December 2011
15 posts
Our Graph of the Year
U.S. Treasury
The impact of recent central bank asset purchase ...
Source: BIS
Fed’s Once-Secret Data Released to Public →
Bloomberg’s coverage of the Fed emergency crisis lending has been particularly inept and this is a slightly better and clearer take.
Shadow Banking: USA vs EZ
green line: banks
red line: shadow banks
Saving Imbalances and the Euro Area Sovereign Debt... →
For several years prior to 2010, countries in the euro area periphery engaged in heavy borrowing from foreign private investors, allowing domestic spending to outpace incomes. Now these countries face debt crises reflecting a loss of investor confidence in the sustainability of their finances. The result has been an abrupt halt in private foreign lending to these economies. This study explains how...
Central Bank Imbalances in the Euro Area →
The euro area sovereign debt crisis sparked an outflow of bank deposits from countries in the periphery to commercial banks in Germany and other core countries. The outflow highlighted a key aspect of the payments system linking national central banks in euro area countries. In particular, net outflows from private commercial banks in a given country are matched by credits to that county’s central...
Gresham’s law of collateral →
When considering central bank financing, commercial bankers compare the cost of central bank liquidity to alternative sources of funding using the same form of collateral. The availability of market funding, as well as the types of assets held and the liquidity position of commercial banks, are key factors in the determination of their bidding behavior. As a rule, treasurers strive to place with...
Liquidity and Congestion →
This paper studies the relationship between the endogenous arrival of investors to a market and liquidity in a search-based model of asset trading. Entry of investors causes two contradictory effects. First, it reduces trading costs, which attracts new investors (the externality effect). But second, as investors concentrate on one side of the market, the market becomes “congested,” decreasing the...
The impact of recent central bank asset purchase... →
This article analyses the effectiveness of the asset purchase programmes implemented by the Federal Reserve and the Bank of England. Both the Federal Reserve’s Large-Scale Asset Purchase (LSAP) programme and the Bank of England’s Asset Purchase Facility (APF) had a significant impact on financial markets when the first stages were announced, but the effects became smaller for later...
From Professor Wray
This:
“We had a liquidity crisis that could have been resolved in the normal way, through lending by the Fed without limit, to all financial institutions, and without collateral.”
Simulation of Italian debt service costs
(Extract from page 5 of BIS Quarterly Review, December 2011)
This box describes the estimation of Italian government debt service costs in various yield curve scenarios. The baseline yield curve uses the average issuance cost prevailing in the first half of 2007, before the global financial crisis erupted. Two scenarios shift the entire baseline yield curve up by 200 and 500 basis points,...
FX strategies in periods of distress →
This article presents an overview of widely practised short-term multicurrency investment strategies such as carry trade, momentum and term spread strategies. We provide evidence on their downside risk properties and illustrate their performance over historical episodes of financial market turmoil. We show that the strategies exhibit substantial tail risks and that they do not perform uniformly...
Euro area sovereign crisis drives global financial... →
News on the euro area sovereign debt crisis drove most developments in global financial markets between early September and the beginning of December. Amid downgrades and political uncertainty, market participants demanded higher yields on Italian and Spanish government debt. Difficulties in meeting fiscal targets in a recessionary environment weighed on prices of Greek and Portuguese sovereign...
“…I do think L. Randall Wray and some of this MMT garbage is some of the...”
– More on those secret Federal Reserve loans to banks (comment section) [econobrowser]
Fed "Secret" Loans
The difference between “Not Term Adjusted” and “Term Adjusted” makes these “secret” loans look 14 times larger. “Not Term Adjusted” means that a bank borrowing $1 billion overnight for a year counts as having borrowed $365 billion, while under “Term Adjusted” it would count as $1 billion, same as if it had borrowed $1 billion for a year....