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14 posts from February 2014

February 10, 2014

The Transformation of Banking: Tying Loan Interest Rates to Borrowers' Credit Default Swap Spreads

João A. C. Santos

Banks’ practice of tying loan interest rates to borrowers’ credit default swap (CDS) spreads constitutes one of the most recent financial innovations. In this post, I discuss evidence from a research project, undertaken with Ivan Ivanov and Thu Vo, showing that this practice has lowered the cost of bank credit. I also discuss some potential drawbacks of this innovation.

Continue reading "The Transformation of Banking: Tying Loan Interest Rates to Borrowers' Credit Default Swap Spreads" »

Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Markets | Permalink | Comments (1)

February 07, 2014

Crisis Chronicles: The Commercial Credit Crisis of 1763 and Today’s Tri-Party Repo Market

James Narron and David Skeie

During the economic boom and credit expansion that followed the Seven Years’ War (1756-63), Berlin was the equivalent of an emerging market, Amsterdam’s merchant bankers were the primary sources of credit, and the Hamburg banking houses served as intermediaries between the two. But some Amsterdam merchant bankers were leveraged far beyond their capacity. When a speculative grain deal went bad, the banks discovered that there were limits to how much risk could be effectively hedged. In this issue of Crisis Chronicles, we review how “fire sales” drove systemic risk in funding markets some 250 years ago and explain why this could still happen in today’s tri-party repo market.

Continue reading "Crisis Chronicles: The Commercial Credit Crisis of 1763 and Today’s Tri-Party Repo Market" »

Posted by Blog Author at 7:00 AM in Credit, Crisis, Crisis Chronicles , Fed Funds, Inflation | Permalink | Comments (5)

February 05, 2014

Comparing U.S. and Euro Area Unemployment Rates

Thomas Klitgaard and Richard Peck

Euro area growth has been stalled since 2010, mired in the sovereign debt crisis, while the United States has managed a slow but steady recovery following the Great Recession. Euro area and U.S. labor markets reflect these differing growth paths. While unemployment rates in the euro area and the United States were both around 10 percent in 2010, the unemployment rate in the euro area has since increased to 12.0 percent, and the U.S. rate has fallen to 6.7 percent. However, the outperformance of the U.S. labor market as measured by unemployment rates is overstated. Employment relative to the population has declined in the euro area, but the divergence of this measure from that of the United States is more modest than suggested by unemployment rates. The difference is that, unlike in the United States, the share of women in the euro area labor force is increasing, and that development accounts for roughly half of the current gap between unemployment rates in the two economies.

Continue reading "Comparing U.S. and Euro Area Unemployment Rates" »

Posted by Blog Author at 7:00 AM in International Economics, Labor Economics | Permalink | Comments (0)

February 03, 2014

A Mis-Leading Labor Market Indicator

Samuel Kapon and Joseph Tracy

The unemployment rate is a popular measure of the condition of the labor market. With the Great Recession, the unemployment rate increased from a low of 4.4 percent in March 2007 to a peak of 10.0 percent in October 2009. As the economy recovered and growth resumed, the unemployment rate has fallen to 6.7 percent. What other measures are useful to supplement our understanding of the degree of the labor market recovery?

Continue reading "A Mis-Leading Labor Market Indicator" »

Posted by Blog Author at 12:00 PM in Employment, Labor Economics, Labor Market, Macroecon, Unemployment | Permalink | Comments (18)

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