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SEBASTIAN ROELANDS |
UNIVERSITY of NOTRE DAME |
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WORKING PAPERS ‘Asymmetric Interest Rate Pass-Through
from Monetary Policy: The Role of Bank Regulation’ (Job Market Paper)
(Download PDF or through SSRN) (under review) Abstract: When the monetary policy rate
increases, banks increase loan rates fairly quickly and by roughly the same
amount. However, when the policy rate falls, bank loan rates adjust more
slowly and not completely. I develop a model with which I show that this
asymmetry in interest rate pass-through can be explained by the presence of
capital and liquidity requirements imposed on banks by regulators. If the
capital or liquidity constraints are binding, the shadow values of capital
and liquidity are positive, which results in higher bank loan rates relative
to the monetary policy rate. When the central bank lowers its policy rate,
the critical values at which the constraints become binding are lowered,
effectively tightening the regulatory requirements. This makes it more likely
that banks become constrained, and hence reduce pass-through. Empirical
evidence from United States bank holding companies over 2001Q1-2012Q1
corroborates the model predictions that (i) more
banks are capital constrained during falling rate periods than rising rate
periods; (ii) constrained banks adjust loan rates less relative to the
federal funds rate, and (iii) constrained banks increase loan rates more
after a drop in their capital ratios, relative to unconstrained banks. IN PROGRESS ‘Did Higher Bank Concentration Reduce
Competition?’ ‘U.S. Bank Behavior in the Wake of the
2007-2009 Financial Crisis’ with Adolfo Barajas, Ralph Chami, Thomas
Cosimano, and Dalia Hakura ‘Did Operation Twist Twist
Bank Behavior?’ with Thomas Cosimano and Julieta Yung PUBLISHED ‘Housing Wealth
and U.S. Money Demand: A Panel Estimation’ (2011) with Ivo J.M. Arnold,
Contemporary Economic Policy 29 (3), pp. 382-39. Abstract: This paper estimates a panel
model for US money demand using annual state-level data for the period from
1977 to 2008. We incorporate housing wealth in the demand-for-money function
and find strong evidence for a relationship between a broad monetary
aggregate and housing wealth. This finding is robust to the inclusion of
variables measuring financial heterogeneity across US regions. Breaking up
the sample into two subperiods shows that panel
estimates including housing wealth yield more stable coefficients than both
time series estimates and panel estimates excluding housing wealth. We also
show that the link between money and housing wealth predates the recent
boom-and-bust cycle. ‘The Demand for
Euros’
(2010) with Ivo J.M. Arnold, The Journal of Macroeconomics 32 (2), June 2010,
pp. 674-684. Abstract: This paper investigates the
demand for euros using panel data for ten euro area
countries covering the period from 1999 to 2008. Monetary aggregates are
constructed to ensure that money is a national concept by excluding deposits
owned by non-residents and including external deposits owned by residents.
Initial estimates of a standard money demand function yield income elasticities which are high in comparison with what is
typically found in the literature. We next expand the money demand function
with four wealth and uncertainty variables, of which housing prices is the
most significant one. The inclusion of housing prices in the panel regression
reduces the income elasticity to around one. Country-specific developments in
housing prices are also able to explain part of the monetary overhang in the
euro area since 2005. We conclude that housing price developments within the
euro area are relevant to an understanding of the demand for euros, and thus warrant close attention by policymakers
at the ECB. |
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Sebastian
Roelands - Department of Economics, 434 Flanner Hall,
Notre Dame, IN 46556 - roelands.1@nd.edu |