NBER Publications by Kinda Cheryl Hachem

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December 2016Relationship Lending and the Great Depression: Measurement and New Implications
with Jon Cohen, Gary Richardson: w22891
The Great Depression remains ground zero for studying the non-monetary effects of financial crises. Despite the abundant scholarship on the period, lack of disaggregated data on lending activities has constrained our ability to measure the impact on the real economy of a collapse in long-term lending relationships. We propose here a novel way to extract cross-sectional differences in relationship lending from geographically aggregated financial statements. We find that the banking crises of the early 1930s, by destroying these relationships and the soft yet crucial information garnered from them, explain one-eighth of the economic contraction observed during the Depression. This effect comes specifically from small bank failures which alone explain one-third of the Depression. Large bank f...
January 2016Liquidity Regulation and Unintended Financial Transformation in China
with Zheng Michael Song: w21880
China increased bank liquidity standards in the late 2000s. The interbank market became tighter and more volatile and credit soared, contrary to expectations. To explain this, we argue that shadow banking developed among ChinaŹ¼s small and medium-sized banks to evade the higher liquidity standards. The shadow banks, which were not subject to interest rate ceilings on traditional bank deposits, then poached deposits from big commercial banks. In response, big banks used their substantial interbank market power to restrict credit to the shadow banks and increased their lending to non-financials. A calibration of our unified framework generates a quantitatively important credit boom and higher and more volatile interbank interest rates as unintended consequences of higher liquidity standards.
August 2014Resource Allocation and Inefficiency in the Financial Sector
I analyze whether banks are efficient at allocating resources across intermediation activities. Competition between lenders means that resources are needed to draw borrowers into credit matches. At the same time, imperfect information between lenders and borrowers means that resources are also needed for screening. I show that the privately optimal allocation of resources is constrained inefficient. In particular, too many resources are spent on getting rather than vetting borrowers but, once properly vetted, not enough matches are retained. Uninformed lending is thus inefficiently high, informed lending is inefficiently low, and a tax on matching activities helps remedy the situation.
May 2014Inflation Announcements and Social Dynamics
with Jing Cynthia Wu: w20161
We propose a new framework for understanding the effectiveness of central bank announcements when firms have heterogeneous inflation expectations. Expectations are updated through social dynamics and, with heterogeneity, not all firms choose to operate, putting downward pressure on realized inflation. Our model predicts that announcing an abrupt target to disinflate will cause inflation to undershoot the target whereas announcing gradual targets will not. We present new empirical evidence that corroborates this prediction. The same model also rationalizes why countries stuck at the zero lower bound have had a hard time increasing inflation without being aggressive.

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