News and Commentary
Diego Zuluaga writes at Cato Institute about recent trends in America’s housing finance system. He notes that expected costs for mortgage servicers can differ widely depending on the assumptions one uses and calls for transparency in forecasts to ensure better policy making.
Two non-paper blog posts of interest at CEPR’s Vox regarding the Covid-19 crisis. One discusses panic buying during Covid-19 with an analogy to gold-standard era banking. The author argues that greater transparency by supermarkets proving that supply bottlenecks aren’t coming could deter a run on their stocks and make hoarding no longer a rational individual strategy. The other post compares and contrasts two remedies to financial market volatility, and concludes that circuit breakers are less intrusive than short sale bans but further analysis on equity markets is warranted.
A new NBER paper looks at sovereign bond issuance in emerging markets. It finds among other things that emerging markets with currencies that appreciated before the 2008 crisis were more likely to issue local-currency sovereign bonds.
Another NBER paper was released last month on four types of commercial credit. The authors find that aggregate credit supply shocks appear to be driven by individual loan types, with cash-flow loans driving effects of monetary policy and the previous financial crisis.
An ECB working paper proposes a macro-finance model incorporating both standard and shadow banks when evaluating policy for a liquidity crisis. The authors argue more holistic asset stabilization in countries with large shadow banking sectors would require purchases of different illiquid assets. The authors discuss their paper in a blog post at CEPR’s Vox here.
Another ECB working paper finds that the introduction of negative interest rates lead to riskier investments by many banks in the Euro area. Since a bank that is highly dependent on customer deposits will not pass negative rates down to their customers, it is likely the bank will look for riskier security portfolios to make up the difference. The authors have discussed their findings in a blog post at CEPR’s Vox.