#2009-022C "Financial Development and Economic Volatility: A Unified Explanation"
by Pengfei Wang, and Yi Wen
April 2009
Revised May 2009

Empirical studies showed that firm-level volatility has been increasing but the aggregate volatility has been decreasing in the US for the post-war period. This paper proposes a unified explanation for these diverging trends. More...

#2009-020A "A Simple Model of Trading and Pricing Risky Assets Under Ambiguity: Any Lessons for Policy-Makers?"
by Massimo Guidolin, and Francesca Rinaldi
April 2009

The 2007-2008 financial crises has made it painfully obvious that markets may quickly turn illiquid. Moreover, recent experience has taught us that distress and lack of active trading can jump “around” between seemingly unconnected parts of the financial system contributing to transforming isolated shocks into systemic panic attacks. More...

#2009-009A "Revisiting the Predictability of Bond Risk Premia"
by Daniel L. Thornton, and Giorgio Valente
March 2009

This paper investigates the source of predictability of bond risk premia by means of long-term forward interest rates. We show that the predictive ability of forward rates could be due to the high serial correlation and cross-correlation of bond prices. More...

#2009-001A "Time and Risk Diversification in Real Estate Investments: Assessing the Ex Post Economic Value"
by Carolina Fugazza, Massimo Guidolin, and Giovanna Nicodano
January 2009

Welfare gains to long-horizon investors may derive from time diversification that exploits non-zero intertemporal return correlations associated with predictable returns. Real estate may thus become more desirable if its returns are negatively serially correlated. More...

#2008-039B "Did Prepayments Sustain the Subprime Market?"
by Geetesh Bhardwaj, and Rajdeep Sengupta
October 2008
Revised May 2009

Using loan-level data on subprime mortgages, we present evidence on the uniqueness of subprime mortgage design. More...

#2008-038A "Government Response to Home Mortgage Distress: Lessons from the Great Depression"
by David C. Wheelock
October 2008

The Great Depression was the worst macroeconomic collapse in U.S. history. Sharp declines in household income and real estate values resulted in soaring mortgage delinquency rates. More...

#2008-036C "Where’s the Smoking Gun? A Study of Underwriting Standards for US Subprime Mortgages"
by Geetesh Bhardwaj, and Rajdeep Sengupta
October 2008
Revised October 2009

The dominant explanation for the meltdown in the U.S. subprime mortgage market is that lending standards dramatically weakened after 2004. Using loan-level data, we examine underwriting standards on securitized subprime mortgage originations from 1998 to 2007. More...

#2008-031B "Asset Prices, Exchange Rates and the Current Account"
by Marcel Fratzscher, Luciana Juvenal, and Lucio Sarno
August 2008
Revised May 2009

This paper analyses the role of asset prices in comparison to other factors, in particular exchange rates, as a driver of the US trade balance. More...

#2008-024B "The Loan Structure and Housing Tenure Decisions in an Equilibrium Model of Mortgage Choice"
by Matthew Chambers, Carlos Garriga, and Don Schlagenhauf
June 2008
Revised January 2009

The objective of this paper is to understand how loan structure affects (i) the borrower’s selection of a mortgage contract and (ii) the aggregate economy. We develop a quantitative equilibrium theory of mortgage choice where households can choose from a menu of long-term (nominal) mortgage loans. More...

PUBLISHED: Review of Economic Dynamics, July 2009, 12(3), pp. 444-68

#2008-012B "Inflation, Monetary Policy and Stock Market Conditions: Quantitative Evidence from a Hybrid Latent-Variable VAR"
by Michael D. Bordo, Michael J. Dueker, and David C. Wheelock
May 2008
Revised February 2009

This paper examines the association between inflation, monetary policy and U.S. stock market conditions during the second half of the 20th century. More...