Working papers are academic research by SF Fed economists and affiliates intended for publication in scholarly journals. This section contains working papers on monetary economics and macro-finance topics that have been authored or co-authored by SF Fed Economists.
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Green Stocks and Monetary Policy Shocks: Evidence from Europe
Michael Bauer, Eric Offner, Glenn D. Rudebusch
Policymakers and researchers worry that the low-carbon transition may be inadvertently delayed by higher global interest rates. To examine whether green investment is especially sensitive to interest rate increases, we consider the effect of unanticipated monetary policy changes on the equity prices of green and brown European firms. We find that brown firms, measured in…
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A Simple Measure of Anchoring for Short-Run Expected Inflation in FIRE Models
Peter Lihn Jorgensen, Kevin Lansing
We show that the fraction of non-reoptimizing firms that index prices to the inflation target, rather than lagged inflation, provides a simple measure of anchoring for short-run expected inflation in a New Keynesian model with full-information rational expectations. Higher values of the anchoring measure imply less sensitivity of rational inflation forecasts to movements in actual…
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A Currency Premium Puzzle
Tarek A. Hassan, Thomas Mertens, Jingye Wang
Standard asset pricing models reconcile high equity premia with smooth risk-free rates by inducing an inverse functional relationship between the mean and the variance of the stochastic discount factor. This highly successful resolution to closed-economy asset pricing puzzles is fundamentally problematic when applied to open economies: It requires that differences in currency returns arise almost…
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Corporate Debt Maturity Matters for Monetary Policy
Joachim Jungherr, Matthias Meier, Timo Reinelt, Immo Schott
We provide novel empirical evidence that firms’ investment is more responsive to monetary policy when a higher fraction of their debt matures. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt have larger roll-over needs and are therefore more…
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Inflation Disagreement Weakens the Power of Monetary Policy
Ding Dong, Zheng Liu, Pengfei Wang, Min Wei
Households often disagree in their inflation outlooks. We present novel empirical evidence that inflation disagreement weakens the power of forward guidance and conventional monetary policy. These empirical observations can be rationalized by a model featuring heterogeneous beliefs about the central banks’ inflation target. An agent who perceives higher future inflation also perceives a lower real…
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Persistent Effects of the Paycheck Protection Program and the PPPLF on Small Business Lending
Lora Dufresne, Mark Spiegel
Using bank-level U.S. Call Report data, we examine the longer-term effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility on small business (SME) lending. Our sample runs through the end of 2023H1, by which time almost all PPP loans were forgiven or repaid. To identify a causal impact of program participation, we…
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Credit Supply, Prices, and Non-price Mechanisms in the Mortgage Market
John Mondragon
I use an episode of relatively tight credit supply in the jumbo mortgage market to quantify the importance of price and non-price credit supply mechanisms in explaining changes in borrowing. Following market disruptions in March 2020, borrowers with jumbo loans saw significantly tighter credit supply conditions relative to borrowers with conforming loans. As a result,…
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Industrial Composition of Syndicated Loans and Banks’ Climate Commitments
Galina Hale, Brigid Meisenbacher, Rami Najjar, Fernanda Nechio
In the past two decades, a number of banks joined global initiatives aimed to mitigate climate change by “greening” their asset portfolios. We study whether banks that made such commitments have a different emission exposure of their portfolios of syndicated loans than banks that did not. We rely on loan-level information with global coverage combined…
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Quantitative Easing, Bond Risk Premia and the Exchange Rate in a Small Open Economy
Jens H. E. Christensen, Xin Zhang
We assess the impact of large-scale asset purchases, commonly known as quantitative easing (QE), conducted by Sveriges Riksbank and the European Central Bank (ECB) on bond risk premia in the Swedish government bond market. Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond-specific safety premia, we…
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Demographics and Real Interest Rates Across Countries and Over Time
Carlos Carvalho, Andrea Ferrero, Felipe Mazin, Fernanda Nechio
We explore the implications of demographic trends for the evolution of real interest rates across countries and over time. To that end, we develop a tractable three-country general equilibrium model with imperfect capital mobility and country-specific demographic trends. We calibrate the model to study how low-frequency movements in a country’s real interest rate depend on…