G - Financial Economics

• Financial Crisis Resolution

  Staff Working Paper 2012-42 Josef Schroth

  This paper studies a dynamic version of the Holmstrom-Tirole model of intermediated finance. I show that competitive equilibria are not constrained efficient when the economy experiences a financial crisis. A pecuniary externality entails that banks’ desire to accumulate capital over time aggravates the scarcity of informed capital during the financial crisis.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial system regulation and policies JEL Code(s): D, D5, D53, E, E6, E60, G, G0, G01, G1, G10, G18

• Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy

  Staff Working Paper 2012-41 Jean-Sébastien Fontaine

  Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13

• Consumer Interest Rates and Retail Mutual Fund Flows

  Staff Working Paper 2012-39 Jesus Sierra

  This paper documents a link between the real and financial sides of the economy. We find that retail equity mutual fund flows in Canada are negatively related to current and past changes in a component of the prime and 5-year mortgage rates that is uncorrelated with government rates.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial services, Interest rates JEL Code(s): G, G2, G21, G23

• Liquidity and Central Clearing: Evidence from the CDS Market

  Staff Working Paper 2012-38 Joshua Slive, Jonathan Witmer, Elizabeth Woodman

  An international initiative to increase the use of central clearing for OTC derivatives emerged as one of the reactions to the 2008 financial crisis. The move to central clearing is a fundamental change in the structure of the market.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): G, G3, G30, G38