Summary

Monetary Policy, Redistribution, and Risk Premia
Author(s):
Rohan Kekre, University of Chicago
Moritz Lenel, Princeton University
Discussant(s):
Stavros Panageas, University of California, Los Angeles and NBER
Summary:

Kekre and Lenel study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in risk aversion, constraints, rules of thumb, background risk, and beliefs relevant for portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to investment. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks.

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Aggregate Dynamics in Lumpy Economies
Author(s):
Andres Blanco, University of Michigan
Isaac Baley, Universitat Pompeu Fabra
Discussant(s):
Fernando E. Alvarez, University of Chicago and NBER
Summary:

In economies with lumpy microeconomic adjustment, Blanco and Baley establish structural relationships between the dynamics of the cross-sectional distribution of agents and its steady-state counterpart and discipline these relationships using micro data. Applying the methodology to firm lumpy investment, the researchers discover that the dynamics of aggregate capital are structurally linked to two cross-sectional moments of the capital-to-productivity ratio: its dispersion and its covariance with the time elapsed since the last adjustment. The researchers compute these sufficient statistics using plant-level data on the size and frequency of investments. They find that, in order to explain investment dynamics, the benchmark model with fixed adjustment costs must also feature a precise combination of irreversibility and random opportunities of free adjustment.

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The Limits of Shadow Banks
Author(s):
Greg Buchak, Stanford University
Gregor Matvos, Northwestern University and NBER
Tomasz Piskorski, Columbia University and NBER
Amit Seru, Stanford University and NBER
Discussant(s):
Matteo Benetton, University of California at Berkeley
Summary:

Buchak, Matvos, Piskorski, and Seru study which types of activities migrate to the shadow banking sector, why migration occurs in some sectors, and not others, and the quantitative importance of this migration. They explore this question in the $10 trillion US residential mortgage market, in which shadow banks account for more than half of new lending. Using micro data, the researchers document a large degree of market segmentation in shadow bank penetration. They substitute for traditional — deposit taking — banks in easily securitized lending, but are limited from engaging in activities requiring on-balance sheet financing. Traditional banks adjust their financing and lending activities to balance sheet shocks, and behave more like shadow banks following negative shocks. Motivated by this evidence, the researchers build a structural model. Banks and shadow banks compete for borrowers. Banks face regulatory constraints, but benefit from the ability to engage in balance sheet lending. Like shadow banks, banks can choose to access the securitization market. To evaluate distributional consequences, the researchers model a rich demand system with income and house price differences across borrowers. The model is estimated using spatial pricing rules and bunching at the regulatory threshold for identification. The researchers study the consequences of capital requirements, access to securitization market, and unconventional monetary policy on lending volume and pricing, bank stability and the distribution of consumer surplus across rich and poor households. Disruptions in securitization markets rather than capital requirements have the largest quantitative impact on aggregate lending volume and pricing.

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In addition to the conference paper, the research was distributed as NBER Working Paper w25149, which may be a more recent version.

No Job, No Money, No Refi: Frictions to Refinancing in a Recession
Author(s):
Anthony A. DeFusco, Northwestern University
John A. Mondragon, Federal Reserve Bank of San Francisco
Discussant(s):
Emily Williams, Harvard University
Summary:

DeFusco and Mondragon study how employment documentation requirements and out-of-pocket closing costs constrain mortgage refinancing. These frictions, which bind most severely during recessions, may significantly inhibit monetary policy pass-through. To study their effects on refinancing, the researchers exploit an FHA policy change that excluded unemployed borrowers from refinancing and increased others' out-of-pocket costs substantially. These changes dramatically reduced refinancing rates, particularly among the likely unemployed and those facing new out-of-pocket costs. The results imply that unemployed and liquidity constrained borrowers have a high latent demand for refinancing. Cyclical variation in these factors may therefore affect both the aggregate and distributional consequences of monetary policy.

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A Model of Intermediation, Money, Interest, and Prices
Author(s):
Saki Bigio, University of California, Los Angeles and NBER
Yuliy Sannikov, Stanford University
Discussant(s):
Monika Piazzesi, Stanford University and NBER
Summary:

A model integrates a modern implementation of monetary policy (MP) into an incompletemarkets monetary economy. Policy sets corridor rates and conducts open-market operations and fiscal transfers. These tools grant independent control over credit spreads and inflation. Bigio and Sannikov study the implementation of spreads and inflation via different MP instruments. Through its influence on spreads, MP affects the evolution of real credit, interests, output, and wealth distribution (both in the long and the short run). The researchers decompose effects through different transmission channels. They study the optimal spread management and find that the active management of spreads is a desirable target.

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Macro Skewness and Conditional Second Moments: Evidence and Theories
Author(s):
Ian Dew-Becker, Northwestern University and NBER
Alireza Tahbaz-Salehi, Northwestern University
Andrea Vedolin, Boston University and NBER
Discussant(s):
David Baqaee, University of California, Los Angeles and NBER
Summary:

Dew-Becker, Tahbaz-Salehi, and Vedolin establish four facts about skewness and conditional volatility in the economy: (1) aggregate activity is negatively skewed; (2) sector activity is negatively skewed, but less than aggregate; (3) the cross-sectional variance of output growth is countercyclical; (4) when a sector shrinks, it subsequently covaries more with other sectors. Those facts can all be generated qualitatively and quantitatively by a multisector equilibrium model with the key feature that production inputs are gross complements. Three alternative models that have been proposed to generate skewness and stochastic volatility are unable to simultaneously match all four facts even qualitatively.

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