Deposit Interest Rate Ceilings as Credit Supply Shifters: Bank Level Evidence on the Effects of Regulation QPDF
Christoffer Koch
Abstract: Shocks emanating from and propagating through the banking system have recently gained interest in the macroeconomics literature, yet they are not a feature unique to the 2008/09 financial crisis. Banking disintermediation shocks occured frequently during the Great Inflation era due to fixed deposit rate ceilings. I estimate the effect of deposit rate ceilings inscribed in Regulation Q on the transmission of federal funds rate changes to bank level credit growth using a historic bank level data set spanning half a century from 1959 to 2013 with about two million observations. Measures of the degree of bindingness of Regulation Q suggest that individual banks’ lending growth was smaller the more binding the legally fixed rate ceiling. Interaction terms with monetary policy suggest that the policy impact on bank level credit growth was non-linear at the ceiling “kink” and significantly larger when rate ceilings were in place. At the bank level, short-term interest rates exceeding the legally fixed deposit rate ceilings identify bank loan supply shifts that disappeared with deposit rate deregulation and thus weakened the credit channel of monetary transmission since the early 1980s.



The Zero Lower Bound and Endogenous UncertaintyPDF
Michael Plante, Alexander W. Richter and Nathaniel A. Throckmorton
Abstract: This paper documents a strong negative correlation between macroeconomic uncertainty and real GDP growth since the Great Recession. Prior to that event the correlation was weak, even when conditioning on recessions. At the same time, many central banks reduced their policy rate to its zero lower bound (ZLB), which we contend contributed to the strong correlation between macroeconomic uncertainty and real GDP growth. To test that theory, we use a model where the ZLB occasionally binds. The model roughly matches the correlation in the data—away from the ZLB the correlation is weak but strongly negative when the ZLB binds.



Heterogeneous Bank Lending Responses to Monetary Policy: New Evidence from a Real-time IdentificationPDF
John C. Bluedorn, Christopher Bowdler and Christoffer Koch
Abstract: We present new evidence on how heterogeneity in banks interacts with monetary policy changes to impact bank lending, at both the bank and U.S. state levels. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time economic forecasts, we find much stronger dynamic effects and greater heterogeneity in U.S. bank lending responses than that found in previous research based on realized federal funds rate changes. Our findings suggest that studies using realized monetary policy changes confound monetary policy’s effects with those of changes in expected macrofundamentals. In fact, estimates from identified monetary policy changes lead to a reversal of U.S. states’ ranking by credit’s sensitivity to policy. We also extend Romer and Romer (2004)’s identification scheme, and expand the time and balance sheet coverage of the U.S. banking sample.



How Do E-Verify Mandates Affect Unauthorized Immigrant Workers?PDF
Pia M. Orrenius and Madeline Zavodny
Abstract: A number of states have adopted laws that require employers to use the federal government’s E-Verify program to check workers’ eligibility to work legally in the United States. Using data from the Current Population Survey, this study examines whether such laws affect labor market outcomes among Mexican immigrants who are likely to be unauthorized. We find evidence that E-Verify mandates reduce average hourly earnings among likely unauthorized male Mexican immigrants while increasing labor force participation and employment among likely unauthorized female Mexican immigrants. In contrast, the mandates appear to lead to better labor market outcomes among workers likely to compete with unauthorized immigrants. Employment and earnings rise among male Mexican immigrants who are naturalized citizens in states that adopt E-Verify mandates, and earnings rise among U.S.-born Hispanic men.



A Theory of Targeted SearchPDF
Anton Cheremukhin, Antonella Tutino and Paulina Restrepo-Echavarria
Abstract: We present a theory of targeted search, where people with a finite information processing capacity search for a match. Our theory explicitly accounts for both the quantity and the quality of matches. It delivers a unique equilibrium that resides in between the random matching and the directed search outcomes. The equilibrium that emerges from this middle ground is inefficient relative to the constrained Pareto allocation. Our theory encompasses the outcomes of the random matching and the directed search literature as limiting cases.



What Drives the Shadow Banking System in the Short and Long Run?PDF
John V. Duca
Abstract: This paper analyzes how risk and other factors altered the relative use of short-term business debt funded by the shadow banking system since the early 1960s. Results indicate that the share was affected over the long-run not only by changing information and reserve requirement costs, but also by shifts in the impact of regulations on bank versus nonbank credit sources—such as Basel I in 1990 and reregulation in 2010. In the short-run, the shadow share rose when deposit interest rate ceilings were binding, the economic outlook improved, or risk premia declined, and fell when event risks disrupted financial markets.