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Articles 721 - 750 of 3476
Full-Text Articles in Economics
The Rescue Of American International Group Module Z: Overview, Rosalind Z. Wiggins, Aidan Lawson, Steven Kelly, Lily S. Engbith, Andrew Metrick
The Rescue Of American International Group Module Z: Overview, Rosalind Z. Wiggins, Aidan Lawson, Steven Kelly, Lily S. Engbith, Andrew Metrick
Journal of Financial Crises
In September 2008, in the midst of the broader financial crisis, the Federal Reserve Board of Governors used its emergency authority under Section 13(3) of the Federal Reserve Act to authorize the largest loan in its history, a $85 billion collateralized credit line to American International Group (AIG), a $1 trillion insurance and financial company that was experiencing severe liquidity strains. In connection with the loan, the government received an equity interest representing 79.9% of the company’s ownership. AIG continued to experience a depressed stock price, asset devaluations, and the risk of ratings downgrades leading to questions about its solvency. …
The Rescue Of American International Group Module E: Maiden Lane Iii, Lily S. Engbith, Devyn Jeffereis
The Rescue Of American International Group Module E: Maiden Lane Iii, Lily S. Engbith, Devyn Jeffereis
Journal of Financial Crises
Starting in mid-2007, American International Group (AIG) faced increasing collateral calls from counterparties looking to protect their positions in credit default swap (CDS) contracts that AIG had written on residential and commercial collateralized debt obligations (CDOs) (US COP 2010, 28-30). Per these agreements, the AIG parent company was responsible for insuring the value of the CDOs against the risk of a negative credit event, such as default (GAO 2011, 5; US COP 2010, 29-30). AIG’s immediate need for liquidity on September 16, largely driven by a securities lending program and those collateral calls, prompted the Federal Reserve to lend the …
The Rescue Of American International Group Module D: Maiden Lane Ii, Lily S. Engbith, Devyn Jeffereis
The Rescue Of American International Group Module D: Maiden Lane Ii, Lily S. Engbith, Devyn Jeffereis
Journal of Financial Crises
In September 2008, American International Group (AIG) faced increasing difficulty in returning cash collateral to counterparties looking to terminate, rather than roll over, their securities lending agreements, in part because the company had invested the collateral in residential mortgage-backed securities (RMBS), which were becoming illiquid. The Federal Reserve Bank of New York (FRBNY) provided liquidity to the company, including through the Securities Borrowing Facility (SBF), which allowed for the repayment of cash collateral but did not address the falling values of the RMBS. In November 2008, the Federal Reserve Board authorized the creation of Maiden Lane II (ML II), a …
The Rescue Of American International Group Module C: Aig Investment Program, Alec Buchholtz, Aidan Lawson
The Rescue Of American International Group Module C: Aig Investment Program, Alec Buchholtz, Aidan Lawson
Journal of Financial Crises
In September 2008, the Federal Reserve Bank of New York (FRBNY) extended an $85 billion credit line to AIG to address its liquidity stresses, but AIG’s balance sheet remained under pressure. The insurance giant was projected to report large third-quarter losses and was at risk of being downgraded by major credit rating agencies. For these reasons, in early November 2008, the US Treasury invested $40 billion of Troubled Assets Relief Program (TARP) funds into AIG in exchange for 4 million shares of AIG Series D preferred stock and a warrant to purchase AIG common stock. The investment helped repay a …
The Rescue Of American International Group Module B: The Securities Borrowing Facility, Lily S. Engbith, Alec Buchholtz, Devyn Jeffereis
The Rescue Of American International Group Module B: The Securities Borrowing Facility, Lily S. Engbith, Alec Buchholtz, Devyn Jeffereis
Journal of Financial Crises
In 2008, American International Group (AIG) was among the largest insurance corporations in the world and maintained a profitable securities lending program. However, AIG invested much of the cash collateral received from counterparties in residential mortgage-backed securities, whose value began to collapse rapidly and unexpectedly, creating liquidity strain for AIG when borrowers returned their securities. Because of these strains, credit downgrades, and losses, in September, the company sought assistance from the Federal Reserve which, on October 6, 2008, approved the establishment of the Securities Borrowing Facility by the Federal Reserve Bank of New York (FRBNY). The FRBNY agreed to loan …
Stress Tests And Policy, Greg Feldberg, Andrew Metrick
Stress Tests And Policy, Greg Feldberg, Andrew Metrick
Journal of Financial Crises
Ten years after the Federal Reserve’s crisis-era bank stress test, it is time to recalibrate the stress tests for “peacetime.” Outside of a crisis, supervisors should tailor stress tests to focus on their comparative advantages by taking a macroprudential focus, with severe scenarios that enable them to learn about emerging risks in both traditional and shadow banking sectors. In peacetime, also, supervisors should emphasize risk- management practices and be wary of forcing rapid changes in capital levels for individual banks, while linking stress-test results with countercyclical capital buffers across the system.
Measuring The U.S. Employment Situation Using Online Panels: The Yale Labor Survey, Christopher Foote, Tyler Hounshell, William D. Nordhaus, Douglas Rivers, Pamela Torola
Measuring The U.S. Employment Situation Using Online Panels: The Yale Labor Survey, Christopher Foote, Tyler Hounshell, William D. Nordhaus, Douglas Rivers, Pamela Torola
Cowles Foundation Discussion Papers
This study presents the design and results of a rapid-fire survey that collects labor market data for individuals in the United States. The purpose is to test online panels for their application to social, economic, and demographic information as well as to apply this approach to the U.S. labor market. The Yale Labor Survey (YLS) used an online panel from YouGov to replicate statistics from the Current Population Survey (CPS), the government’s official source of household labor market statistics. The YLS’s advantages included its timeliness, low cost, and ability to develop new questions quickly to study unusual labor market patterns …
Curse Of Democracy: Evidence From 2020, Yusuke Narita, Ayumi Sudo
Curse Of Democracy: Evidence From 2020, Yusuke Narita, Ayumi Sudo
Cowles Foundation Discussion Papers
Countries with more democratic political regimes experienced greater GDP loss and more deaths from Covid-19 in 2020. Using five different instrumental variable strategies, we find that democracy is a major cause of the wealth and health losses. This impact is global and is not driven by China and the US alone. A key channel for democracy’s negative impact is weaker and narrower containment policies at the beginning of the outbreak, not the speed of introducing policies.
Distributional Impacts Of Retail Vaccine Availability, Judith A. Chevalier, Jason L. Schwartz, Yihua Su, Kevin R. Williams
Distributional Impacts Of Retail Vaccine Availability, Judith A. Chevalier, Jason L. Schwartz, Yihua Su, Kevin R. Williams
Cowles Foundation Discussion Papers
We examine the potential for exploiting retailer location choice in targeting health interventions. Using geospatial data, we quantify proximity to vaccines created by a U.S. federal program distributing COVID-19 vaccines to commercial retail pharmacies. We assess the distributional impacts of a proposal to provide vaccines at Dollar General, a low-priced general merchandise retailer. Adding Dollar General to the federal program would substantially decrease the distance to vaccine sites for low-income, rural, and minority U.S. households, groups for which COVID-19 vaccine take-up has been disproportionately slow.
Returns To International Migration: Evidence From A Bangladesh-Malaysia Visa Lottery, Ahmed Mushfiq Mobarak, Iffath A. Sharif, Maheshwor Shrestha
Returns To International Migration: Evidence From A Bangladesh-Malaysia Visa Lottery, Ahmed Mushfiq Mobarak, Iffath A. Sharif, Maheshwor Shrestha
Discussion Papers
We follow 3,512 (of 1.4 million) applicants to a government lottery that randomly allocated visas to Bangladeshis for low-skilled, temporary labor contracts in Malaysia. Most lottery winners migrate, and their remittance substantially raises their family’s standard of living in Bangladesh. The migrant’s absence pauses demographic changes (marriage, childbirth, household formation), and shifts decision-making power towards females. Migration removes enterprising individuals, lowering household entrepreneurship, but does not crowd out other family members’ labor supply. One group of applicants were offered deferred migration that never materialized. Improved migration prospects induce pre-migration investments in skills that generate no returns in the domestic market.
Slippery Fish: Enforcing Regulation When Agents Learn And Adapt, Andres Gonzalez Lira, Ahmed Mushfiq Mobarak
Slippery Fish: Enforcing Regulation When Agents Learn And Adapt, Andres Gonzalez Lira, Ahmed Mushfiq Mobarak
Discussion Papers
Attempts to curb undesired behavior through regulation gets complicated when agents can adapt to circumvent enforcement. We test a model of enforcement with learning and adaptation, by auditing vendors selling illegal fish in Chile in a randomized controlled trial, and tracking them daily using mystery shoppers. Conducting audits on a predictable schedule and (counter-intuitively) at high frequency is less effective, as agents learn to take advantage of loopholes. A consumer information campaign proves to be almost as cost-effective and curbing illegal sales, and obviates the need for complex monitoring and policing. The Chilean government subsequently chooses to scale up this …
Retrospective Voting Versus Risk-Aversion Voting, Ray C. Fair
Retrospective Voting Versus Risk-Aversion Voting, Ray C. Fair
Cowles Foundation Discussion Papers
According to retrospective voting a bad economy hurts the incumbent party and vice versa. According to risk-aversion voting a bad economy favors the Democrats over the Republicans and vice versa. This paper provides a test of both theories and rejects risk-aversion voting.
Retrospective Voting Versus Risk-Aversion Voting: A Comment On Pástor And Veronesi (2020), Ray C. Fair
Retrospective Voting Versus Risk-Aversion Voting: A Comment On Pástor And Veronesi (2020), Ray C. Fair
Cowles Foundation Discussion Papers
According to retrospective voting, a bad economy hurts the incumbent party and vice versa. According to risk-aversion voting as discussed in Pástor and Veronesi (2020), high risk aversion favors the Democrats over the Republicans and vice versa. If high risk aversion is associated with a bad economy, then risk-aversion voting implies that a bad economy favors the Democrats and vice versa. The two theories thus have different implications for the Democrats. This paper tests both theories under the assumption that high risk aversion is associated with a bad economy. The results provide no support for risk-aversion voting under this assumption.
Kant And Lindahl, John E. Roemer, Joaquim Silvestre
Kant And Lindahl, John E. Roemer, Joaquim Silvestre
Cowles Foundation Discussion Papers
Wicksell (1896) and Lindahl (1919) analyzed the public provision of public goods through parliamentary negotiation. Roemer (2010, 2019) applied Kant’s (1785) categorical imperative to the private provision of public goods by voluntary contributions. They coincide in yielding efficient outcomes. Our focal equilibrium notions are the Multiplicative Kantian Equilibrium in the Kant-Roemer modelling and the Balanced Linear Cost Share Equilibrium for the Wicksell-Lindahl approach. It turns out that both are defined by the same individual optimization problem, and that costs are distributed according to marginal valuation, what we call the Lindahl Ratio. More general versions of the Wicksell-Lindahl and Kant-Roemer models …
Are Stock Returns And Output Growth Higher Under Democrats?, Ray C. Fair
Are Stock Returns And Output Growth Higher Under Democrats?, Ray C. Fair
Cowles Foundation Discussion Papers
Recent literature suggests that both stock returns and economic growth are significantly higher under Democratic presidential administrations. This is a puzzle in that persistent differences in stock returns seem unlikely in efficient markets, and it is not obvious why Democrats should do better. Often these kinds of results go away upon further analysis or more data, and this appears to be true in the present case. In this paper the sample is extended to 27 administrations, from Wilson-1 through Trump. While the mean stock return under the Democrats is generally higher, none of the differences in means are significant at …
Survival Pessimism And The Demand For Annuities, Cormac O'Dea, David Sturrock
Survival Pessimism And The Demand For Annuities, Cormac O'Dea, David Sturrock
Cowles Foundation Discussion Papers
The “annuity puzzle” refers to the fact that annuities are rarely purchased despite the longevity insurance they provide. Most explanations for this puzzle assume that individuals have accurate expectations about their future survival. We provide evidence that individuals misperceive their mortality risk, and study the demand for annuities in a setting where annuities are priced by insurers on the basis of objectively-measured survival probabilities but in which individuals make purchasing decisions based on their own subjective survival probabilities. Subjective expectations have the capacity to explain significant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle.
Is Habit A Powerful Policy Instrument To Induce Prosocial Behavioral Change?, Johann Caro-Burnett, Judith A. Chevalier, Ahmed Mushfiq Mobarak
Is Habit A Powerful Policy Instrument To Induce Prosocial Behavioral Change?, Johann Caro-Burnett, Judith A. Chevalier, Ahmed Mushfiq Mobarak
Cowles Foundation Discussion Papers
Recent literature suggests the power of interventions to change habits. In a dense slum in Nairobi, we adopt best practices from the habit literature to encourage toilet use instead of alternatives that damage community health. Offering subsidies increased toilet usage, effects continue for one month after discounts end, but erode thereafter. Treatments designed to induce habit formation (marketing, time-limited discounts encouraging repetition, discounts for longer periods, targeting `habitual types’) generated no greater persistence. We see some persistent behavior change due to learning about the new toilet option. It appears difficult to induce pro-social behavior without private benefits through habit change.
Welfare Comparisons For Biased Learning, Mira Frick, Ryota Iijima, Yuhta Ishii
Welfare Comparisons For Biased Learning, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
We study robust welfare comparisons of learning biases, i.e., deviations from correct Bayesian updating. Given a true signal distribution, we deem one bias more harmful than another if it yields lower objective expected payoffs in all decision problems. We characterize this ranking in static (one signal) and dynamic (many signals) settings. While the static characterization compares posteriors signal-by-signal, the dynamic characterization employs an “efficiency index” quantifying the speed of belief convergence. Our results yield welfare-founded quantifications of the severity of well-documented biases. Moreover, the static and dynamic rankings can conflict, and “smaller” biases can be worse in dynamic settings.
Welfare Comparisons For Biased Learning, Mira Frick, Ryota Iijima, Yuhta Ishii
Welfare Comparisons For Biased Learning, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
We study robust welfare comparisons of learning biases, i.e., deviations from correct Bayesian updating. Given a true signal distribution, we deem one bias more harmful than another if it yields lower objective expected payoffs in all decision problems. We characterize this ranking in static (one signal) and dynamic (many signals) settings. While the static characterization compares posteriors signal-by-signal, the dynamic characterization employs an “efficiency index” quantifying the speed of belief convergence. Our results yield welfare-founded quantifications of the severity of well-documented biases. Moreover, the static and dynamic rankings can disagree, and “smaller” biases can be worse in dynamic settings.
Panel Threshold Regression With Unobserved Individual-Specific Threshold Effects, Ping Yu, Peter C. B. Phillips, Shengjie Hong
Panel Threshold Regression With Unobserved Individual-Specific Threshold Effects, Ping Yu, Peter C. B. Phillips, Shengjie Hong
Cowles Foundation Discussion Papers
This paper studies the estimation and inferences in panel threshold regression with unobserved individual-specific threshold effects which is important from the practical perspective and is a distinguishing feature from traditional linear panel data models. It is shown that the within-regime differencing in the static model or the within-regime first-differencing in the dynamic model cannot generate consistent estimators of the threshold, so the correlated random effects models are suggested to handle the endogeneity in such general panel threshold models. We provide a unified estimation and inference framework that is valid for both the static and dynamic models and regardless of whether …
Optimal Information Disclosure In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris, Constantine Sorokin, Eyal Winter
Optimal Information Disclosure In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris, Constantine Sorokin, Eyal Winter
Cowles Foundation Discussion Papers
We characterize the revenue-maximizing information structure in the second price auction. The seller faces a classic economic trade-o¤: providing more information improves the efficiency of the allocation but also creates higher information rents for bidders. The information disclosure policy that maximizes the revenue of the seller is to fully reveal low values (where competition will be high) but to pool high values (where competition will be low). The size of the pool is determined by a critical quantile that is independent of the distribution of values and only dependent on the number of bidders. We discuss how this policy provides …
A Characterization For Optimal Bundling Of Products With Inter-Dependent Values, Soheil Ghili
A Characterization For Optimal Bundling Of Products With Inter-Dependent Values, Soheil Ghili
Cowles Foundation Discussion Papers
This paper studies optimal bundling of products with inter-dependent values. I show that, under some conditions, a firm optimally chooses to sell only the full bundle of a given set of products if and only if the optimal sales volume of the full bundle is larger than the optimal sales volume for any smaller bundle. I then provide an interpretation of this characterization based on (i) the magnitude of the variation across consumers in how complementary they find different products, and (ii) how this variation correlates with price sensitivity.
Bayesian Persuasion With Lie Detection, Florian Ederer, Weicheng Min
Bayesian Persuasion With Lie Detection, Florian Ederer, Weicheng Min
Cowles Foundation Discussion Papers
We consider a model of Bayesian persuasion in which the Receiver can detect lies with positive probability. We show that the Sender lies more when the lie detection probability increases. As long as the lie detection probability is sufficiently small the Sender's and the Receiver's equilibrium payoffs are unaffected by the lie detection technology because the Sender simply compensates by lying more. When the lie detection probability is sufficiently high, the Sender's (Receiver's) equilibrium payoff decreases (increases) with the lie detection probability.
Trade And Informality In The Presence Of Labor Market Frictions And Regulations, Rafael Dix-Carneiro, Pinelopi K. Goldberg, Costas Meghir, Gabriel Ulyssea
Trade And Informality In The Presence Of Labor Market Frictions And Regulations, Rafael Dix-Carneiro, Pinelopi K. Goldberg, Costas Meghir, Gabriel Ulyssea
Cowles Foundation Discussion Papers
We build an equilibrium model of a small open economy with labor market frictions and imperfectly enforced regulations. Heterogeneous firms sort into the formal or informal sector. We estimate the model using data from Brazil, and use counterfactual simulations to understand how trade affects economic outcomes in the presence of informality. We show that: (1) Trade openness unambiguously decreases informality in the tradable sector, but has ambiguous effects on aggregate informality. (2) The productivity gains from trade are understated when the informal sector is omitted. (3) Trade openness results in large welfare gains even when informality is repressed. (4) Repressing …
Consumer Information And The Limits To Competition, Mark Armstrong, Jidong Zhou
Consumer Information And The Limits To Competition, Mark Armstrong, Jidong Zhou
Cowles Foundation Discussion Papers
This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which induce pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal policy amplifies underlying product differentiation, thereby relaxing competition, while ensuring consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal policy dampens differentiation, which intensifies competition, but induces some consumers to buy their less-preferred product. Our analysis sheds light on the limits to competition when the information possessed by consumers can be designed …
Mixed Bundling In Oligopoly Markets, Jidong Zhou
Mixed Bundling In Oligopoly Markets, Jidong Zhou
Cowles Foundation Discussion Papers
This paper proposes a framework for studying competitive mixed bundling with an arbitrary number of firms. We examine both a firm’s incentive to introduce mixed bundling and equilibrium tariffs when all firms adopt the mixed-bundling strategy. In the duopoly case, relative to separate sales, mixed bundling has ambiguous impacts on prices, profit and consumer surplus; with many firms, however, mixed bundling typically lowers all prices, harms firms and benefits consumers.
Lessons Learned: Ron Borzekowski, Mercedes Cardona, Rosalind Z. Wiggins
Lessons Learned: Ron Borzekowski, Mercedes Cardona, Rosalind Z. Wiggins
Journal of Financial Crises
Ron Borzekowski was a senior economist at the Federal Reserve Board when he was detailed to join the Financial Crisis Inquiry Commission (FCIC) as a senior researcher and later became deputy to research director Greg Feldberg. The 10-member bipartisan commission, charged with investigating and determining the causes of the crisis, held more than 19 hearings, and interviewed more than 700 people from September 2009 to Jan. 2011. It issued a 662-page report explaining why the crisis came about and the roles of financial institutions, government, and the public. This Lessons Learned is based on an interview with Mr.Borzekowski.
Lessons Learned: Greg Feldberg, Sandra Ward, Rosalind Z. Wiggins
Lessons Learned: Greg Feldberg, Sandra Ward, Rosalind Z. Wiggins
Journal of Financial Crises
Greg Feldberg was a senior supervisory financial analyst at the Board of Governors of the Federal Reserve experienced in regulating large banks when he was recruited to the Financial Crisis Inquiry Commission (FCIC) where he worked from 2010-11, becoming its Director of Research. The FCIC was a bipartisan commission charged with investigating the causes of the global financial crisis of 2007-09. Feldberg shared thoughts about some of the challenges faced by the commission and why its report is important. This "Lessons Learned" is based on an interview with Mr. Feldberg.
Lessons Learned: Christopher Seefer, Mercedes Cardona
Lessons Learned: Christopher Seefer, Mercedes Cardona
Journal of Financial Crises
Christopher Seefer was recruited to the Financial Crisis Inquiry Commission (FCIC) to serve as the commission’s director of investigations. The 10-member bipartisan commission wascharged with investigating and determining the cause of the global financial crisis of 2007-09 (GFC). The commission held over 19 hearings and interviewed more than 700 people from September 2010 to January 2011 and produced a662-page report that attempted to explain why the crisis came about and the roles of government and private enterprises in the crisis.This “Lessons Learned” is based on an interview with Mr. Seefer.
Lessons Learned: Gary Cohen, Sandra Ward
Lessons Learned: Gary Cohen, Sandra Ward
Journal of Financial Crises
Gary Cohen joined the Financial Crisis Inquiry Commission (FCIC) in December 2009 to serve as its general counsel at the request of commission chairman Phil Angelides. The FCIC was a 10-member bipartisan group convened by Congress to investigate the causes of the global financial crisis of 2007-09. Cohen had a wide-ranging and ad hoc position that included advising commissioners and staffers on administrative matters and protocols. In addition, he assisted in document requests and compelling witnesses to testify and, on occasion, in conducting interviews and public hearings. He played an instrumental role in editing the commission’s final report. This “Lessons …