We examine the impact of unconventional monetary policy (UMP) on stock market tail risk and risks of extreme interest rate movements. We find that UMP announcements substantially reduced option-implied equity market tail risks and interest rate risks. Most of the impact derives from forward guidance rather than asset purchase announcements. Communication about the future path of policy rates reduced volatility expectations of long-term rates and the associated risk premia. The reaction of equity market tail risk, in turn, points to the risk-taking channel of monetary policy, as the commitment to low funding rates may have relaxed financial intermediaries’ risk-bearing constraints. (JEL E52, E58, G12, G13, G14)
Yen carry trades have traditionally been viewed in narrow terms purely as a foreign exchange transaction. This paper argues that the carry trade should instead be viewed in the broader context of global credit conditions. We show that the volume of yen funding that is channeled for use outside Japan is mirrored by fluctuations in the size of U.S. broker-dealer balance sheets. Differences in short-term interest rates across currencies help to explain the incidence of the carry trade, as does the measure of implied equity risk given by the VIX index. The conjunction of deteriorating credit conditions in the United States and the weakness of the dollar against the yen in the early stages of the credit crisis of 2007–08 can thus be seen as two sides of the same coin. Both can be seen as consequences of financial sector deleveraging in the United States. IMF Staff Papers (2009) 56, 384–409. doi:10.1057/imfsp.2009.2; published online 24 March 2009
We examine who is the repository of soft information within bank organizations. Inconsistent with the conventional view of loan officers as the sole repository, we find that branch managers have the most soft information. We also find the repository at a higher hierarchical level at smaller banks. Furthermore, our evidence suggests that branch managers themselves actively collect soft information, especially at smaller banks. These findings suggest the need for a more nuanced view beyond the conventional emphasis on loan officers, and call for studies on the equilibrium design of the collection, processing, and use of soft information within bank organizations.JEL codes: D2, D8, L2, G21
We model inflation forecasts as monotonically diverging from an estimated long-run anchor point towards actual inflation as the forecast horizon shortens. Fitting the model with forecaster-level data for Japan, we find that the estimated anchors across forecasters have tended to rise in recent years, along with the dispersion in estimates across forecasters. Further, the degree to which these anchors pin down inflation expectations at longer horizons has increased, but remains considerably lower than found in a similar study of Canadian and US forecasters. Finally, the wide dispersion in estimated decay paths across forecasters points to a diverse set of views across forecasters about the inflation process in Japan.
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