Private Supply of Safe Assets: Shadow Banks versus Traditional Banks

By Stefan Gissler, Marco Macchiavelli, and Borghan Narajabad

AEA Papers and Proceedings, May 2020

We show that the creation of private safe assets by shadow banks can decrease traditional banks' supply of safe assets. The 2014–2016 money fund reform created a large demand shock for safe assets, to which Federal Home Loan Banks (FHLBs) responded, exp...

Understanding Collateral Re-use in the US Financial System

By Sebastian Infante, Charles Press, and Zack Saravay

AEA Papers and Proceedings, May 2020

We document how primary dealers use and re-use collateral in the United States. Using confidential supervisory data, we map how collateral flows through individual dealers, identifying whether the collateral is encumbered or rehypothecated. From these dat...

Who Ran on Repo?

By Gary B. Gorton, Andrew Metrick, and Chase P. Ross

AEA Papers and Proceedings, May 2020

The sale and repurchase (repo) market played a central role in the recent financial crisis. From the second quarter of 2007 to the first quarter of 2009, net repo financing provided to US banks and broker-dealers fell by about $900 billion—more than hal...

Emerging Markets at Risk

By Gonzalo Asis, Anusha Chari, and Adam Haas

AEA Papers and Proceedings, May 2020

Policymakers would like to predict and mitigate the risks associated with the post-global financial crisis rise in corporate leverage in emerging markets. However, long-standing advanced-economy bankruptcy models fail to capture the idiosyncrasies that im...

Corporate Yields: Effect of Credit Ratings and Sovereign Yields

By Julia Bevilaqua, Galina Hale, and Eric Tallman

AEA Papers and Proceedings, May 2020

We empirically evaluate the importance of two sources of public information affecting pricing of global corporate bonds: bond ratings provided by rating agencies and sovereign yields of the issuer's country. We find that both in the cross section of firms...

The Financial Center Leverage Cycle: Does It Spread around the World?

By Graciela Laura Kaminsky, Leandro Medina, and Shiyi Wang

AEA Papers and Proceedings, May 2020

With a novel database, we examine the evolution of capital flows since the collapse of the Bretton Woods system in the early 1970s. We decompose capital flows into global, regional, and idiosyncratic factors. In contrast to previous findings, which mostly...

Real Effects of Sovereign Debt Inflow Shocks

By Lorenzo Pandolfi and Tomas Williams

AEA Papers and Proceedings, May 2020

This paper analyzes the real effects on firms of sovereign debt inflow shocks in emerging countries. We follow Broner et al. (2019) and exploit six episodes of country inclusions into two major local currency sovereign debt indexes. We complement their ev...

Do Sounder Banks Make Calmer Waters? The Link between Bank Regulations and Capital Flow Waves

By Kristin J. Forbes

AEA Papers and Proceedings, May 2020

This paper tests if prudential and macroprudential regulations have meaningfully reduced the incidence of capital flow "waves," that is, of sudden stops and surges of capital flows from abroad. The results support other work documenting changes since 20...

The Global Financial Cycle after Lehman

By Silvia Miranda-Agrippino and Hélène Rey

AEA Papers and Proceedings, May 2020

Did the effect of US monetary policy on the global financial cycle change after the crisis? We analyze the international transmission of the Fed's policy shocks since 2009. We find similar effects for the policies that act mostly on the short end of the U...

The Dollar, Bank Leverage, and Real Economic Activity: An Evolving Relationship

By Burcu Erik, Marco J. Lombardi, Dubravko Mihaljek, and Hyun Song Shin

AEA Papers and Proceedings, May 2020

The interest in how financial conditions affect real economic activity has grown since the great financial crisis (GFC), not least because some of the mechanisms at play in the financial sector may have changed. We shed light on this issue by examining th...

Impact of Foreign Official Purchases of US Treasuries on the Yield Curve

By Erin L. Wolcott

AEA Papers and Proceedings, May 2020

Foreign governments went from owning a tenth of publicly available US Treasury notes and bonds in 1985 to over half in 2008. Recently, foreign governments have reduced their positions. I find foreign official purchases have depressed medium-term yields, d...

Who's Paying for the US Tariffs? A Longer-Term Perspective

By Mary Amiti, Stephen J. Redding, and David E. Weinstein

AEA Papers and Proceedings, May 2020

Using another year of data including significant escalations in the trade war, we find that the costs of the US tariffs continue to be almost entirely borne by US firms and consumers. We show that the response of import values to the tariffs increases in ...

The Looming Threat of Tariff Hikes: Entry into Exporting under Trade Agreement Renegotiation

By Meredith A. Crowley, Oliver Exton, and Lu Han

AEA Papers and Proceedings, May 2020

We examine how the looming threat of tariff hikes under a trade agreement renegotiation impacts firm entry into a trading partner's market by exploiting uncertainty over the future UK-EU trade relationship brought about by the June 2016 Brexit referendum....

Brexit Uncertainty: Trade Externalities beyond Europe

By Alejandro G. Graziano, Kyle Handley, and Nuno Limão

AEA Papers and Proceedings, May 2020

We examine if Brexit uncertainty has trade externalities beyond Europe. Using detailed data on export values and participation, tariffs, and Brexit probabilities prior to the referendum, we estimate ongoing negative trade-uncertainty elasticities between ...

Theory and Measurement of Common Ownership

By Matthew Backus, Christopher Conlon, and Michael Sinkinson

AEA Papers and Proceedings, May 2020

The common ownership hypothesis, that the presence of diversified investors with holdings in competing firms distorts behavior away from own-firm profit maximization, has generated substantial controversy. Here, we focus on the problem of measuring common...

Diversification, Common Ownership, and Strategic Incentives

By Albert Banal-Estañol, Jo Seldeslachts, and Xavier Vives

AEA Papers and Proceedings, May 2020

We argue that within-industry investor diversification is directly related to common ownership incentives (profit loads on rival firms by the manager of a firm) in product markets. Because of their respective investment strategies, passive investors are n...

Active Investors, Passive Investors, and Common Ownership

By Oz Shy and Rune Stenbacka

AEA Papers and Proceedings, May 2020

Recent studies have extensively examined the hypothesis that a higher degree of common ownership relaxes competition. This approach has typically conducted comparative statics analysis based on exogenously given rates of common ownership. This study const...

The Anticompetitive Effects of Common Ownership: The Case of Paragraph IV Generic Entry

By Jin Xie and Joseph Gerakos

AEA Papers and Proceedings, May 2020

Brand-name pharmaceutical companies often file lawsuits against generic drug manufacturers that challenge the monopoly status of patent-protected drugs. Institutional horizontal shareholdings, measured by the generic shareholders' ownership in the brand-n...

Split Apart: Differentiation, Diversion, and Coordination in the Market for Superpremium Ice Cream

By Christopher Sullivan

AEA Papers and Proceedings, May 2020

I explore recent behavior in the market for superpremium ice cream. I first document that the flavors offered in supermarkets by Ben & Jerry's and Haagen-Dazs became increasingly differentiated from 2006–2013. Using an estimated model of demand, I show ...

Countervailing Market Power and Consumer Surplus: An Empirical Examination

By Jorge Alé-Chilet and Juan Pablo Atal

AEA Papers and Proceedings, May 2020

A current debate in antitrusts analyzes whether to allow horizontal agreements that counteract large imbalances of power in vertical negotiations. We leverage detailed data to empirically assess the consequences for patients of a recent case in which a gr...