Found 45 article(s) for author 'Jeremy Stein'

Banking, Trade, and the Making of a Dominant Currency

Banking, Trade, and the Making of a Dominant Currency. Gita Gopinath, Jeremy Stein, November 11, 2017, Paper, “We explore the interplay between trade invoicing patterns and the pricing of safe assets in different currencies. Our theory highlights the following points: 1) a currency’s role as a unit of account for invoicing decisions is complementary to its role as a safe store of value; 2) this complementarity can lead to the emergence of a single dominant currency in trade invoicing and global banking, even when multiple large candidate countries share similar economic fundamentals; 3) firms in emerging-market countries endogenously take on currency mismatches by borrowing in the dominant currency; 4) the expected return on dominantcurrency safe assets is lower than that on similarly safe assets denominated in other currencies, thereby bestowing an “exorbitant privilege” on the dominant currency. the theory thus provides a unified explanation for why a dominant currency is so heavily used in both trade invoicing and in global finance.Link

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Strengthening and Streamlining Bank Capital Regulation

Strengthening and Streamlining Bank Capital Regulation. Robin Greenwood, Samuel Hanson, Jeremy Stein, Adi Sunderam, August 2017, Paper, “We propose three core principles that should inform the design of bank capital regulation. First, wherever possible, multiple constraints on the minimum level of equity capital should be consolidated into a single constraint. This helps to avoid a distortionary situation where different constraints bind for different banks performing the same activity. Second, while a regulatory framework that relies primarily on minimum capital ratios is appropriate for normal times, such a framework is inadequate in the wake of a large negative shock to the system. Following an adverse shock, it becomes critical to emphasize dynamic resilience, which involves forcing banks to actively recapitalize—i.e. regulation needs to focus on getting banks to raise new dollars of equity capital, rather than just maintaining their capital ratios.Link

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The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets

The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets. Samuel Hanson, Jeremy Stein, March 2017, Paper, “Small business lending by the four largest U.S. banks fell sharply relative to other banks beginning in 2008 and remained depressed through 2014. We explore the consequences of this credit supply shock, with a particular focus on the resulting dynamic adjustment process. Using a difference-indifference approach that compares counties where the Top 4 banks had a higher initial market share to counties where they had a smaller share, we find that the aggregate flow of small business credit fell and interest rates rose from 2006 to 2010 in high Top 4 counties. Economic activity also contracted in these affected counties: fewer businesses expanded employment, the unemployment rate rose, and wages fell. Moreover, the employment effects were concentrated in industries that are most reliant on external finance, such as manufacturing.Link

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The Financial Regulatory Reform Agenda in 2017

The Financial Regulatory Reform Agenda in 2017. Robin Greenwood, Samuel Hanson, Jeremy Stein, Adi Sunderam, February 2017, Paper, “We take stock of the post-crisis financial regulatory reform agenda. We highlight and summarize areas of clear progress, where post-crisis reforms should either be maintained or built upon. We then identify several areas where the new regulations could be streamlined or rolled back in an effort to reduce the burden on the financial sector, particularly on smaller banks.Link

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The Federal Reserve’s Balance Sheet as a Financial-Stability Tool

The Federal Reserve’s Balance Sheet as a Financial-Stability Tool. Robin Greenwood, Samuel Hanson, Jeremy Stein, September 2016, Paper, “In this paper, we argue that the Federal Reserve should use its balance sheet to help reduce a key threat to financial stability: the tendency for private-sector financial intermediaries to engage in excessive amounts of maturity transformation—i.e. to finance risky assets using dangerously large volumes of runnable short-term liabilities. Specifically, we make the case that the Fed can complement its regulatory efforts on the financial-stability front by maintaining a relatively large balance sheet, even when policy rates have moved well away from the zero lower bound (ZLB). In so doing, it can help ensure that there is an ample supply of government-provided safe shortterm claims—e.g. interest-bearing reserves and reverse repurchase agreements.Link

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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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A Comparative-Advantage Approach to Government Debt Maturity

A Comparative-Advantage Approach to Government Debt Maturity. Robin Greenwood, Samuel Hanson, Jeremy Stein, August 2015, Paper. “The government’s choice of shorter-maturity debt issuance may complement prudential financial regulation by crowding out private issuance, thereby limiting excess private money creation. Although greater short-term government debt increases rollover risk because of a reduction in private short-term debt, the government’s optimal debt maturity choice can reduce the social cost of excessive private debt issuance.Link

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Credit-Market Sentiment and the Business Cycle

Credit-Market Sentiment and the Business Cycle. Jeremy Stein, April 20, 2015, Paper. “Using U.S. data from 1929 to 2013, we show that elevated credit-market sentiment in year t–2 is associated with a decline in economic activity in years t through t+2. Underlying this result is the existence of predictable mean reversion in credit-market conditions. That is, when our sentiment proxies indicate that credit risk is aggressively priced, this tends to be followed by a subsequent widening of credit spreads, and the timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity…Link

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WSJ Event: The Fed’s Challenges as it Scripts an Easy Money Exit

WSJ Event: The Fed’s Challenges as it Scripts an Easy Money Exit. Jeremy Stein, January 15, 2015, Video. “Former Federal Reserve governor Jeremy Stein, in an interview with The Wall Street Journal on Thursday, provided wide-ranging comments on the prospect for central bank interest rate increases this year and the factors weighing on policy makers as they ponder their decision…Link

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