Consumer Attitudes and the Epidemiology of Inflation Expectations Staff Working Paper 2014-28 Michael Ehrmann, Damjan Pfajfar, Emiliano Santoro This paper studies the formation of consumers’ inflation expectations using micro-level data from the Michigan Survey. It shows that beyond the well-established socio-economic determinants of inflation expectations such as gender, income or education, other characteristics such as the households’ financial situation and their purchasing attitudes also matter. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices JEL Code(s): C, C5, C53, D, D8, D84, E, E3, E31
Filling in the Blanks: Network Structure and Interbank Contagion Staff Working Paper 2014-26 Kartik Anand, Ben Craig, Goetz von Peter The network pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C6, C63, D, D8, D85, G, G2, G21, L, L1, L14
Uncertain Costs and Vertical Differentiation in an Insurance Duopoly Staff Working Paper 2014-14 Radoslav Raykov Classical oligopoly models predict that firms differentiate vertically as a way of softening price competition, but some metrics suggest very little quality differentiation in the U.S. auto insurance market. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Market structure and pricing JEL Code(s): D, D4, D43, D8, D81, G, G2, G22, L, L2, L22
Do Sunspots Matter? Evidence from an Experimental Study of Bank Runs Staff Working Paper 2014-12 Jasmina Arifovic, Janet Hua Jiang A "sunspot" is a variable that has no direct impact on the economy’s fundamental condition, such as preferences, endowments or technologies, but may nonetheless affect economic outcomes through the expectations channel as a coordination device. This paper investigates how people react to sunspots in the context of a bank-run game in a controlled laboratory environment. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability JEL Code(s): C, C9, C91, C92, D, D8, D80, E, E5, E58, G, G2, G20
Macroeconomic Experiences and Risk Taking of Euro Area Households Staff Working Paper 2014-10 Miguel Ampudia, Michael Ehrmann This paper studies to what extent the experiences of households shape their willingness to take financial risks. It follows the methodology of Malmendier and Nagel (2011) and applies it to a novel data set on household finances covering euro area households. Content Type(s): Staff research, Staff working papers Topic(s): Sectoral balance sheet JEL Code(s): D, D0, D03, D1, D14, D8, D83, G, G1, G11
Expectations and Monetary Policy: Experimental Evidence Staff Working Paper 2013-44 Oleksiy Kryvtsov, Luba Petersen The effectiveness of monetary policy depends, to a large extent, on market expectations of its future actions. In a standard New Keynesian business-cycle model with rational expectations, systematic monetary policy reduces the variance of inflation and the output gap by at least two-thirds. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Monetary policy implementation, Monetary policy transmission JEL Code(s): C, C9, D, D8, D84, E, E3, E5, E52
The Safety of Government Debt Staff Working Paper 2013-34 Kartik Anand, Prasanna Gai We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial stability, International financial markets JEL Code(s): D, D8, D81, E, E4, E44, F, F0, F02, F4, F41, G, G1, G15
The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk Staff Working Paper 2013-31 Philipp König, Kartik Anand, Frank Heinemann Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are crucially intertwined with the sovereign’s funding risks. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): D, D8, D89, G, G0, G01, G2, G28
The Threat of Counterfeiting in Competitive Search Equilibrium Staff Working Paper 2013-22 Enchuan Shao Recent studies in monetary theory show that if buyers can use lotteries to signal the quality of bank notes, counterfeiting does not occur in a pooling equilibrium. In this paper, I investigate the robustness of this non-existence result by considering an alternative trading mechanism. Content Type(s): Staff research, Staff working papers Topic(s): Bank notes JEL Code(s): D, D8, D82, D83, E, E4, E42
Are Sunspots Learnable? An Experimental Investigation in a Simple General-Equilibrium Model Staff Working Paper 2013-14 Jasmina Arifovic, George Evans, Olena Kostyshyna We conduct experiments with human subjects in a model with a positive production externality in which productivity is a non-decreasing function of the average level of employment of other firms. Content Type(s): Staff research, Staff working papers Topic(s): Economic models JEL Code(s): D, D8, D83, G, G2, G20