Financial institutions

Public guarantees, private banks’ incentives, and corporate outcomes: evidence from the COVID-19 crisis

03/08/2024 European Central Bank Central banks

We show that public guaranteed loans (PGL) increase credit availability improving real effects, but private banks’ incentives imply that weaker banks shift riskier corporate loans to taxpayers. We exploit credit register data during the COVID-19 shock in Spain, and a stylized model guides the empirics. Unlike non-PGL, banks provide more PGL to riskier firms in which banks have higher pre-crisis shares of firm total credit. Importantly, these effects are stronger for weaker banks.

FEDS Paper: Recovery of 1933(Revised)

02/28/2024 Federal Reserve Central banks

Margaret M. Jacobson, Eric M. Leeper, and Bruce PrestonWhen Roosevelt abandoned the gold standard in April 1933, he converted government debt from a tax-backed claim to gold to a claim to dollars, opening the door to unbacked fiscal expansion. Roosevelt followed a state-contingent fiscal rule that ran nominal-debt-financed primary deficits until the price level rose and economic activity recovered.

FEDS Paper: Monetary Policy Shocks: Data or Methods?

02/28/2024 Federal Reserve Central banks

Connor M. Brennan, Margaret M. Jacobson, Christian Matthes, Todd B. WalkerDifferent series of high-frequency monetary shocks can have a correlation coefficient as low as 0.5 and the same sign in only two-thirds of observations. Both data and methods drive these differences, which are starkest when the federal funds rate is at its effective lower bound. Methods that exploit the differential responsiveness of short- and long-term asset prices can incorporate additional information.

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