Going NUTS: the regional impact of extreme climate events over the medium term

11/27/2024 European Central Bank Central banks

The projected increase in extreme climate events in the coming decades is likely to exacerbate the existing productivity and demographic challenges facing Europe. We study the dynamic, medium-run macroeconomic effects of heatwaves, droughts and floods in 1160 EU regions through the lens of a local projections, difference in difference framework. Summer heatwaves and droughts lower medium-term output, but the impact from floods depends on regional income levels. High-income regions witness reconstruction activity, less wealthy regions do not.

FEDS Paper: Revisiting Risky Money

11/26/2024 Federal Reserve Central banks

Travis D. NesmithRisk was first incorporated into monetary aggregation over thirty-five years ago, using a stochastic version of the workhorse money-in-the-utility-function model. Nevertheless, the mathematical foundations of this stochastic model remain shaky. To firm the foundations, this paper employs a slightly richer probability concept than standard Borel-measurability, which enables me to prove the existence of a well-behaved solution and to derive stochastic Euler equations.

IFDP Paper: How Does Fiscal Policy affect the Transmission of Monetary Policy into Cross-border Bank Lending? Cross-country Evidence

11/25/2024 Federal Reserve Central banks

Swapan-Kumar Pradhan, Előd Takáts, Judit TemesvaryWe use a rarely accessed BIS database on bilateral cross-border bank claims by bank nationality to examine the interaction of monetary and fiscal policies. We find significant interactions: the transmission of the monetary policies of major currency issuers is significantly influenced by the fiscal stance of source (home) lending banking systems. Fiscal consolidation in a source country amplifies the effect of currency issuers' monetary policy on lending.

FEDS Paper: Monetary Policy Shocks: Data or Methods?(Revised)

11/21/2024 Federal Reserve Central banks

Connor M. Brennan, Margaret M. Jacobson, Christian Matthes, Todd B. WalkerDifferent series of high-frequency monetary shocks can have a correlation coefficient as low as 0.3 and the same sign in only one half of observations. Both data and methods drive these differences, which are starkest when the federal funds rate is at its effective lower bound. After documenting differences in monetary shock series, we explore their consequence for inference in several specifications.

FEDS Paper: Credit Supply and Hedge Fund Performance: Evidence from Prime Broker Surveys

11/21/2024 Federal Reserve Central banks

Dan Li, Phillip J. Monin, and Lubomir PetrasekConstraints on the supply of credit by prime brokers affect hedge funds' leverage and performance. Using dealer surveys and hedge fund regulatory filings, we identify individual funds' credit supply from the availability of credit under agreements currently in place between a hedge fund and its prime brokers.

Green asset pricing

11/20/2024 European Central Bank Central banks

This paper demonstrates that empirically grounding the discount factor significantly influences the determination of the carbon price. Using two complementary nonlinear statistical approaches, we assess which utility formulations and corresponding stochastic discount factors best align with U.S. data. We provide evidence that habit formation is essential for capturing the time variation in the stochastic discount factor necessary to match the data. This increased time variation raises the carbon price by 32% and makes it five times more procyclical compared to standard models.

How the Wall Street Journal Blew the Story of the Democrats and Inflation

11/19/2024 Ineteconomics Analysis

The firehose of affluent consumption continues to drive inflation, not the stimulus package
It must be the Wall Street Journal’s DNA. Nothing else easily explains why the normally careful Nick Timiraos would focus so much of his account of “How the Democrats Blew It on Inflation” on the hoary argument that the “Biden Stimulus” somehow triggered worldwide inflation back in 2021.

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