Job Market Paper: Did Shareholders Benefit from Large-Scale Asset Purchases?
In December 2008, as the federal funds rate hit the Zero-Lower Bound (ZLB) and the economic climate continued to deteriorate, the Federal Reserve eased the stance of monetary policy using un- conventional monetary policy actions in the form of large-scale asset purchases (LSAPs), it purchased substantial quantities of assets with medium- and long-term maturities. Using an event study between 2008 and 2012, I describe how LSAPs affected the stock prices of different targeted sectors of the US economy including the stock prices of the Federal Reserve's primary dealers. I present evidence that LSAPs had a positive impact on the stock prices of several sectors, including commercial banking, banker-dealer, homebuilding, real estate, and auto manufacturing and that the primary dealer sector, which was composed of the largest financial institutions, benefited most from LSAPs. These findings indicate that LSAPs were successful in promoting economic recovery by boosting a variety of stock prices, but not all the targeted sectors experienced these benefits.
Working Paper: How Effective was the Federal Reserve's Large Scale Asset Purchase Program? A View from Bank Balance Sheets
The slow recovery since the end of the recent financial crisis has sparked question regarding the efficacy of the Federal Reserve's recent Large-Scale Asset Purchases. Such unconventional monetary policy had unprecedented consequences on the balance sheets of both the Federal Reserve and of the banking sector. Focusing on bank's balance sheets and particularly primary dealers, this paper examines the effectiveness of the Federal Reserve's recent Large-Scale Asset Purchases. We look at the amount of liquid assets and excess reserves relative to the total creation in new reserves between 2000 and 2015, as new money base created by the Federal Reserve but not lent out by banks will have a negligible effect on the broader economy. We find that during most periods almost all of the new money created by the Federal Reserve was simply held as cash or a close substitute, greatly reducing the effect of monetary policy during this period relative to normal times.
Past Research: Sugar with your Coffee? Financials, Fundamentals and Soft Price Uncertainty
Commodity-equity return co-movements rose dramatically during the Great Recession. This development took place following what has been dubbed the “financialization” of commodity markets. We first document changes since 1995 in the relative importance of financial institutions' activity in agricultural futures markets. We then use a structural VAR model to ascertain the role of that activity in explaining correlations between weekly grain, livestock, and equity returns in 1995-2015. We provide robust evidence that, accounting for shocks which are idiosyncratic to agricultural markets, world business cycle shocks have a substantial and long-lasting impact on the latter's co-movements with financial markets. In contrast, changes in the intensity of financial speculation have an impact on cross-market return linkages that is shorter-lived and not statistically significant in all model specifications.