Tuesday , March 2 2021
Home / Tag Archives: Financial Markets

Tag Archives: Financial Markets

State-of-the-Field Conference on Cyber Risk to Financial Stability

Jennifer Gennaro, Jason Healey, Anna Kovner, Michael Lee, and Patricia Mosser The Federal Reserve Bank of New York partnered with Columbia University’s School of International and Public Affairs (SIPA) for the second annual State-of-the-Field Conference on Cyber Risk to Financial Stability on December 14-15, 2020. Hosted virtually due to the COVID-19 pandemic, the conference took place amidst the unfolding news of a cyberattack against a major cybersecurity vendor and software vendor,...

Read More »

Public and Private Money Can Coexist in the Digital Age

By Tobias Adrian and Tommaso Mancini-Griffoli We value innovation and diversity—including in money. In the same day, we might pay by swiping a card, waving a phone, or clicking a mouse. Or we might hand over notes and coins, though in many countries increasingly less often. Today’s world is characterized by a dual monetary system, involving privately-issued money—by banks of all types, telecom companies, or specialized payment providers—built upon a foundation of publicly-issued money—by...

Read More »

How Competitive are U.S. Treasury Repo Markets?

Adam Copeland, R. Jay Kahn, Antoine Martin, Matthew McCormick, William Riordan, Kevin Clark, and Tim Wessel The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding...

Read More »

Up on Main Street

Donald P. Morgan and Steph Clampitt The Main Street Lending Program was the last of the facilities launched by the Fed and Treasury to support the flow of credit during the COVID-19 pandemic. The others primarily targeted Wall Street borrowers; Main Street was for smaller firms that rely more on banks for credit. It was a complicated program that worked by purchasing loans and sharing risk with lenders. Despite its delayed launch, Main Street purchased more debt than any other...

Read More »

Equity Volatility Term Premia

Peter Van Tassel and Charles Smith Investors can buy volatility hedges on the stock market using variance swaps or VIX futures. One motivation for hedging volatility is its negative relationship with the stock market. When volatility increases, stock returns tend to decline contemporaneously, a result known as the leverage effect. In this post, we measure the cost of volatility hedging by decomposing the prices of variance swaps and VIX futures into volatility forecasts and...

Read More »

The Law of One Price in Equity Volatility Markets

Peter Van Tassel and Charles Smith Can option traders take a square root? Surprisingly, maybe not. This post shows that VIX futures prices exhibit significant deviations from their option-implied upper bounds—the square root of variance swap forward rates—thus violating the law of one price, a fundamental concept in economics and finance. The deviations widen during periods of market stress and predict the returns of VIX futures. Just as the stock market struggles with multiplication,...

Read More »

The International Spillover of U.S. Monetary Policy via Global Production Linkages

Julian di Giovanni The recent era of globalization has witnessed growing cross-country trade integration as firms’ production chains have spread across the world, and with stock market returns becoming more correlated across countries. While research has predominantly focused on how financial integration impacts the propagation of shocks across international financial markets, trade also influences these cross-border spillovers. In particular, one important aspect, highlighted by...

Read More »

Global Policy Responses to Capital Flow Volatility

By Annamaria De Crescenzio, Annamaria Kokenyne, Dennis Reinhart, and Julia Schmidt The COVID-19 health and economic crisis has once again focused attention on the fickleness of capital flows and the need to have an adequate policy toolkit to manage the risks that stem from these flows, while maximizing their benefits. A virtual workshop organized by the Bank of England, Banque de France, International Monetary Fund and the Organization for Economic Co-operation and Development (OECD)...

Read More »

What’s Up with Stocks?

Fernando Duarte “U.S. stocks are racing toward a second consecutive quarter of dramatic gains, continuing a historic stock-market recovery that few predicted in the depths of the March downturn,” said a September Wall Street Journal article. “The stock market is detached from economic reality. A reckoning is coming,” said the Washington Post. What is going on? In this post, I look not at what stocks have actually done or will do, but at what investors expected should have...

Read More »

Navigating Capital Flows—An Integrated Approach

By Tobias Adrian, Gita Gopinath, Ceyla Pazarbasioglu عربي, 中文, Español, Français, 日本語, Português, Русский  In a continuous effort to help countries manage volatile cross-border capital flows, the IMF has taken a major step toward a new analytical macroeconomic framework that can guide appropriate policy responses. The work reflects evolving thinking on macroeconomic policy and will feed into the upcoming review of the IMF’s Institutional View on the Liberalization and Management of Capital...

Read More »