Register for the event
As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Kilian Rieder, Lead Economist at the Oesterreichische Nationalbank (Eurosystem).
He will present his work titled Financial Stability Policies and Bank Lending: Quasi-experimental Evidence from Federal Reserve Interventions in 1920-21.
Abstract: I estimate the comparative causal effects of monetary policy “leaning against the wind” (LAW) and macroprudential policy on bank-level lending and leverage by drawing on a single natural experiment. In 1920, when U.S. monetary policy was still decentralized, four Federal Reserve Banks implemented a conventional rate hike to address financial stability concerns. Another four Reserve Banks resorted to macroprudential policy with the same goal. Using sharp geographic regression discontinuities, I exploit the resulting policy borders with the remaining four Federal Reserve districts which did not change policy stance. Macroprudential policy caused both bank-level lending and leverage to fall significantly (by 11%-14%), whereas LAW had only weak and, in some areas, even perverse effects on these bank-level outcomes. I show that the macroprudential tool reined in over-extended banks more effectively than LAW because it allowed Federal Reserve Banks to use price discrimination when lending to highly leveraged counterparties. The perverse effects of the rate hike in some areas ensued because LAW lifted a pre-existing credit supply friction by incentivizing regulatory arbitrage. My results highlight the importance of context, design and financial infrastructure for the effectiveness of financial stability policies.
About the speaker
Kilian Rieder is also a research affiliate of the Centre for Economic Policy Research (CEPR). He holds a PhD from the University of Oxford and two master degrees from the London School of Economics and Sciences Po Paris. Prior to joining Oesterreichische Nationalbank, Rieder was Assistant Professor at the Vienna University of Economics and Business (WU Wien). His research interests are in economic history, macroeconomics and monetary economics.