Financial innovation and monetary policy effectiveness

Monetary policy - United States ; Money supply

Banking and securities and insurance: economists' views of the synergies - summary of presentations

Financial services industry ; Bank supervision

The Information in the High Yield Bond Spread for the Business Cycle: Evidence and Some Implications

The market for high yield (below investment-grade) corporate bonds developed in the middle 1980s. We show that, since this time, the high yield spread has had significant explanatory power for the business cycle. We interpret this finding as possibly symptomatic of financial factors at work in the business cycle, along the lines suggested by the financial accelerator. We also show that over this period the high yield spread outperforms other leading financial indicators, including the term spread, the paper-bill spread and the Federal Funds rate. We conjecture that changes in the conduct of monetary policy over time may account for the reduced informativeness of these alternative indicators, all of which are tied closely to monetary policy.

The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey

VAR analysis on a measure of bank lending standards collected by the Federal Reserve reveals that shocks to lending standards are significantly correlated with innovations in commercial loans of banks and in real output. Credit standards strongly dominate loan rates in explaining variation in business loans and output. Standards remain significant when we include various proxies for loan demand, suggesting that part of the standards fluctuations can be identified with changes in loan supply. Standards are also significant in structural equations of some categories of inventory investment, a GDP component closely associated with bank lending. The estimated impact of a moderate tightening of standards on inventory investment is of the same order of magnitude as the decline in inventory investment over the typical recession.Credit crunch; Credit rationing; Credit standards; Loan officer survey

Another look at the credit-output link

Credit ; Monetary policy

Credit effects in the monetary mechanism

Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary TransmissionCredit ; Monetary policy

The capital gains and losses on U. S. government debt: 1942-1986

Deficit financing ; Government securities

Are reserve requirement changes really exogenous? An example of regulatory accommodation of industry goals

Bank reserves

The Credit Crunch

macroeconomics, credit crunch

What was behind the M2 breakdown?

A deterioration in the link between the M2 monetary aggregate and GDP, along with large errors in predicting M2 growth, led the Board of Governors to downgrade the M2 aggregate as a reliable indicator of monetary policy in 1993. In this paper, we argue that the financial condition of depository institutions was a major factor behind the unusual pattern of M2 growth in the early 1990s. By constructing alternative measures of M2 based on banks’ and thrifts’ capital positions, we show that the anomalous behavior of M2 in the early 1990s disappears. Specifically, after accounting for the effect of capital constrained institutions on M2 growth, we are able to explain the unusual behavior of M2 velocity during this time period, obtain superior M2 forecasting results, and produce a more stable relationship between M2 and the ultimate goals of policy. Our work suggests that M2 may contain useful information about economic growth during periods of time when there are no major disturbances to depository institutions.Monetary policy