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SSRN Research Paper Series
The Social Science Research Network’s Research Paper Series includes working papers produced by Stanford GSB the Rock Center.
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Dollar Upheaval: This Time is Different
What can we learn from the high-frequency responses in bond and currency markets to the recent tariff announcement about the status of the U.S. dollar as the global reserve currency? The dollar depreciated by 3.4% after April 4 in spite of rising…
Geoeconomic Pressure
Geoeconomic pressure — the use of existing economic relationships by governments to achieve geopolitical or economic ends — has become a prominent feature of global power dynamics. This paper introduces a methodology using large language models (…
An Equilibrium Model of Deferred Prosecution Agreements
Deferred prosecution agreements (DPAs) are now a standard tool used by prosecutors to punish corporate crime. Under a DPA, the defendant escapes prosecution by living up to the terms of the contract. However, if the prosecutor declares a breach,…
Interest Rate Risk in Banking
We develop a theoretical and empirical framework to estimate bank franchise value. In contrast to regulatory guidance and some existing models, we show that sticky deposits combined with low deposit rate betas do not imply a negative duration for…
Can U.S. Treasury Markets Add and Subtract?
The CBO cost releases of legislative proposals contain valuable news about surpluses priced in by Treasury investors. Using daily event windows, we find that cost releases with large negative cash flows lowered Treasury valuations by more than 20…
Fiscal Redistribution Risk in Treasury Markets
Unfunded fiscal shocks are a significant source of risk premia in Treasury markets when central banks and governments decide to insulate taxpayers and expose bondholders’ wealth to government funding needs. We illustrate this bond risk premium…
Government Debt in Mature Economies. Safe or Risky?
Governments and central banks can protect either taxpayers or bondholders from government spending shocks. When they choose to insulate taxpayers, government bond yields need to increase in response to unfunded fiscal expansions as the government…
Book Value Risk Management of Banks: Limited Hedging, HTM Accounting, and Rising Interest Rates
In the face of rising interest rates in 2022, banks mitigated interest rate exposure of the accounting value of their assets but left the vast majority of their long-duration assets exposed to interest rate risk. Data from call reports and SEC…
Noisy Experts? Discretion in Regulation
While reliance on human discretion is a pervasive feature of institutional design, human discretion can also introduce costly noise (Kahneman, Sibony, and Sunstein 2021). We evaluate the consequences, determinants, and trade-offs associated with…
Liquidity, Debt Denomination, and Currency Dominance
We provide a liquidity-based theory for the dominant use of the US dollar as the unit of denomination in global debt contracts. Firms need to trade their revenue streams for the assets required to extinguish their debt obligations. When asset…
The Secular Decline of Bank Balance Sheet Lending
The traditional model of bank-led financial intermediation, where banks issue demandable deposits to savers and make informationally sensitive loans to borrowers, has seen a dramatic decline since 1970s. Instead, private credit is increasingly…
Convenience Yields and Exchange Rate Puzzles
We introduce safe asset demand for dollar-denominated bonds into a tractable incomplete market model of exchange rates. The convenience yield on dollar bonds enters as a stochastic wedge in the Euler equations for exchange rate determination.…
EXIM’s Exit: The Real Effects of Trade Financing by Export Credit Agencies
We study the role of export credit agencies — the predominant tool of industrial policy — on firm behavior by using the effective shutdown of the Export-Import Bank of the United States (EXIM) from 2015-2019 as a natural experiment. We show that…
A Framework for Geoeconomics
Governments use their countries’ economic strength from existing financial and trade relationships to achieve geopolitical and economic goals. We refer to this practice as geoeconomics. We build a framework based on three core ingredients:…
Information-Based Pricing in Specialized Lending
We study specialized lending in a credit market competition model with private information. Two banks, equipped with similar data processing systems, possess “general” signals regarding the borrower’s quality. However, the specialized bank gains…
Credit Cycles, Firms, and the Labor Market
We use administrative data from the U.S. Census Bureau to estimate the causal effects of loose credit conditions on firm employment and worker earnings. To obtain quasi-random variation in firms’ exposure to credit booms, we exploit the…
The Digital Banking Revolution: Effects on Competition and Stability
How does the digital revolution affect bank competition and financial stability? I use hand- collected data and a novel identification strategy to show that after adopting digital platforms, banks branchlessly operate in more markets,…
Investing in Lending Technology: IT Spending in Banking
Banks’ lending technology hinges on their handling of soft and hard information in dealing with different types of credit demand. Through assembling a novel dataset on banks’ investment in information technologies (IT), this paper provides…
What Drives Variation in the U.S. Debt/Output Ratio? The Dogs that Didn’t Bark
A higher U.S. government debt/output ratio does not forecast higher surpluses or lower returns on Treasurys in the future. Neither future cash flows nor discount rates account for the variation in the current debt/output ratio. The market…
Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?
We develop an empirical methodology and conceptual framework to analyze the effect of rising interest rates on the value of U.S. bank assets and bank stability. We mark-to-market losses on banks’ assets due to interest rate increases from Q1 2022…