Results of the Semi-Annual FX Turnover Surveys in October 2024
See the headline results from an October 2024 survey of 25 financial institutions that are active in the UK foreign exchange market.
Central banks
FEDS Paper: Regulating Bank Portfolio Choice Under Asymmetric Information
Chris AndersonRegulating bank risk-taking is challenging since banks know more than regulators about the risks of their portfolios and can make adjustments to game regulations. To address this problem, I build a tractable model that incorporates this information asymmetry. The model is flexible enough to encompass many regulatory tools, although I focus on taxes. These taxes could also be interpreted as reflecting the shadow costs of other regulations, such as capital requirements.
FEDS Paper: The effect of ending the pandemic-related mandate of continuous Medicaid coverage on health insurance coverage
Kabir Dasgupta, Keisha SolomonThe Medicaid continuous enrollment provision, which ensured uninterrupted coverage for beneficiaries during the COVID-19 pandemic, was ended in March 2023. This unwinding process has led to large-scale Medicaid disenrollments, as states resumed their standard renewal process to evaluate enrolled individuals' eligibility status.
The implications of CIP deviations for international capital flows
We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors’ holdings of USD bonds decrease following a widening in the USD-EUR cross-currency basis (CCB). This effect is driven by investors with larger FX rollover risk and hedging mandates, and it is robust to instrumenting the CCB. These shifts in bond demand significantly affect bond prices.
Leverage actually: the impact on banks’ borrowing costs in euro area money markets
This paper explores the impact of the regulatory leverage ratio (LR) on banks’ demand for reserves and thus the pricing of overnight liquidity in the euro area money markets. We use daily transaction-level money market data during the period between January 2017 - February 2023 and examine the two major overnight money market segments – the unsecured and the secured one, distinguishing between over-the-counter (OTC) and CCP-cleared trades for the latter. We find a significant positive link between a bank’s LR and the spread between its money market borrowing rate and the DFR.
FEDS Paper: Non-monetary news in Fed announcements: Evidence from the corporate bond market(Revised)
Michael Smolyansky and Gustavo SuarezWhen the Federal Reserve tightens monetary policy, do the prices of riskier assets fall relative to safer assets? Or, do investors interpret policy tightening as a signal that economic fundamentals are stronger than they previously believed, thus leading riskier assets to outperform? We present evidence that the latter of these two forces empirically dominates within the U.S. corporate bond market.
FEDS Paper: Beliefs, Aggregate Risk, and the U.S. Housing Boom(Revised)
Margaret M. JacobsonEndogenously optimistic beliefs about future house prices can account for the increase, time-path, and volatility of house prices in the U.S. housing boom of the 2000s without shocks to housing preferences. In a general equilibrium model with incomplete markets and aggregate risk, heterogeneous agents endogenously form beliefs about future house prices in response to shocks to fundamentals.
FEDS Paper: A Stock Return Decomposition Using Observables(Revised)
Benjamin Knox and Annette Vissing-JorgensenWe propose a new method for decomposing realized stock market capital gains into contributions from changes to the real yield curve, equity premia, and expected dividends. The method centers on changes to observable inputs of the present value formula and requires no regressions or log-linearization.
The great supply shock and the euro area, viewed through a suite of supply indices
This paper examines the great supply shock following the pandemic and the invasion of Ukraine, using a novel suite of supply indices. The suite has indices for the euro area total economy, euro area industries, sectors and countries. The suite also computes the contributions to the indices from supply drivers at origin, in transport, or at destination. The results from the suite show that the supply shock has had wide-spread effects, and that their dynamics have been industry-, sector- and country-specific.
The growth effect of EU funds – the role of institutional quality
This paper investigates the growth impact of the EU’s Structural, Cohesion and Pre-accession Funds. We look at a large sample of 27 EU countries and the UK, over a period of 1989 and 2020, essentially covering the full history of these funds.
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