NBER Working Papers and Publications
|December 2016||Relationship Lending and the Great Depression|
with Jon Cohen, Gary Richardson: w22891
The collapse of long-term lending relationships amplified the Great Depression and perturbed recovery. We demonstrate this by developing a new measure of lending relationships that can be calculated from widely available data at any level of aggregation. Our approach exploits differences in the responsiveness of loan rates to bank funding costs and is supported by historical evidence and theoretical arguments. The new measure reveals that bank suspensions’ marginal impact on economic activity in the early 1930s was higher in more relationship-intensive areas. Furthermore, the rebuilding of destroyed relationships helps explain regional variation in economic performance during the 1937-38 recession.
|January 2016||Liquidity Regulation and Unintended Financial Transformation in China|
with Zheng Michael Song: w21880
We trace the origins of China's rapidly developing shadow banking sector to the adoption of stricter liquidity rules by Chinese regulators in the late 2000s. Our analysis exploits cross-sectional di¤erences in the bindingness of these rules along with time variation in product characteristics. We also discuss alternative hypotheses for the rise of shadow banking in China and explain why these hypotheses cannot account for the origins of the system.
|August 2014||Resource 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 2014||Inflation 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 rationalizes why countries stuck at the zero lower bound have had a hard time increasing inflation without being aggressive. The same model also 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.
Published: KINDA HACHEM & JING CYNTHIA WU, 2017. "Inflation Announcements and Social Dynamics," Journal of Money, Credit and Banking, vol 49(8), pages 1673-1713. citation courtesy of