I exploit a natural experiment in South Korea to examine the real effects of macroprudential foreign exchange (FX) regulations designed to reduce risk-taking by financial intermediaries. By using crossbank variation in the regulation's tightness, I show that it causes a reduction in the supply...

The Federal Reserve created the Commercial Paper Funding Facility (CPFF) in the midst of severe disruptions in money markets following the bankruptcy of Lehman Brothers on September 15, 2008. The CPFF finances the purchase of highly rated unsecured and asset-backed commercial paper from eligible...

One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. The economic rationale for this forecasting power usually appeals to expectations of future interest rates, which affect the slope of the term structure. In this paper,...

Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for monetary policy, household risk management, and financial stability. In this paper, we show that the share of FRMs is sharply lower when mortgages are difficult to securitize. Our analysis exploits...

In standard Walrasian macro-finance models, pecuniary externalities due to fire sales lead to excessive borrowing and insufficient liquidity holdings. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far from...

We study a dynamic model of collateralized lending under adverse selection in which the quality of collateral assets is endogenously determined by hidden effort. Complementarities in incentives lead to non-ergodic dynamics: Asset quality and output grow when asset quality is high, but stagnate...

The financial crisis has prompted macroeconomists to think of new policy instruments that could help ensure financial stability. Policymakers are interested in understanding how these should be set in conjunction with monetary policy. We contribute to this debate by analyzing how monetary and...

In the conduct of monetary policy, there exists a risk-return trade-off between financial conditions and financial stability, which complements monetary policy's traditional trade-off between inflation and real activity. The trade-off exists even if monetary policy does not target financial...

The Term Auction Facility (TAF), the first auction-based liquidity initiative by the Federal Reserve during the global financial crisis, was aimed at improving conditions in the dollar money market and bringing down the significantly elevated London interbank offered rate (Libor). The...

Which markets do institutions use to change exposure to credit risk? Using a unique data set of transactions in corporate bonds and credit default swaps (CDS) by large financial institutions, we show that simultaneous transactions in both markets are rare, with an average institution having an...