News Articles

1. U.S. News: Fed Grows More Wary on Economy

   Jon Hilsenrath. Wall Street Journal. (Eastern edition). New York, N.Y.: Jun 24, 2010. pg. A.2

   (c) 2010 Dow Jones & Company, Inc. The Federal Reserve offered a subdued assessment of the U.S. economy Wednesday and affirmed that short-term interest rates would remain near zero for "an extended period," which most economists now believe could mean well into 2011 and possibly into 2012.

   "Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad," namely in Europe, the central bank said after a two-day policy meeting.

   Market expectations for when the Fed will raise interest rates have already shifted notably in the past two months, amid economic turmoil in Europe and signs that the U.S. economy hasn't built much momentum after turning around in mid-2009. . . .

   For full-text documents see ProQuest's ABI/INFORM

2. Fed finds many bank pay plans to be 'deficient'

   Tom Braithwaite, Francesco Guerrera. Financial Times. London (UK): Jun 22, 2010. pg. 24

   Copyright Financial Times Ltd. 2010.

   Many banks still have "deficient" pay schemes that fall short of new standards designed to discourage "imprudent risk", the US Federal Reserve has found.

   In final rules on compensation published yesterday, the Fed and other bank regulators outlined three principles for incentives: they should not encourage imprudent risk, they should work with effective controls and they should be vetted by board directors. . . .

   For full-text documents see ProQuest's ABI/INFORM

3. Fed Deputy Says Rules Changed Too Slowly --- Kohn, in Parting Remarks, Says Europe Will Recover

   Jon Hilsenrath. Wall Street Journal. (Eastern edition). New York, N.Y.: Jun 18, 2010. pg. C.1

   (c) 2010 Dow Jones & Company, Inc.

   Donald Kohn has seen it all in 40 years as a central banker, from the roaring inflation of the 1970s, to a long period of prosperity in the 1990s, to an economy on the brink of collapse just two years ago.

   The 67-year-old Federal Reserve Board vice chairman was a key decision maker, advising former Chairman Alan Greenspan on now-controversial interest-rate decisions and also serving as Ben Bernanke's right-hand man on almost every important decision during the financial crisis.

   Within the Fed, he was seen as a steady hand with understanding of how the institution worked, but outside he also has been associated with the Fed's failure to stanch the financial crisis. . . .

   For full-text documents see ProQuest's ABI/INFORM

1. Essays in financial and monetary economics

   by Karadi, Peter, Ph.D., New York University, 2010 , 166 pages

   Abstract (Summary)
   The goal of these essays is to better understand the complex inter-relationships between global equity markets, and between the U.S. economy and monetary policy. The first chapter of this dissertation attempts to provide a comprehensive depiction of the dynamics of the correlation structure of international equity returns. In this pursuit, we employ a powerful yet parsimonious dynamic latent factor model with time-varying loadings and stochastic volatility. Such a specification allows us to account for the complex dynamics between international equity returns but is flexible enough to be estimated with a sample of daily data spanning over 20 years across a geographically diverse set of 15 major international markets. We first document that average global and regional correlations have risen steadily over the past two decades. Our main findings are that international equity returns have become increasingly exposed to common sources of variation, and that the entire low-frequency change in equity correlations is due to changing risk exposures rather than changing systematic risk. We also demonstrate significant financial contagion effects during the 1994 Mexican and 1997 Asian crises.

   The second chapter investigates the role of the Federal Reserve in the housing crisis. Many in the press had recently made the claim that the Federal Reserve set interest rates too low during 2002-2006, thereby exacerbating the surge in housing investment over this period. Taylor (2007) supported this line of argument and suggested that if the Fed had implemented higher rates during 2002-2006, the housing investment bubble would have been smaller and its bursting would have had less severe consequences. The primary motivation of this chapter is to formally assess Taylor's claim within the context of a New Keynesian dynamic stochastic general equilibrium model augmented to include housing. Since his analysis was entirely in partial equilibrium, Taylor could not address how a higher path of interest rates would affect output, consumption or business investment. Our main finding is that these general equilibrium effects are crucial and that a higher path of rates during 2002-2006 would have pushed the economy toward or into recession.

   For full-text documents see ProQuest's Dissertations & Theses Database

2. The monetary transmission mechanism: How bank capital, bank profits, and securitization influence loan behavior

   by Orzechowski, Paul E., Ph.D., New School University, 2009 , 207 pages

   Abstract (Summary)
   his dissertation contributes to the bank lending channel (BLC) and bank capital channel (BKC) literature. The study seeks out if monetary policy's influence on loan behavior is affected by different bank capital levels and different bank profit levels. In addition, different asset sized banks are examined.

   The first essay develops a theoretical bank model that highlights the interaction between bank capital, bank profits, and loan activity. An important contribution of this framework is the development of a bank capital multiplier used to determine loan supply. This bank capital multiplier can be applied to other microeconomic and macroeconomic models. The framework offers a loan portfolio analysis focused on net interest margins and risk-based capital requirements.

   Two empirical essays explore bank capital and bank profits, separately, using the FDIC Historical Statistics on Banking. The use of this database brings a different perspective to the existing empirical literature since it is not commonly employed. In particular, the focus on bank profits in the analysis of the monetary transmission mechanism is rarely performed.

   The last empirical essay focuses on different asset sized banks and develops controls for non-bank credit alternatives and credit standards. These controls seek to establish a better identification of the monetary effects on different bank loans.

   The study uses two different autoregressive techniques. The first technique transforms the baseline linear model into a nonlinear model, which is then estimated using a Marquardt nonlinear least squares algorithm. The second model uses a lag of the dependent variable plus a two-step regression process, which seeks to reduce possible endogenous elements stemming from the way in which banks fund their loans that could be independent of federal funds. Banks are divided into panels for comparison.

   One major finding of this dissertation is that commercial and industrial loans do not act in a manner predicted by the BLC and are more correlated with a bank's loan loss reserves. Another finding is that the presence of the mortgage securitization market may have a dilutive effect on monetary policy and could be pro-cyclical with a bank's real estate loan portfolio.

   For full-text documents see ProQuest's Dissertations & Theses Database