ECONOMY
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Why Do Banks Fail? Bank Runs Versus Solvency
Sergio Correia, Stephan Luck, and Emil Verner Evidence from a 160-year-long panel of U.S. banks suggests that the ultimate cause of bank failures and banking crises is almost always a deterioration of bank fundamentals that leads to insolvency. As described in our previous post, bank failures—including those that involve bank runs—are typically preceded by a slow deterioration of bank fundamentals…
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Why Do Banks Fail? The Predictability of Bank Failures
Sergio Correia, Stephan Luck, and Emil Verner Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based…
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Income Growth Outpaces Household Borrowing
Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw U.S. household debt balances grew by $147 billion (0.8 percent) over the third quarter, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Balances on all loan products recorded moderate increases, led by mortgages (up $75 billion),…
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To Whom It May Concern: Demographic Differences in Letters of Recommendation
Beverly Hirtle and Anna Kovner Letters of recommendation from faculty advisors play a critical role in the job market for Ph.D. economists. At their best, they can convey important qualitative information about a candidate, including the candidate’s potential to generate impactful research. But at their worst, these letters offer a subjective view of the candidate that can be susceptible to…
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Why Investment-Led Growth Lowers Chinese Living Standards
Matthew Higgins Rapid GDP growth, due in part to high rates of investment and capital accumulation, has raised China out of poverty and into middle-income status. But progress in raising living standards has lagged, as a side-effect of policies favoring investment over consumption. At present, consumption per capita stands some 40 percent below what might be expected given China’s income…
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Has Treasury Market Liquidity Improved in 2024?
Michael Fleming Standard metrics point to an improvement in Treasury market liquidity in 2024 to levels last seen before the start of the current monetary policy tightening cycle. Volatility has also trended down, consistent with the improved liquidity. While at least one market functioning metric has worsened in recent months, that measure is an indirect gauge of market liquidity and…
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The Dueling Intraday Demands on Reserves
Adam Copeland and Sarah Yu Wang A central use of reserves held at Federal Reserve Banks (FRBs) is for the settlement of interbank obligations. These obligations are substantial—the average daily total reserves used on two main settlement systems, Fedwire Funds and Fedwire Securities, exceeds $6.5 trillion. The total amount of reserves needed to efficiently settle these obligations is an active…
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Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity
Gara Afonso, Domenico Giannone, Gabriele La Spada, and John C. Williams As central banks shrink their balance sheets to restore price stability and phase out expansionary programs, gauging the ampleness of reserves has become a central topic to policymakers and academics alike. The reason is that the ampleness of reserves informs when to slow and then stop quantitative tightening (QT). The Federal…
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What Do Climate Risk Indices Measure?
Hyeyoon Jung and Oliver Hannaoui As interest in understanding the economic impacts of climate change grows, the climate economics and finance literature has developed a number of indices to quantify climate risks. Various approaches have been employed, utilizing firm-level emissions data, financial market data (from equity and derivatives markets), or textual data. Focusing on the latter approach, we conduct descriptive…
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International Stock Markets’ Reactions to EU Climate Policy Shocks
Julian di Giovanni, Galina Hale, Neel Lahiri, and Anirban Sanyal While policies to combat climate change are designed to address a global problem, they are generally implemented at the national level. Nevertheless, the impact of domestic climate policies may spill over internationally given countries’ economic and financial interdependence. For example, a carbon tax charged to domestic firms for their use…
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