Working Papers

• Bank Regulation and Monetary Policy Transmission: Evidence from the U.S. States Liberalization (PDF)
  • Abstract: This paper studies the impact of banking deregulation on the effectiveness of monetary policy and provides new evidence on how bank-level heterogeneity affects the bank lending channel of transmission. Exploiting the staggered deregulation of interstate banking in the U.S. throughout the 1980's, we find that the deregulation strengthens the effect of monetary policy on bank lending, doubling the response of loan growth to monetary shocks. This effect occurs primarily for small and relatively illiquid banks, pointing to a strengthening of the bank lending channel. After deregulation this subset of banks engages in a larger substitution of securities for bank loans following a contractionary monetary shock. Changes in bank market structure and loan portfolio composition cannot explain these effects of the deregulation. By contrast, the findings point to a dilution in the strength of bank-borrower customer relationships and a stronger propensity of banks to cut loans to their customers.

 

• Federal Reserve Private Information and the Stock Market  - with Aeimit Lakdawala  (PDF)
  • Abstract: We study the response of stock prices to monetary policy, distinguishing effects of exogenous policy shocks from "Delphic" shocks that reveal the Federal Reserve's macroeconomic forecasts. To decompose monetary policy surprises into these separate components we construct a measure of Federal Reserve private information that exploits differences in central bank and market forecasts. Contractionary policy shocks of either type lower stock prices with exogenous shocks having a larger negative effect. However there is some evidence of an asymmetry; when FOMC meetings are unscheduled or when the fed funds rate reverses direction, stock prices actually rise in response to a contractionary Delphic shock.

 

• Regional Responses to Monetary Policy Over Time
  • Abstract: This paper examines the response of real personal income in eight United States regions to monetary policy shocks using a structural VAR framework. The external instruments approach is used for identification. We split our sample into two periods 1958:Q1 – 1992:Q4 and 1993:Q1-2015:Q2 and find markedly different responses between the two. In the early period real personal income decreases in all regions following a contractionary shock while in the later period little response is seen. We investigate two potential reasons why there has been a reduction in differential regional responses to monetary policy over time. We find that the reduction seems to be associated with a homogenization in regional industry composition over recent decades.