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351 Results

A Simple Method for Extracting the Probability of Default from American Put Option Prices

Staff Working Paper 2020-15 Bo Young Chang, Greg Orosi
A put option is a financial contract that gives the holder the right to sell an asset at a specific price by (or at) a specific date. A put option can therefore provide its holder insurance against a large drop in the stock price. This makes the prices of put options an ideal source of information for a market-based measure of the probability of a firm’s default.

Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields

Staff Working Paper 2020-14 Guihai Zhao
This equilibrium model explains the trend in long-term yields and business-cycle movements in short-term yields and yield spreads. The less-frequent inverted yield curves (and less-frequent recessions) after the 1990s are due to recent secular stagnation and procyclical inflation expectations.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12

Interest Rate Uncertainty as a Policy Tool

Staff Working Paper 2020-13 Fabio Ghironi, Galip Kemal Ozhan
We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI).

Optimal Taxation in Asset Markets with Adverse Selection

Staff Working Paper 2020-11 Mohammad Davoodalhosseini
What is the optimal tax schedule in over-the-counter markets, e.g., those for corporate bonds? I find that an optimal tax schedule is often non-monotonic. For example, trading of some high-price assets should be subsidized, and trading of some low-price assets should be taxed.

A Portfolio-Balance Model of Inflation and Yield Curve Determination

Staff Working Paper 2020-6 Antonio Diez de los Rios
How does the supply of nominal government debt affect the macroeconomy? To answer this question, we propose a portfolio-balance model of the yield curve in which inflation is determined through an interest rate rule.

CBDC and Monetary Sovereignty

Staff Analytical Note 2020-5 Antonio Diez de los Rios, Yu Zhu
In an increasingly digitalized world, issuers of private digital currency can weaken central banks’ ability to stabilize the economy. By continuing to make central bank money attractive as a payment instrument in a digital world, a central bank digital currency (CDBC) could help to maintain a country’s monetary sovereignty.

Contagion in Dealer Networks

Staff Working Paper 2020-1 Jean-Sébastien Fontaine, Adrian Walton
Dealers connect investors who want to buy or sell securities in financial markets. Over time, dealers and investors form trading networks to save time and resources. An emerging field of research investigates how networks form.

Creations and Redemptions in Fixed-Income Exchange-Traded Funds: A Shift from Bonds to Cash

The creation and redemption activity of fixed-income exchange-traded funds listed in the United States has shifted. Funds of established issuers have traditionally exchanged their shares for baskets of bonds. In contrast, young funds managed by new issuers tend to create and redeem their shares almost exclusively in cash. Cash transactions imply that new funds are taking on exposure to liquidity risk. This has implications for financial stability.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23
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