 𝐶𝑌𝑡 ≤ 0.
12. A word about the trend
When is credit “too high”?
◦ Credit-to-GDP is above its trend
How do you estimate the trend in credit-to-GDP?
HP filter 𝜆 = 400,000 – due to Borio and Lowe (2002, 2004) and Basel III
Many obvious problems
◦ But this is the canonical way to do it
◦ Undertaken lots of robustness work
◦ Any sufficiently slow-moving trend estimate is going to deliver the same results
25. Robustness tests
Alternative orderings of shocks
Credit in log level
Credit-to-potential GDP
Three states, different cutoffs for thresholds
Different ways of estimating the trend
Using growth rates instead of (detrended) levels
26. Other results (in the working paper)
Disaggregate types of credit
◦ Household vs. business – business matters a lot as in Brunnermeier et al and Ottonello & Winberry
◦ Bank vs. nonbank – banks matters more than nonbank
Alternative financial imbalances
◦ Runnable liabilities
◦ Leverage of intermediaries
27. Summary
Findings
◦ When the credit-to-GDP gap is high
◦ Economic growth subpar
◦ Economic dynamics are different – attention of monetary policy transmission
◦ Risk appetite – an indicator of financial conditions; but contributes to the buildup of credit-to-GDP
Implications
◦ Supports a story in which risk appetite shock leads → expansion & credit growth → credit bust
◦ Credit quantity, not just prices, has implications for real economic activity
◦ Macroeconomic responses are nonlinear – transmission channels may operate differently under
different conditions (Hubrich and Tetlow, 2015)
Ongoing work – revising ALLM
Editor's Notes
The global financial crisis highlighted the potential role of financial factors for explaining the performance of the real economy, business cycle fluctuations. Research has been expanding. A common framework for this research is to view recessions or crises as the result of shocks or triggers that hit a fragile financial sector or economy. The question is what are the fragilities, or vulnerabilities, that make it more likely that a shock would be amplified, rather than dampened or absorbed, and lead to poor economic performance.
In the early 2000s, Borio and others at the BIS began to argue that central bankers should be looking at excessive credit and asset valuations. In cross-country studies, they found these to be good predictors of recessions. More recently, Jorda, Schularick and Taylor, in a study of 14 countries with data going back to the late 1800s for a few, have found that high credit growth and asset prices before the peak are strong predictors of weak economic recoveries. And the difference in the recoveries varied significantly by credit growth, or whether there was also a banking crisis.
This paper sets our to systematically assesses possible vulnerabilities that can help to explain US performance in the past 40 years, since 1975. Following the papers cited above, we look at nonfinancial sector credit and asset valuations. We also look at financial sector leverage and short-term funding. (won’t spend time on those today). We also evaluate the effectiveness of monetary policy, since it is a key macroeconomic stabilization tool, which also affects private credit and asset values.
I’ll discuss three main findings today:
Nonfinancial credit-to-GDP gap is a vulnerability – a shock to credit when the credit gap is high leads to an economic contraction, a rise in unemployment
Dynamics are nonlinear – when the gap is low, a shock is expansionary, it does not lead to a contraction
Risk appetite, a measure that we construct and will explain later, is not a vulnerability. On its own, it appears to be a financial indicators variable. A shock is expansionary. But when the credit gap is high, a shock will lead to more credit, and eventually a contraction.
Monetary policy
The effects on the economy depend on the credit-to-GDP gap. When the gap is low, a shock to monetary policy works as expected. But when the gap is high, it has no effect on gdp or unemployment, or prices. We explore this result further. Within the model, we find that a shock to monetary policy is not reinforced by a tightening of risk appetite when credit is high, and so the transmission is attenuated. We go outside the model, and build on a Hanson and Stein framework of monetary policy transmission to forward rates. We find less transmission to forward rates when the credit gap is high.
Two points:
The series is not highly volatile – doesn’t swing back and forth between high and low credit
Positive credit-gap periods include both the boom and busts
Remains high, even rises a little, for a significant period after the financial cycle turns – could reflect borrowers drawing on pre-committed lines of credit, or it may reflect that GDP falls more quickly than credit
High in the late 1970s because of business credit and equities
Equities were low through most of the 1980s, but CRE and households were more elevated; then business credit conditions started rising in the mid 1980s, ending with the LBO bust
1990s – equity markets and business credit
Mid 2000s – all were rising and got high
Currently can see equities are above “normal”