Federal Reserve Bank of Philadelphia

Displaying 1-40 of 40 results

  • White Papers // Aug 2011

    Fiscal Volatility Shocks And Economic Activity

    The authors study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about the policy mix and timing of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2011

    Meeting The Demand For Debt Relief

    Each year, millions of financially distressed consumers in the U.S. face a difficult choice among the debt relief options available to them. This paper describes the options available to borrowers who seek assistance in managing their debts and discusses the information and incentive problems associated with these options. It also...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2011

    On The Implementation Of Markov-perfect Monetary Policy

    The literature on optimal monetary policy in New Keynesian models under both commitment and discretion usually solves for the optimal allocations that are consistent with rational expectations market equilibrium, but it does not study whether the policy can be implemented given the available policy instruments. Recently, King and Wolman (2004)...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2011

    The Dynamics Of Public Investment Under Persistent Electoral Advantage

    This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and its subsequent propagation to the economy. The struggle between opposing groups - that disagree on the composition of public consumption - results in governments being endogenously short-sighted: systematic under investment in infrastructure and overspending...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // May 2011

    Private Equity Premium In A General Equilibrium Model Of Uninsurable Investment Risk

    This paper studies the quantitative properties of a general equilibrium model where a continuum of heterogeneous entrepreneurs is subject to aggregate as well as idiosyncratic risks in the presence of a borrowing constraint. The calibrated model matches the highly skewed wealth and income distributions of entrepreneurs. The authors provide an...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2011

    Home Equity Withdrawal In Retirement

    The authors study empirically and theoretically the patterns of home equity withdrawal among retirees, using a model in which retirees are able to own or rent a home, save, and borrow against home equity, in the face of idiosyncratic risks concerning mortality, health, medical expenditures, and household size and observed...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2011

    Bankruptcy: Is It Enough To Forgive Or Must We Also Forget?

    In many countries, lenders are restricted in their access to information about borrowers' past defaults. The authors study this provision in a model of repeated borrowing and lending with moral hazard and adverse selection. They analyze its effects on borrowers' incentives and access to credit, and identify conditions under which...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Mar 2011

    Inflation Dynamics And The New Keynesian Phillips Curve

    A 1977 amendment to the Federal Reserve Act states that the Fed's mandate is "To promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Moderate long-term interest rates require low and stable inflation. Monetary policymakers use instruments such as a short-term interest rate to guide...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2011

    Floats, Pegs And The Transmission Of Fiscal Policy

    According to conventional wisdom, fiscal policy is more effective under a fixed than under a flexible exchange rate regime. In this paper the authors reconsider the transmission of shocks to government spending across these regimes within a standard New Keynesian model of a small open economy. Because of the stronger...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2011

    Credit Cycle And Adverse Selection Effects In Consumer Credit Markets - Evidence From The HELOC Market

    The authors empirically study how the underlying riskiness of the pool of home equity line of credit originations is affected over the credit cycle. Drawing from the largest existing database of U.S. home equity lines of credit, they use county-level aggregates of these loans to estimate panel regressions on the...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2011

    Is Technology-Enhanced Credit Counseling As Effective As In-Person Delivery?

    This paper compares outcomes for borrowers who received face-to-face credit counseling with similarly situated consumers who opted for counseling via the telephone or Internet. Counseling outcomes are measured using consumer credit report attributes one or more years following the original counseling. The primary analysis uses data from a sample of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jan 2011

    U.S. Trade And Inventory Dynamics

    The authors examine the source of the large fall and rebound in U.S. trade in the recent recession. While trade fell and rebounded more than expenditures or production of traded goods, they find that relative to the magnitude of the downturn, these trade fluctuations were in line with those in...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2010

    Strategic Default On First And Second Lien Mortgages During The Financial Crisis

    Strategic default behavior suggests that the default process is not only a matter of inability to pay. Economic costs and benefits affect the incidence and timing of defaults. As with prior research, the authors find that people default strategically as their home value falls below the mortgage value (exercise the...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2010

    A Dynamic Model Of Unsecured Credit

    The authors study the terms of credit in a competitive market in which sellers (lenders) are willing to repeatedly finance the purchases of buyers (borrowers) by engaging in a credit relationship. The key frictions are: the lender is unable to observe the borrower's ability to repay a loan; the borrower...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2010

    Optimal Monetary Policy In A Model Of Money And Credit

    The authors study optimal monetary policy in a model in which fiat money and private debt coexist as a means of payment. The credit system is endogenous and allows buyers to relax their cash constraints. However, it is costly for agents to publicly report their trades, which is necessary for...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2010

    How Committed Are Bank Lines Of Credit? Experiences In The Subprime Mortgage Crisis

    Using the subprime mortgage crisis as a shock, this paper shows that commercial borrowers served by more distressed banks (as measured by recent bank stock returns or the nonperforming loan ratio) took down fewer funds from precommitted, formal lines of credit. The credit constraints affected mainly smaller, riskier (by internal...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2010

    Business Cycles In The Equilibrium Model Of Labor Market Search And Self-Insurance

    The author introduce risk-averse preferences, labor-leisure choice, capital, individual productivity shocks, and market incompleteness to the standard Mortensen-Pissarides model of search and matching and explore the model's cyclical properties. The main purpose of the paper is to embed the standard labor search and matching model into the standard business cycle...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2010

    Monetary Policy In A Liquidity Trap

    In the United States, the Federal Reserve sets monetary policy by targeting the federal funds rate. This process usually involves lowering short-term interest rates when economic growth is weak and raising them when economic growth is strong. A wide class of economic models has shown that, in theory, conducting policy...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2010

    Credit Ratings And Bank Monitoring Ability

    In this paper, the authors use credit rating data from two Swedish banks to elicit evidence on banks' loan monitoring ability. They test the banks' ability to forecast credit bureau ratings and vice versa and show that bank ratings are able to predict future credit bureau ratings. This is evidence...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2010

    Sustainable Monetary Policy And Inflation Expectations

    The author shows that the short-term nominal interest rate can anchor private-sector expectations into low inflation-more precisely, into the best equilibrium reputation can sustain. The author introduces nominal asset markets in an infinite horizon version of the Barro-Gordon model. The author then analyzes the subset of sustainable policies compatible with...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // May 2010

    Can Banks Circumvent Minimum Capital Requirements? The Case Of Mortgage Portfolios Under Basel II

    The recent mortgage crisis has resulted in several bank failures as the number of mortgage defaults increased. The current Basel I capital framework does not require banks to hold sufficient amounts of capital to support their mortgage lending activities. The new Basel II capital rules are intended to correct this...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // May 2010

    Trends And Preferences In Consumer Payments: Lessons From The Visa Payment Panel Study

    For two decades, Visa Inc. has contracted with a market research firm to gather detailed information from U.S. consumers about the forms of payment they use when carrying out transactions at many types of merchants. This omnibus project, the Visa Payment Panel Study, has recorded the migration away from paper...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2010

    Did Bankruptcy Reform Cause Mortgage Default Rates To Rise?

    This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged - thus loosening debtors' budget constraints. Homeowners in financial distress can therefore use...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2010

    The Mortgage and Financial Crises: The Role Of Credit Risk Management And Corporate Governance

    This paper discusses the role of risk management and corporate governance as causal factors in the onset of the financial crisis. The downturn in the housing and mortgage markets precipitated the first phase of the financial crisis in August 2007 when the solvency of a number of large financial firms...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2009

    The Implications Of Inflation In An Estimated New-Keynesian Model

    This paper studies the steady state and dynamic consequences of inflation in an estimated dynamic stochastic general equilibrium model of the U.S. economy. It is found that 10 percentage points of inflation entails a steady state welfare cost as high as 13 % of annual consumption. This large cost is...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2009

    A Revenue-Based Frontier Measure Of Banking Competition

    Measuring banking competition using the HHI, Lerner index, or H-statistic can give conflicting results. Borrowing from frontier analysis, the authors provide an alternative approach and apply it to Spain over 1992-2005. Controlling for differences in asset composition, productivity, scale economies, risk, and business cycle influences, they find no differences in...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2009

    Optimal Clearing Arrangements For Financial Trades

    Clearinghouses support financial trades by keeping records of transactions and by providing liquidity through short-term credit that is periodically cleared by participants. The authors study efficient clearing arrangements for formal exchanges, where traders must clear with a clearinghouse, and for Over-The-Counter (OTC) markets, where trades can be cleared bilaterally. When...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2009

    Securitization And Mortgage Default: Reputation Vs. Adverse Selection

    The academic literature, the popular press, and policymakers have all debated securitization's contribution to the poor performance of mortgages originated in the run-up to the current crisis. Theoretical arguments have been advanced on both sides, but the lack of suitable data has made it difficult to assess them empirically. The...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2009

    How Important Is The Currency Denomination Of Exports In Open-Economy Models?

    The authors show that standard alternative assumptions about the currency in which firms price export goods are virtually inconsequential for the properties of aggregate variables, other than the terms of trade, in a quantitative open-economy model. This result is in contrast to a large literature that emphasizes the importance of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Oct 2009

    Monetary Policy Implementation Frameworks: A Comparative Analysis

    The authors compare two stylized frameworks for the implementation of monetary policy. The first framework relies only on standing facilities, while the second framework relies only on open market operations. They show that the Friedman rule cannot be implemented when the central bank uses standing facilities, while it can be...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Sep 2009

    Time-Varying Capital Requirements In A General Equilibrium Model Of Liquidity Dependence

    This paper attempts to quantify business cycle effects of bank capital requirements. The authors use a general equilibrium model in which financing of capital goods production is subject to an agency problem. At the center of this problem is the interaction between entrepreneurs' moral hazard and liquidity provision by banks...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2009

    Economies Of Scale And The Size Of Exporters

    Exporters are few-less than one-fifth among U.S. manufacturing firms' and are larger than non-exporting firms' about 4-5 times more total sales per firm. These facts are often cited as support for models with economies of scale and firm heterogeneity as in Melitz (2003). The authors find that the basic Melitz...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2009

    The Long And Large Decline In State Employment Growth Volatility

    This paper documents a general decline in the volatility of employment growth during the period 1956 to 2005 and examines its possible sources. Estimates from a state-level pooled cross-section/time-series model indicate that aggregate and state-level factors each account for an important share of the total explained variation in state-level volatility....

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Mar 2009

    Introduction To Price And Productivity Measurement For Housing

    This paper provides a brief introduction to a proposed new opportunity cost treatment of owner-occupied housing in measures of inflation for the United States. In addition, the paper introduces, and provides links to, a collection of nine other papers that discuss various aspects of the treatment of owner-occupied housing in...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2009

    Business Method Patents And U.S. Financial Services

    A decade after the State Street decision, more than 1,000 business method patents are granted each year. Yet only one in ten is obtained by a financial institution. Most business method patents are also software patents. Have these patents increased innovation in financial services? To address this question the authors...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2004

    What You Need to Know About Payment Cards

    A payment card is typically a 21/8 Inch by 33/8 Inch plastic card with either a magnetic stripe or a computer chip that stores the card user's data, including card number and expiration date. Today, consumers use many different types of payment cards. This paper provides answers to some of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2004

    Prepaid Cards: How Do They Function? How Are They Regulated

    The conference brought together representatives from eight major banks, seven national retailers, three state governments, three federal regulators, a score of providers of prepaid card services, and a number of legal professionals to discuss the development of the prepaid card market and its regulation. This summary of the conference is...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2003

    After the Hype E-Commerce Payments Grow Up

    This paper emphasizes the economic and marketplace realities that impact ecommerce payments innovation, acceptance, and maturation. It focuses on the diminishing role of the check, the shift to electronic payments, and the impact of these trends on retail payment systems. The electronic payments study estimated volume at 30 billion transactions...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2002

    An Overview of Credit Card Asset-Backed Securities

    Credit card asset-backed securities (ABS) were first issued in 1987. Since that time, the credit card ABS market has become the primary vehicle by which the card industry funds unsecured loans to consumers. Given the significance of credit card ABS, the Payment Cards Center encourages research in this area and...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2000

    Managing Credit Risk with Synthetic Collateralized Loan Obligations

    Synthetic collateralized loan obligations are a relatively recent addition to the asset management toolbox. Several large banking organizations have created synthetic CLOs over the last year. While the current list of institutions using synthetic securitizations is small, it is likely to grow significantly as synthetic CLOs gain broader acceptance. Therefore,...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2011

    Meeting The Demand For Debt Relief

    Each year, millions of financially distressed consumers in the U.S. face a difficult choice among the debt relief options available to them. This paper describes the options available to borrowers who seek assistance in managing their debts and discusses the information and incentive problems associated with these options. It also...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2010

    Did Bankruptcy Reform Cause Mortgage Default Rates To Rise?

    This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged - thus loosening debtors' budget constraints. Homeowners in financial distress can therefore use...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jan 2011

    U.S. Trade And Inventory Dynamics

    The authors examine the source of the large fall and rebound in U.S. trade in the recent recession. While trade fell and rebounded more than expenditures or production of traded goods, they find that relative to the magnitude of the downturn, these trade fluctuations were in line with those in...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // May 2010

    Trends And Preferences In Consumer Payments: Lessons From The Visa Payment Panel Study

    For two decades, Visa Inc. has contracted with a market research firm to gather detailed information from U.S. consumers about the forms of payment they use when carrying out transactions at many types of merchants. This omnibus project, the Visa Payment Panel Study, has recorded the migration away from paper...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2009

    Optimal Clearing Arrangements For Financial Trades

    Clearinghouses support financial trades by keeping records of transactions and by providing liquidity through short-term credit that is periodically cleared by participants. The authors study efficient clearing arrangements for formal exchanges, where traders must clear with a clearinghouse, and for Over-The-Counter (OTC) markets, where trades can be cleared bilaterally. When...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Mar 2011

    Inflation Dynamics And The New Keynesian Phillips Curve

    A 1977 amendment to the Federal Reserve Act states that the Fed's mandate is "To promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Moderate long-term interest rates require low and stable inflation. Monetary policymakers use instruments such as a short-term interest rate to guide...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2011

    The Dynamics Of Public Investment Under Persistent Electoral Advantage

    This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and its subsequent propagation to the economy. The struggle between opposing groups - that disagree on the composition of public consumption - results in governments being endogenously short-sighted: systematic under investment in infrastructure and overspending...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // May 2011

    Private Equity Premium In A General Equilibrium Model Of Uninsurable Investment Risk

    This paper studies the quantitative properties of a general equilibrium model where a continuum of heterogeneous entrepreneurs is subject to aggregate as well as idiosyncratic risks in the presence of a borrowing constraint. The calibrated model matches the highly skewed wealth and income distributions of entrepreneurs. The authors provide an...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2011

    Credit Cycle And Adverse Selection Effects In Consumer Credit Markets - Evidence From The HELOC Market

    The authors empirically study how the underlying riskiness of the pool of home equity line of credit originations is affected over the credit cycle. Drawing from the largest existing database of U.S. home equity lines of credit, they use county-level aggregates of these loans to estimate panel regressions on the...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2011

    Is Technology-Enhanced Credit Counseling As Effective As In-Person Delivery?

    This paper compares outcomes for borrowers who received face-to-face credit counseling with similarly situated consumers who opted for counseling via the telephone or Internet. Counseling outcomes are measured using consumer credit report attributes one or more years following the original counseling. The primary analysis uses data from a sample of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2010

    A Dynamic Model Of Unsecured Credit

    The authors study the terms of credit in a competitive market in which sellers (lenders) are willing to repeatedly finance the purchases of buyers (borrowers) by engaging in a credit relationship. The key frictions are: the lender is unable to observe the borrower's ability to repay a loan; the borrower...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2010

    How Committed Are Bank Lines Of Credit? Experiences In The Subprime Mortgage Crisis

    Using the subprime mortgage crisis as a shock, this paper shows that commercial borrowers served by more distressed banks (as measured by recent bank stock returns or the nonperforming loan ratio) took down fewer funds from precommitted, formal lines of credit. The credit constraints affected mainly smaller, riskier (by internal...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2010

    Credit Ratings And Bank Monitoring Ability

    In this paper, the authors use credit rating data from two Swedish banks to elicit evidence on banks' loan monitoring ability. They test the banks' ability to forecast credit bureau ratings and vice versa and show that bank ratings are able to predict future credit bureau ratings. This is evidence...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2009

    Business Method Patents And U.S. Financial Services

    A decade after the State Street decision, more than 1,000 business method patents are granted each year. Yet only one in ten is obtained by a financial institution. Most business method patents are also software patents. Have these patents increased innovation in financial services? To address this question the authors...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2010

    Monetary Policy In A Liquidity Trap

    In the United States, the Federal Reserve sets monetary policy by targeting the federal funds rate. This process usually involves lowering short-term interest rates when economic growth is weak and raising them when economic growth is strong. A wide class of economic models has shown that, in theory, conducting policy...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2011

    On The Implementation Of Markov-perfect Monetary Policy

    The literature on optimal monetary policy in New Keynesian models under both commitment and discretion usually solves for the optimal allocations that are consistent with rational expectations market equilibrium, but it does not study whether the policy can be implemented given the available policy instruments. Recently, King and Wolman (2004)...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Oct 2009

    Monetary Policy Implementation Frameworks: A Comparative Analysis

    The authors compare two stylized frameworks for the implementation of monetary policy. The first framework relies only on standing facilities, while the second framework relies only on open market operations. They show that the Friedman rule cannot be implemented when the central bank uses standing facilities, while it can be...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2011

    Fiscal Volatility Shocks And Economic Activity

    The authors study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about the policy mix and timing of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2002

    An Overview of Credit Card Asset-Backed Securities

    Credit card asset-backed securities (ABS) were first issued in 1987. Since that time, the credit card ABS market has become the primary vehicle by which the card industry funds unsecured loans to consumers. Given the significance of credit card ABS, the Payment Cards Center encourages research in this area and...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2004

    Prepaid Cards: How Do They Function? How Are They Regulated

    The conference brought together representatives from eight major banks, seven national retailers, three state governments, three federal regulators, a score of providers of prepaid card services, and a number of legal professionals to discuss the development of the prepaid card market and its regulation. This summary of the conference is...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2010

    The Mortgage and Financial Crises: The Role Of Credit Risk Management And Corporate Governance

    This paper discusses the role of risk management and corporate governance as causal factors in the onset of the financial crisis. The downturn in the housing and mortgage markets precipitated the first phase of the financial crisis in August 2007 when the solvency of a number of large financial firms...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2011

    Home Equity Withdrawal In Retirement

    The authors study empirically and theoretically the patterns of home equity withdrawal among retirees, using a model in which retirees are able to own or rent a home, save, and borrow against home equity, in the face of idiosyncratic risks concerning mortality, health, medical expenditures, and household size and observed...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2010

    Strategic Default On First And Second Lien Mortgages During The Financial Crisis

    Strategic default behavior suggests that the default process is not only a matter of inability to pay. Economic costs and benefits affect the incidence and timing of defaults. As with prior research, the authors find that people default strategically as their home value falls below the mortgage value (exercise the...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2010

    Optimal Monetary Policy In A Model Of Money And Credit

    The authors study optimal monetary policy in a model in which fiat money and private debt coexist as a means of payment. The credit system is endogenous and allows buyers to relax their cash constraints. However, it is costly for agents to publicly report their trades, which is necessary for...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2011

    Bankruptcy: Is It Enough To Forgive Or Must We Also Forget?

    In many countries, lenders are restricted in their access to information about borrowers' past defaults. The authors study this provision in a model of repeated borrowing and lending with moral hazard and adverse selection. They analyze its effects on borrowers' incentives and access to credit, and identify conditions under which...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2009

    Economies Of Scale And The Size Of Exporters

    Exporters are few-less than one-fifth among U.S. manufacturing firms' and are larger than non-exporting firms' about 4-5 times more total sales per firm. These facts are often cited as support for models with economies of scale and firm heterogeneity as in Melitz (2003). The authors find that the basic Melitz...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2009

    Securitization And Mortgage Default: Reputation Vs. Adverse Selection

    The academic literature, the popular press, and policymakers have all debated securitization's contribution to the poor performance of mortgages originated in the run-up to the current crisis. Theoretical arguments have been advanced on both sides, but the lack of suitable data has made it difficult to assess them empirically. The...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Sep 2009

    Time-Varying Capital Requirements In A General Equilibrium Model Of Liquidity Dependence

    This paper attempts to quantify business cycle effects of bank capital requirements. The authors use a general equilibrium model in which financing of capital goods production is subject to an agency problem. At the center of this problem is the interaction between entrepreneurs' moral hazard and liquidity provision by banks...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2009

    How Important Is The Currency Denomination Of Exports In Open-Economy Models?

    The authors show that standard alternative assumptions about the currency in which firms price export goods are virtually inconsequential for the properties of aggregate variables, other than the terms of trade, in a quantitative open-economy model. This result is in contrast to a large literature that emphasizes the importance of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Mar 2009

    Introduction To Price And Productivity Measurement For Housing

    This paper provides a brief introduction to a proposed new opportunity cost treatment of owner-occupied housing in measures of inflation for the United States. In addition, the paper introduces, and provides links to, a collection of nine other papers that discuss various aspects of the treatment of owner-occupied housing in...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2009

    The Long And Large Decline In State Employment Growth Volatility

    This paper documents a general decline in the volatility of employment growth during the period 1956 to 2005 and examines its possible sources. Estimates from a state-level pooled cross-section/time-series model indicate that aggregate and state-level factors each account for an important share of the total explained variation in state-level volatility....

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2009

    The Implications Of Inflation In An Estimated New-Keynesian Model

    This paper studies the steady state and dynamic consequences of inflation in an estimated dynamic stochastic general equilibrium model of the U.S. economy. It is found that 10 percentage points of inflation entails a steady state welfare cost as high as 13 % of annual consumption. This large cost is...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // May 2010

    Can Banks Circumvent Minimum Capital Requirements? The Case Of Mortgage Portfolios Under Basel II

    The recent mortgage crisis has resulted in several bank failures as the number of mortgage defaults increased. The current Basel I capital framework does not require banks to hold sufficient amounts of capital to support their mortgage lending activities. The new Basel II capital rules are intended to correct this...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2010

    Sustainable Monetary Policy And Inflation Expectations

    The author shows that the short-term nominal interest rate can anchor private-sector expectations into low inflation-more precisely, into the best equilibrium reputation can sustain. The author introduces nominal asset markets in an infinite horizon version of the Barro-Gordon model. The author then analyzes the subset of sustainable policies compatible with...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Aug 2010

    Business Cycles In The Equilibrium Model Of Labor Market Search And Self-Insurance

    The author introduce risk-averse preferences, labor-leisure choice, capital, individual productivity shocks, and market incompleteness to the standard Mortensen-Pissarides model of search and matching and explore the model's cyclical properties. The main purpose of the paper is to embed the standard labor search and matching model into the standard business cycle...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Dec 2009

    A Revenue-Based Frontier Measure Of Banking Competition

    Measuring banking competition using the HHI, Lerner index, or H-statistic can give conflicting results. Borrowing from frontier analysis, the authors provide an alternative approach and apply it to Spain over 1992-2005. Controlling for differences in asset composition, productivity, scale economies, risk, and business cycle influences, they find no differences in...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Feb 2011

    Floats, Pegs And The Transmission Of Fiscal Policy

    According to conventional wisdom, fiscal policy is more effective under a fixed than under a flexible exchange rate regime. In this paper the authors reconsider the transmission of shocks to government spending across these regimes within a standard New Keynesian model of a small open economy. Because of the stronger...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Apr 2000

    Managing Credit Risk with Synthetic Collateralized Loan Obligations

    Synthetic collateralized loan obligations are a relatively recent addition to the asset management toolbox. Several large banking organizations have created synthetic CLOs over the last year. While the current list of institutions using synthetic securitizations is small, it is likely to grow significantly as synthetic CLOs gain broader acceptance. Therefore,...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Nov 2004

    What You Need to Know About Payment Cards

    A payment card is typically a 21/8 Inch by 33/8 Inch plastic card with either a magnetic stripe or a computer chip that stores the card user's data, including card number and expiration date. Today, consumers use many different types of payment cards. This paper provides answers to some of...

    Provided By Federal Reserve Bank of Philadelphia

  • White Papers // Jun 2003

    After the Hype E-Commerce Payments Grow Up

    This paper emphasizes the economic and marketplace realities that impact ecommerce payments innovation, acceptance, and maturation. It focuses on the diminishing role of the check, the shift to electronic payments, and the impact of these trends on retail payment systems. The electronic payments study estimated volume at 30 billion transactions...

    Provided By Federal Reserve Bank of Philadelphia