Macroeconomics & International Finance Seminars

Fall 2018

Tuesday 1:403:00 p.m.
499 Engineering II

October 9
Saki Bigio, UCLA
"A Model of Credit, Money, Interest, and Prices"
Host: Alonso Villacorta
A model integrates a modern implementation of monetary policy into an incomplete markets monetary economy. Monetary policy (MP) sets corridor rates and conducts open market operations and fiscal transfers. These tools grant independent control over credit spreads and inflation. Through the influence on spreads, MP affects the evolution credit, output, and the wealth distribution. Classic experiments illustrate how different instruments have effects through different channels and provide some policy insights: (a) MP can move real loan and deposit rates (both in the long and short-run), (b) opening credit spreads can be desirable, (c) negative reserves rates can increase the lending rates, (d) fiscal transfers can be recessionary if anticipated.

October 16
Michael Siemer, Federal Reserve Board
"The Real Effects of Credit Booms and Busts"
Host: Carl Walsh
We use a comprehensive data set of home mortgage loan originations from HMDA matched with the banks' income and balance sheet statements to analyze how fluctuations in the supply of mortgage credit influence county-level housing prices and local economic outcomes. To isolate fluctuations in the supply of mortgage credit, our identification strategy exploits the fact that banks originate home mortgage loans across multiple counties, which we then link to the bank balance sheet. Our results indicate that changes in the supply of home mortgage credit have significant effects on both housing prices and construction activity during both boom and bust periods. During the 2007{2010 bust period, a relative decline in house prices induced by a reduction in the supply of mortgage credit also leads to a broad-based decline in employment, increased unemployment, a significant decline in the growth of average wages and income per capita, a sharp drop in overall retail sales and a steep decline in auto vehicle purchases. Consistent with the presence of financial market frictions, the pullback in the supply of credit and the associated drop in housing prices during this period led to particularly severe job losses at small and young firms. During the boom, by contrast, credit supply-induced changes in house prices appear to influence employment primarily through their effect on the construction sector with no evidence of broad-based spillovers into other measures of local economic activity.

Lucas Harrenbrueck, Simon Fraser University
"Asset Safety versus Asset Liquidity"
Host: Grace Gu

November 6
Martin Schneider, Stanford
"Money and Banking in a New Keynesian Model"
Host: Hikaru Saijo
This paper studies versions of the New Keynesian model in which the central bank targets the interest rate on an asset that earns a convenience yield. In the simplest such model, the central bank sets the rate on a digital currency that provides payment services and thus a convenience yield directly to households.  We then consider two models of banking, one in which the central bank sets the interest on reserves as the Fed did recently and one in which it sets the federal funds rate as the Fed did before 2007; both assets provide a convenience yield to banks because they serve as collateral to back inside money. We show that in all three models, the price level is determinate even if the Taylor principle does not hold, and the short interest rate is not the only relevant policy tool. Moreover, interest rate policy is less effective than in the standard model: the endogenous response of the convenience yield dampens the impulse response to a monetary policy shock.

November 13
Hugo Hopenhayn, UCLA
"The Rise and Fall of Labor Force Growth: Implications for Firm Demographics and Aggregate Trends"
Host: Brenda Samaniego

November 20
Lucas Herrenbrueck, Simon Fraser University
"Asset Safety versus Asset Liquidity"
Host: Michael Hutchison

November 27
Huiyu Li, San Francisco Fed
"Missing Growth from Creative Destruction"
Host: Brenda Smaniego / Ajay Shenoy

December 4
Robert Marquez, UC Davis
"The Redistributive Effects of Bank Capital Regulation"
Host: Alonso Villacorta
We build a general equilibrium model of banks’ optimal capital structure, where bankruptcy is costly and investors have heterogenous endowments and incur a cost for participating in equity markets. We show that banks raise both deposits and equity, and that investors are willing to hold equity only if adequately compensated. We then introduce (binding) capital requirements and show that: (i) it distorts investment away from productive projects toward storage; or (ii) it widens the spread between the returns to equity and to deposits. These results hold also when we extend the model to incorporate various rationales justifying capital regulation.