Found 25 article(s) for author 'Adi Sunderam'

The Fed, the Bond Market, and Gradualism in Monetary Policy

The Fed, the Bond Market, and Gradualism in Monetary Policy. Adi Sunderam, Jeremy Stein, February 2016, Paper. “We develop a model of monetary policy with two key features: (i) the central bank has some private information about its long-run target for the policy rate; and (ii) the central bank is averse to bond-market volatility. In this setting, discretionary monetary policy is gradualist: the central bank only adjusts the policy rate slowly in response to changes in its target. Such gradualism represents an attempt to not spook the bond market. However, this effort is unsuccessful in equilibrium, as long-term rates rationally react more to a given move in short rates when the central bank moves more gradually. The same desire to mitigate bond-market volatility can lead the central bank to lower short rates sharply when publicly-observed term premiums rise. In both cases, there is a time-consistency problem, and society would be better off with a central banker who cares less about the bond market.Link

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Liquidity Transformation in Asset Management: Evidence from the Cash Holdings of Mutual Funds

Liquidity Transformation in Asset Management: Evidence from the Cash Holdings of Mutual Funds. Adi Sunderam, July 21, 2015, Paper. “Using a novel data set on the cash holdings of mutual funds, we show that cash plays an important role in how mutual funds provide liquidity to their investors. Rather than transacting in equities or bonds, mutual funds use cash to accommodate inflows and outflows. This is particularly true for funds with illiquid assets and at times of low aggregate market liquidity. We show that economies of scale in liquidity provision are limited for mutual funds. Mutual funds are large holders of cash in the aggregate…Link

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Gradualism in Monetary Policy: A Time-Consistency Problem?

Gradualism in Monetary Policy: A Time-Consistency Problem? Jeremy C. Stein, Adi Sunderam, June 2015, Paper. “We develop a model of monetary policy with two key features: (i) the central bank has private information about its long-run target for the policy rate; and (ii) the central bank is averse to bond-market volatility. In this setting, discretionary monetary policy is gradualist, or inertial, in the sense that the central bank only adjusts the policy rate slowly in response to changes in its privately-observed target. Such gradualism reflects an attempt to not spook the bond market. However, this effort ends up being thwarted in equilibrium…”  Link

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Who Neglects Risk? Investor Experience and the Credit Boom

Who Neglects Risk? Investor Experience and the Credit Boom. Samuel G. Hanson, Adi Sunderam, April 2015, Paper. “Many argue that overoptimistic thinking on the part of lenders helps fuel credit booms. We use new micro-data on mutual funds’ holdings of securitizations to examine which investors are susceptible to such boom-time thinking. We show that firsthand experience plays a key role in shaping investors beliefs. During the 2003 to 2007 mortgage boom, inexperienced fund managers loaded up on securitizations linked to nonprime mortgages, accumulating twice the holdings of more seasoned managers by 2007…” Link

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Market Power in Mortgage Lending and the Transmission of Monetary Policy

Market Power in Mortgage Lending and the Transmission of Monetary Policy. David Scharfstein, Adi Sunderam, September 2014, Paper. “We present evidence that high concentration in mortgage lending reduces the sensitivity of mortgage rates and refinancing activity to mortgage-backed security (MBS) yields. We isolate the direct effect of concentration and rule out alternative explanations in two ways. First, we use a matching procedure to compare high- and low-concentration counties that are very similar on observable characteristics and find similar results. Second, we examine counties where bank mergers…Link

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Fiscal Risk and the Portfolio of Government Programs

Fiscal Risk and the Portfolio of Government Programs. Samuel G. Hanson, David S. Scharfstein, Adi Sunderam, June 2014, Paper. “This paper proposes a new approach to social cost-benefit analysis using a model in which a benevolent government chooses risky projects in the presence of market failures and tax distortions. The government internalizes market failures and therefore perceives project payoffs differently than do individual private actors. This gives it a “social risk management” motive—projects that generate social benefits are attractive, particularly if those benefits are realized in bad economic states…” Link

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An Evaluation of Money Market Fund Reform Proposals

An Evaluation of Money Market Fund Reform Proposals. Samuel G. Hanson, David S. Scharfstein, Adi Sunderam, May 2014, Paper. “U.S. money market mutual funds (MMFs) are an important source of dollar funding for global financial institutions, particularly those headquartered outside the U.S. MMFs proved to be a source of considerable instability during the financial crisis of 2007-2009, resulting in extraordinary government support to help stabilize the funding of global financial institutions. In light of the problems that emerged during the crisis, a number of MMF reforms have been proposed…” Link

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Frictions in Shadow Banking: Evidence from the Lending Behavior of Money Market Funds

Frictions in Shadow Banking: Evidence from the Lending Behavior of Money Market Funds. Adi Sunderam, December 24, 2013, Paper. “We document frictions in money market mutual fund lending that lead to the transmission of distress across borrowers. Using novel security-level holdings data, we show that funds with exposure to Eurozone banks suffered large outflows in mid-2011. These outflows had significant spillovers: non-European issuers relying on such funds raised less short-term debt financing. Issuer characteristics do not explain the results…” Link Verified October 12, 2014

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The Rise and Fall of Securitization

The Rise and Fall of Securitization. Samuel G. Hanson, Adi Sunderam, December 2013, Paper. “The rise and fall of nontraditional securitizations—collateralized debt obligations and mortgage-backed securities backed by nonprime loans—played a central role in the financial crisis. Little is known, however, about the factors that drove the pre-crisis surge in investor demand for these products. Examining insurance companies’ and mutual funds’ holdings of fixed income securities, we find evidence suggesting that both agency problems and neglected risks played an important role…” Link Verified October 11, 2014

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Money Creation and the Shadow Banking System

Money Creation and the Shadow Banking System. Adi Sunderam, December 2013, Paper. “It is widely argued that shadow banking grew rapidly before the recent financial crisis because of rising demand for money-like claims. This paper assesses a key premise of this argument that investors actually treated short-term debt issued by shadow banks as a money-like claim. We present a model where demand for money-like claims is satisfied by deposits, Treasury bills, and shadow bank debt. The model provides predictions about the price quantity dynamics of these claims, as well as the behavior of monetary authority…” Link Verified October 12, 2014

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