Posts Tagged ‘Fed


Too Big To Fail, Audiencias de la Comisión por la Crisis Financiera

Entre hoy y mañana se llevan a cabo las audiencias y testimonios en referencia a los roles de la intervención gubernamental y el riesgo sistemático en la Crisis Financiera en los Estados Unidos. Las mismas son llevadas a cabo por la Financial Crisis Inquiry Commission.

Hoy dio su testimonio Dick Fuld Jr (Ex CEO de Lehman Brothers), entre otros representantes del sector privado.

En el sitio de la Comisión se encuentran vídeos y los archivos de Audiencias anteriores (ejemplo: El rol de los derivados en la crisis financiera)


Papers del Economic Policy Symposium 2010

Via el blog Infectious Greed, encontre el link de los papers presentados y discursos dados (Bernanke, Trichet) en el 2010 Economic Policy Symposium que se realizo en la Fed de Kansas City (26 al 28 de Agosto).

After the Fall; Monetary Policy and Stock Market Booms; Modeling After the Inflation Crisis fueron algunos de los trabajos presentados.


Gráfico du Jour: Predicciones sobre la Fed Funds Rate

(Fuente: FED Cleveland)


Paper: ¿Dueño o inquilino?

The Homeownership Gap

Recent years have seen a sharp rise in the number of negative equityhomeowners—those who owe more on their mortgages than theirhouses are worth. These homeowners are included in the offi cialhomeownership rate computed by the Census Bureau, but the savingsthey must amass to retain their home or purchase a new home aredaunting. Recognizing that these homeowners are likely to convertto renters over time, the authors of this analysis calculate an“effective” rate of homeownership that excludes negative equityhouseholds. They argue that the effective rate—5.6 percentagepoints below the offi cial rate—may be a useful guide to the futurepath of the offi cial rate.

Link al Paper


Escasez de dolares…

Stephen Cecchetti, del BIS, en su presentación para un congreso organizado por la Fed de San Francisco, brindo los motivos de la escasez y la razón por la renovación de las lineas swap

As I suggested at the outset, the recent crisis has brought the costs of international financial integration into greater relief. The US financial sector created a wide range of securities and sold them to banks and investors around the world. In some cases, the underwriting was bad and risks were improperly appraised. But even when this was not the case, currency mismatches were created on the balance sheets of non-US holders of the dollar-denominated assets. These assets were financed by a combination of wholesale borrowing, where a non-US bank would simply borrow dollars from a bank that had them, and foreign exchange swap arrangements, where the bank would swap its domestic currency liabilities into dollars. Importantly, both of these funding mechanisms – borrowing and swaps – are short term whereas the dollar assets held by the banks are long term.
How big is this problem? My colleagues at the BIS have used the international banking statistics to separate banks into those with more dollar assets than dollar liabilities, labelled long dollar”, and those with fewer dollar assets than liabilities, labelled short dollar.2 Graph 2 shows these two groups not only for dollars, but for other currencies as well. I would like to focus your attention on the red line at the top of the graph’s left-hand panel. What this line means is that the banks – these are Canadian, Dutch, German, Swiss, UK and Japanese banks – require an estimated aggregate of $1.2 trillion (net) in US dollars. During the crisis, because of disruptions to these markets, these obligations ultimately could only be met through international FX swap arrangements among central banks. And, critically, over the last three years this number has not fallen! If you were wondering why the swap arrangements had to be reinstated on 9 May, now you know.


Mirando la zona Euro

Baseline tiene un interesante post que agrupa la problemática europea: deuda, deficits, riesgo moral, corrupción, rescate.

The eurozone self-rescue plan announced last night has three main elements:

  1. 750bn euros in a fiscal support program, with 1/3 coming from the IMF (although this was apparently news to the IMF).
  2. The European Central Bank promises to buy bonds in dysfunctional markets.
  3. Swap lines with the Federal Reserve, to provide dollars


The underlying problem in the euro zone is that Portugal, Ireland, Italy, Greece, and Spain are locked into a currency which means they are uncompetitive in trade terms while they are also running large budget deficits.  To get out of this they need large wage and price cuts to restore competitiveness, and they need to make fiscal cuts to get budget balances back at sustainable levels.

Markets decided these adjustments were going to be difficult, so spreads on those countries’ debts widened (i.e., interest rates relative to German government bonds).  As the rates go up, this causes local asset prices to fall, concerns over bank balance sheets increase, etc.  This combination was causing an incipient run on banks.  Any country with its own currency could reasonably devalue in such a situation, but this is not an option within the euro bloc.


To ultimately get out of this mess, the euro zone needs to grow fast enough to allow nations to grow out of debt.  The global backdrop here is very positive in the short term.  The jobs numbers in the US last week and strong numbers out of core northern Europe suggest the world can grow.  No doubt the ECB and the Fed will use the eurozone scare to justify longer loose policies.

It could be that in two years time Europe’s deficits are much lower, the ECB has hardly bought any bonds, and they have successfully managed a Greek debt restructuring while Spain is out of trouble, and Portugal and Ireland are scraping by in limbo but now isolated problems.  With the US likely to still be running near 10% GDP budget deficits – who will seem more risky then?  This immediate confidence in the US dollar that has come out of this European crisis could very quickly evaporate.

Alternatively, the underlying fiscal problems in Europe could fester – and the “rules” designed to limit moral hazard may turn out to be a complete paper tiger.  In that case, the Europeans again have to make a fateful decision: Do they try to inflate out of the debt burdens of their weakest member countries; or do they instead try to manage selective default, keeping in mind that most Greek debt at that stage will be held by other eurozone governments.


Explicando el comportamiento de la yield curve

EconomPIC tiene un útil ejercicio que intenta dar un marco a la interpretación de Krugman acerca del actual comportamiento de la US yield curve.


This is where things get interesting. The Fed Funds rate is zero. They cannot go negative. Thus, flip your coin for a 25 bps hike or cut. If you get hike, rates rise to 25 bps. If you get a cut… well, you can’t cut any more. Go to period two. Now under the initial hike, rates can go back to 0% or jump to 50 bps. Under the initial cut, they can only go to 25 bps or stay at 0%. Thus, the four outcomes in period 2 are 0, 0, 25 bps, and 50 bps. An average of 18.75 bps (they went up).



Yield Curve, indicador de actividad

Bespoke Invesment tiene un breve e informativo post sobre la Yield Curve como indicador de la actividad económica.

In short, high values in the yield curve are positive for the economy, while an inverted yield curve (negative spread between long and short term rates) is a harbinger of economic weakness down the line.  While there are many variant definitions of the yield curve, for our analysis we defer to the NY Fed which defines the yield curve as the difference (in basis points) between the yield on the 10-Year and 3-Month US Treasury Note.

Link al Paper (2006) de la Fed


Paper: Crisis y Política Monetaria

The Great Escape? A Quantitative Evaluation of the Fed’s Non-Standard Policies

This paper extends the model in Kiyotaki and Moore (2008) to include nominal wage and price frictions and explicitly incorporates the zero bound on the short-term nominal interest rate. We subject this model to a shock which arguably captures the 2008 US financial crisis. Within this framework we ask: Once interest rate cuts are nolonger feasible due to the zero bound, what are the effects of non-standard open market operations in which the government exchanges liquid government liabilities for illiquidprivate assets? We find that the effect of this non-standard monetary policy can belarge at zero nominal interest rates. We show model simulations in which these policy interventions prevented a repeat of the Great Depression in 2008-2009.
Link al Paper

Paper: New York Fed y el trabajo duro

The Paradox of Toil

This paper proposes a new paradox: the paradox of toil. Suppose everyone wakes up one day and decides they want to work more. What happens to aggregate employment? This paper shows that, under certain conditions, aggregate employment falls; that is, there is less work in the aggregate because everyone wants to work more. The conditions for the paradox to apply are that the short-term nominal interest rate is zero and there are deflationary pressures and output contraction, much as during the Great Depression in the United States and, perhaps, the 2008 financial crisis in large parts of the world. The paradox of toil is tightly connected to the Keynesian idea of the paradox of thrift. Both are examples of a fallacy of composition.

Link al Paper

Fun & Finance


Fun & Finance Rollover

"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

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