Federal Reserve Bank of Chicago

Displaying 1-27 of 27 results

  • White Papers // Jul 2011

    Federal Reserve Policies And Financial Market Conditions During The Crisis

    During the recent financial crisis, the Federal Reserve implemented a series of extraordinary and unconventional policies to alleviate the impact of the crisis on financial markets and the economy. In this paper, the authors examine the effects of these policies on broad financial market conditions, explicitly taking into account that...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jun 2011

    The Financial Labor Supply Accelerator

    The financial labor supply accelerator links hours worked to minimum down payments for durable goods purchases. When these constrain a household's debt, a persistent wage increase generates a liquidity shortage. This limits the income effect, so hours worked grow. The mechanism generates a positive comovement of labor supply and household...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // May 2011

    What Are The Implications Of Rising Commodity Prices For Inflation And Monetary Policy?

    The recent run-ups in oil and other commodity prices and their implications for inflation and monetary policy have grabbed the attention of many commentators in the media. Clearly, higher prices of food and energy end up in the broadest measures of consumer price inflation, such as the Consumer Price Index....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jan 2011

    The Role Of Securitization In Mortgage Renegotiation

    The authors' study the effects of securitization on renegotiation of distressed residential mortgages over the current financial crisis. Unlike prior studies, they employ unique data that directly observe lender renegotiation actions and cover more than 60% of the U.S. mortgage market. Exploiting within-servicer variation in these data, they find that...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    Complex Mortgages

    Complex mortgages became a popular borrowing instrument during the bullish housing market of the early 2000s but vanished rapidly during the subsequent downturn. These non-traditional loans (interest only, negative amortization and teaser mortgages) enable households to postpone loan repayment compared to traditional mortgages and hence relax borrowing constraints. At the...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    Summer Workshop On Money, Banking, Payments And Finance: An Overview

    The 2010 Summer Workshop on Money, Banking, Payments and Finance met at the Federal Reserve Bank of Chicago this summer, for the second year. The following document summarizes and ties together the papers presented. The annual Summer Workshop on Money, Banking, Payments and Finance met again in August 2010. The...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    Cognitive Abilities And Household Financial Decision Making

    The authors analyze the effects of cognitive abilities on two examples of consumer financial decisions where suboptimal behavior is well defined. The first example refers to consumers who transfer the entire balance from an existing credit card account to a new account, but use the new card for convenience transactions,...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    The Impact Of The Originate-Todistribute Model On Banks Before And During The Financial Crisis

    The growth of securitization made it easier for banks to sell home mortgage loans that they originated. The author explores how mortgage sales affected banks in the years leading up to the financial crisis that began in 2007 and how their pre-crisis mortgage sales affected banks during the crisis. Loan...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Sep 2010

    Identification Of Models Of The Labor Market

    This chapter discusses identification of common selection models of the labor market. The authors start with the classic Roy model and show how it can be identified with exclusion restrictions. The authors then extend the argument to the generalized Roy model, treatment effect models, duration models, search models, and dynamic...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Sep 2010

    Financial Regulation In The Post-Crisis Environment

    Congress has recently passed a financial reform bill. Many of the components of that bill center on the issues discussed in this paper. Importantly, the legislation leaves many of the details to be worked out by the regulatory authorities. One of the key components of an orderly resolution process is...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Sep 2010

    After The Financial Crisis: The Future Of Payment Innovations

    The participants at this year's Payments Conference discussed how evolving technology and emerging payment products both challenge and complement legacy payments while providing opportunities for nonbank firms to compete against and collaborate with traditional payment providers - like large financial institutions and card networks. Moreover, given the flurry of recent...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Aug 2010

    Public Pensions And Labor Supply Over The Life Cycle

    Virtually all developed countries face projected budget shortfalls for their public pension programs. The shortfalls arise for two reasons. First, populations in developed countries are aging rapidly. Second, until recently older individuals in developed countries have been retiring earlier. These two developments have created serious strains on public pension programs....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jul 2010

    New Perspectives On Health And Health Care Policy

    Health care reform has been the primary focus of policymakers for much of the past year, culminating with the Patient Protection and Affordable Care Act that was signed into law by President Obama on March 23, 2010. The vigorous national debate on the act has highlighted the importance of innovative,...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jun 2010

    Displacement, Asymmetric Information And Heterogeneous Human Capital

    Gibbons and Katz's (1991) asymmetric information model of the labor market predicts wage losses following displacement should be larger for layoffs than for plant closings. This was borne out in their empirical work. In this paper, the authors examine how the difference in wage losses across plant closing and layoff...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // May 2010

    Getting Sick And Paying For It

    In certain situations, Americans who become chronically ill have to pay higher rates to continue their health insurance coverage. Indeed, although the majority of Americans are insured, hardly anyone is fully protected against the risk that their next insurance policy will cost considerably more than their current one. Although illness...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Apr 2010

    Regulating Two-Sided Markets: An Empirical Investigation

    Two-sided market theory predicts that platforms may subsidize the participation of one type of agent by extracting surplus from another type to internalize indirect network externalities. However, few empirical studies exist to evaluate the impact of government intervention in these markets. The authors use confidential bank-level data to study the...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2009

    Too Much Right Can Make A Wrong: Setting The Stage For The Financial Crisis

    The financial crisis that started in 2007 exposed a number of flaws in the financial system. Many of these flaws were associated with financial instruments that were issued by the shadow banking system, especially securitized assets. The volume and complexity of securitized assets grew rapidly during run-up to the financial...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Oct 2009

    Do Financial Counseling Mandates Improve Mortgage Choice And Performance? Evidence From A Legislative Experiment

    The authors explore the effects of mandatory third-party review of mortgage contracts on the terms, availability, and performance of mortgage credit. This paper is based on a legislative experiment in which the State of Illinois required "High-risk" mortgage applicants acquiring or refinancing properties in 10 specific zip codes to submit...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Aug 2009

    Using Stock Returns To Identify Government Spending Shocks

    This paper explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches. The new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large US military contractors. This strategy is used to estimate the dynamic...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // May 2009

    Benefits Of Relationship Banking: Evidence From Consumer Credit Markets

    This paper empirically examines the benefits of relationship banking to banks, in the context of consumer credit markets. Using a unique panel dataset that contains comprehensive information about the relationships between a large bank and its credit card customers, the authors estimate the effects of relationship banking on the customers'...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Feb 2009

    Vulnerabilities in First-Generation RFID-Enabled Credit Cards

    An increasing number of credit cards now contain a tiny wireless computer chip and antenna based on RFID (radio frequency identification) and contactless smart card technology. The RFID-enabled credit cards permit contactless payments that are fast, easy, and often more reliable than magnetic stripe card transactions, and only physical proximity...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Dec 2008

    Pairwise Trade, Payments, Asset Prices, And Monetary Policy

    The authors provide a monetary theory of asset returns that emphasizes the role that assets play as payments instruments. The authors adopt a search-theoretic model in which that money can coexist with real assets. The terms of trade in bilateral consumption matches are determined by a Pareto-efficient pricing mechanism. The...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Dec 2008

    Public Investment And Budget Rules For State Vs. Local Governments

    Across different layers of the U.S. government there are surprisingly large differences in institutional provisions that impose fiscal discipline, such as constitutionally mandated deficit or debt limits, or specific tax bases. In this paper the authors develop a framework that can be used to quantitatively assess their costs and benefits....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2008

    Bank Crises And Investor Confidence

    In addition to their direct effects, episodes of financial instability may decrease investor confidence. Measuring the impact of a crisis on investor confidence is complicated by the fact that it is difficult to disentangle the effect of investor confidence from coincident direct effects of the crisis. In order to isolate...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2008

    Does It Pay To Read Your Junk Mail? Evidence Of The Effect Of Advertising On Home Equity Credit Choices

    The authors examine the effect of direct mail (commonly referred to as junk mail) advertising on individual financial decisions by studying consumer choice of home equity debt contracts. Consistent with the theoretical predictions, they find that financial variables underlying the relative pricing of debt contracts are the leading factors explaining...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2008

    Explaining Asset Pricing Puzzles Associated With The 1987 Market Crash

    The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. The authors explain these events within a general equilibrium framework in which expected endowment growth and economic uncertainty are subject to rare jumps....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2002

    Bank Procyclicality, Credit Crunches, and Asymmetric Monetary Policy Effects: A Unifying Model

    Much concern has recently been expressed that both large, procyclical changes in bank assets and ?credit crunches? caused by bank reluctance to expand loans during recessions contribute to economic instability. These effects are difficult to explain using the standard textbook model of deposit expansion in which deposits are constrained only...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Feb 2009

    Vulnerabilities in First-Generation RFID-Enabled Credit Cards

    An increasing number of credit cards now contain a tiny wireless computer chip and antenna based on RFID (radio frequency identification) and contactless smart card technology. The RFID-enabled credit cards permit contactless payments that are fast, easy, and often more reliable than magnetic stripe card transactions, and only physical proximity...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // May 2009

    Benefits Of Relationship Banking: Evidence From Consumer Credit Markets

    This paper empirically examines the benefits of relationship banking to banks, in the context of consumer credit markets. Using a unique panel dataset that contains comprehensive information about the relationships between a large bank and its credit card customers, the authors estimate the effects of relationship banking on the customers'...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Sep 2010

    Financial Regulation In The Post-Crisis Environment

    Congress has recently passed a financial reform bill. Many of the components of that bill center on the issues discussed in this paper. Importantly, the legislation leaves many of the details to be worked out by the regulatory authorities. One of the key components of an orderly resolution process is...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jun 2010

    Displacement, Asymmetric Information And Heterogeneous Human Capital

    Gibbons and Katz's (1991) asymmetric information model of the labor market predicts wage losses following displacement should be larger for layoffs than for plant closings. This was borne out in their empirical work. In this paper, the authors examine how the difference in wage losses across plant closing and layoff...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Sep 2010

    Identification Of Models Of The Labor Market

    This chapter discusses identification of common selection models of the labor market. The authors start with the classic Roy model and show how it can be identified with exclusion restrictions. The authors then extend the argument to the generalized Roy model, treatment effect models, duration models, search models, and dynamic...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    Summer Workshop On Money, Banking, Payments And Finance: An Overview

    The 2010 Summer Workshop on Money, Banking, Payments and Finance met at the Federal Reserve Bank of Chicago this summer, for the second year. The following document summarizes and ties together the papers presented. The annual Summer Workshop on Money, Banking, Payments and Finance met again in August 2010. The...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    Complex Mortgages

    Complex mortgages became a popular borrowing instrument during the bullish housing market of the early 2000s but vanished rapidly during the subsequent downturn. These non-traditional loans (interest only, negative amortization and teaser mortgages) enable households to postpone loan repayment compared to traditional mortgages and hence relax borrowing constraints. At the...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Dec 2008

    Pairwise Trade, Payments, Asset Prices, And Monetary Policy

    The authors provide a monetary theory of asset returns that emphasizes the role that assets play as payments instruments. The authors adopt a search-theoretic model in which that money can coexist with real assets. The terms of trade in bilateral consumption matches are determined by a Pareto-efficient pricing mechanism. The...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Aug 2010

    Public Pensions And Labor Supply Over The Life Cycle

    Virtually all developed countries face projected budget shortfalls for their public pension programs. The shortfalls arise for two reasons. First, populations in developed countries are aging rapidly. Second, until recently older individuals in developed countries have been retiring earlier. These two developments have created serious strains on public pension programs....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2008

    Explaining Asset Pricing Puzzles Associated With The 1987 Market Crash

    The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. The authors explain these events within a general equilibrium framework in which expected endowment growth and economic uncertainty are subject to rare jumps....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    Cognitive Abilities And Household Financial Decision Making

    The authors analyze the effects of cognitive abilities on two examples of consumer financial decisions where suboptimal behavior is well defined. The first example refers to consumers who transfer the entire balance from an existing credit card account to a new account, but use the new card for convenience transactions,...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2010

    The Impact Of The Originate-Todistribute Model On Banks Before And During The Financial Crisis

    The growth of securitization made it easier for banks to sell home mortgage loans that they originated. The author explores how mortgage sales affected banks in the years leading up to the financial crisis that began in 2007 and how their pre-crisis mortgage sales affected banks during the crisis. Loan...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jan 2011

    The Role Of Securitization In Mortgage Renegotiation

    The authors' study the effects of securitization on renegotiation of distressed residential mortgages over the current financial crisis. Unlike prior studies, they employ unique data that directly observe lender renegotiation actions and cover more than 60% of the U.S. mortgage market. Exploiting within-servicer variation in these data, they find that...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2009

    Too Much Right Can Make A Wrong: Setting The Stage For The Financial Crisis

    The financial crisis that started in 2007 exposed a number of flaws in the financial system. Many of these flaws were associated with financial instruments that were issued by the shadow banking system, especially securitized assets. The volume and complexity of securitized assets grew rapidly during run-up to the financial...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2008

    Does It Pay To Read Your Junk Mail? Evidence Of The Effect Of Advertising On Home Equity Credit Choices

    The authors examine the effect of direct mail (commonly referred to as junk mail) advertising on individual financial decisions by studying consumer choice of home equity debt contracts. Consistent with the theoretical predictions, they find that financial variables underlying the relative pricing of debt contracts are the leading factors explaining...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2008

    Bank Crises And Investor Confidence

    In addition to their direct effects, episodes of financial instability may decrease investor confidence. Measuring the impact of a crisis on investor confidence is complicated by the fact that it is difficult to disentangle the effect of investor confidence from coincident direct effects of the crisis. In order to isolate...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Dec 2008

    Public Investment And Budget Rules For State Vs. Local Governments

    Across different layers of the U.S. government there are surprisingly large differences in institutional provisions that impose fiscal discipline, such as constitutionally mandated deficit or debt limits, or specific tax bases. In this paper the authors develop a framework that can be used to quantitatively assess their costs and benefits....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Oct 2009

    Do Financial Counseling Mandates Improve Mortgage Choice And Performance? Evidence From A Legislative Experiment

    The authors explore the effects of mandatory third-party review of mortgage contracts on the terms, availability, and performance of mortgage credit. This paper is based on a legislative experiment in which the State of Illinois required "High-risk" mortgage applicants acquiring or refinancing properties in 10 specific zip codes to submit...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Aug 2009

    Using Stock Returns To Identify Government Spending Shocks

    This paper explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches. The new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large US military contractors. This strategy is used to estimate the dynamic...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Apr 2010

    Regulating Two-Sided Markets: An Empirical Investigation

    Two-sided market theory predicts that platforms may subsidize the participation of one type of agent by extracting surplus from another type to internalize indirect network externalities. However, few empirical studies exist to evaluate the impact of government intervention in these markets. The authors use confidential bank-level data to study the...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jul 2010

    New Perspectives On Health And Health Care Policy

    Health care reform has been the primary focus of policymakers for much of the past year, culminating with the Patient Protection and Affordable Care Act that was signed into law by President Obama on March 23, 2010. The vigorous national debate on the act has highlighted the importance of innovative,...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // May 2010

    Getting Sick And Paying For It

    In certain situations, Americans who become chronically ill have to pay higher rates to continue their health insurance coverage. Indeed, although the majority of Americans are insured, hardly anyone is fully protected against the risk that their next insurance policy will cost considerably more than their current one. Although illness...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Sep 2010

    After The Financial Crisis: The Future Of Payment Innovations

    The participants at this year's Payments Conference discussed how evolving technology and emerging payment products both challenge and complement legacy payments while providing opportunities for nonbank firms to compete against and collaborate with traditional payment providers - like large financial institutions and card networks. Moreover, given the flurry of recent...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jun 2011

    The Financial Labor Supply Accelerator

    The financial labor supply accelerator links hours worked to minimum down payments for durable goods purchases. When these constrain a household's debt, a persistent wage increase generates a liquidity shortage. This limits the income effect, so hours worked grow. The mechanism generates a positive comovement of labor supply and household...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Jul 2011

    Federal Reserve Policies And Financial Market Conditions During The Crisis

    During the recent financial crisis, the Federal Reserve implemented a series of extraordinary and unconventional policies to alleviate the impact of the crisis on financial markets and the economy. In this paper, the authors examine the effects of these policies on broad financial market conditions, explicitly taking into account that...

    Provided By Federal Reserve Bank of Chicago

  • White Papers // May 2011

    What Are The Implications Of Rising Commodity Prices For Inflation And Monetary Policy?

    The recent run-ups in oil and other commodity prices and their implications for inflation and monetary policy have grabbed the attention of many commentators in the media. Clearly, higher prices of food and energy end up in the broadest measures of consumer price inflation, such as the Consumer Price Index....

    Provided By Federal Reserve Bank of Chicago

  • White Papers // Nov 2002

    Bank Procyclicality, Credit Crunches, and Asymmetric Monetary Policy Effects: A Unifying Model

    Much concern has recently been expressed that both large, procyclical changes in bank assets and ?credit crunches? caused by bank reluctance to expand loans during recessions contribute to economic instability. These effects are difficult to explain using the standard textbook model of deposit expansion in which deposits are constrained only...

    Provided By Federal Reserve Bank of Chicago