Friederike Niepmann and Leslie Sheng ShenHow do banks respond to geopolitical risk, and is this response distinct from other macroeconomic risks? Using U.S. supervisory data and new geopolitical risk indices, we show that banks reduce cross-border lending to countries with elevated geopolitical risk but continue lending to those markets through foreign affiliates—unlike their response to other macro risks.
Todd PronoIn heavy-tailed cases, variance targeting the Student's-t estimator proposed in Bollerslev (1987) for the linear GARCH model is shown to be robust to density misspecification, just like the popular Quasi-Maximum Likelihood Estimator (QMLE). The resulting Variance-Targeted, Non-Gaussian, Quasi-Maximum Likelihood Estimator (VTNGQMLE) is shown to possess a stable limit, albeit one that is highly non-Gaussian, with an ill-defined variance.
Anil K. Jain and Siddharth KothariPoorer countries (and poorer states within India) have a larger share of manufacturing employment in small plants. This paper presents empirical evidence and a theoretical model to show that this relationship is driven by greater demand for lower quality goods in poorer regions, which can be produced efficiently in small plants. First, using data for India, we show that richer households buy higher price goods and larger plants produce higher price products.
Colin Caines and Amartya LahiriSaving rates are significantly different across countries and remain different for long periods of time. This paper provides an explanation for this phenomenon. We formalize a model of a world economy comprised of open economies inhabited by heterogeneous agents endowed with recursive preferences. Our assumed preferences imply increasing marginal impatience of agents as their consumption rises relative to average consumption of a reference group.
Vaishali Garga, Edward Herbst, Alisdair McKay, Giovanni Nicolò, and Matthias PaustianWe review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy.
Grey Gordon, Julio Ortiz, and Benjamin SilkWe examine the experience of conducting reviews of monetary policy frameworks in the major advanced foreign economies since the Federal Open Market Committee's 2019–20 review. We find that periodic reviews are becoming the norm and have often been motivated by similar developments and challenges as those facing the Federal Reserve.
Anna Lipińska, Enrique Martínez García, and Felipe SchwartzmanThis paper examines the drivers of the 2020–23 inflation surge, with an emphasis on the similarities and differences across countries, as well as the role that monetary policy frameworks might have played in shaping central banks’ responses. The inflation surge in the U.S. and abroad was set in motion by two global events: the COVID-19 pandemic and Russia’s invasion of Ukraine.
François Gourio, Benjamin K. Johannsen, and David López-SalidoIn this paper, we describe the Federal Reserve’s 2019–20 review of its monetary policy framework. First, we discuss the historical background of and motivation for the review.
Ina Hajdini, Adam Shapiro, A. Lee Smith, and Daniel VillarThis paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response.
Brent Bundick, Isabel Cairó, and Nicolas Petrosky-NadeauThis paper reviews recent academic studies to assess the implications of adopting a shortfalls, rather than a deviations, approach to pursuing maximum employment. Model-based simulations from these studies suggest three main findings. First, shortfalls rules generate inflationary pressure relative to deviations rules, which offsets downward pressure on inflation stemming from the presence of the effective lower bound.
