Stanford Reading Group, Fall 2009

Tuesday 6-7pm in seminar room 353 organized by Monika Piazzesi & Martin Schneider

****************************************************************

Plan for this quarter

Oct 20 Classics:

Juliana Terreiro Salomao presents the Diamond-Dybvig model based on sections 7.1., 7.2. and 7.3 of the textbook “Microeconomics of Banking” by Freixas & Rochet.

William Cong presents Shleifer and Vishny 1997 Limits of Arbitrage

Oct 27 Tim Landvoigt presents Brunnermeier and Pedersen, Market Liquidity and Funding Liquidity

Nov 3 Johannes & Max Floetotto present their own work on housing

Nov 10 Andrey Fradkin will present Vayanos and Wooley, An Institutional Theory of Momentum and Reversal

Nov 17 Edison Yu and Krishna Rao present Schoar, Did the Fed Funds Market Collapse After Lehman? The Federal Funds Market in the Early Stages of the Financial Crisis

Nov 24 Kester Tong presents Bolton-Santos-Scheinkman, Outside and Inside Liquidity

Dec 1 Luke Stein and Elisabeth Stein present their own work on uncertainty

Dec 8 Josie will give a job market practice presentation

Tips for presenting work

max 20 slides

Beamer slides tex file (as you download, ignore the “not found” commands and press “ok”. These are the figure files) and the compiled pdf file

1^st slide states “motivation” or “goal”

starting with 2^nd slide: description of “setup” – agents, preferences/objective function, technology/constraints

equilibrium concept

model implications/results

1 slide with conclusion

Interbank markets, “systemic risk” & policy

• Acharya, Gale & Yorulmazer, Rollover Risk and Market Freezes
• Freixas-Jorge, The Role of Interbank Markets in Monetary Policy: A Model With Rationing
• Kiyotaki-Moore, Liquidity, Business Cycles and Monetary Policy
• Furfine, Interbank Exposures: Quantifying the Risk of Contagion
• Cocco-Gomes-Martins, Lending Relationships in the Interbank Market

Liquidity effects in asset pricing

• Holmstrom & Tirole Private and Public Supply of Liquidity Journal of Political Economy 1998
• Allen-Gale, Limited Market Participation and Volatility of Asset Prices
• Brunnermeier-Pedersen, =

Frictions, their macroeconomic effects and policy

• Schneider & Tornell “Balance Sheet Effects, Bailout Guarantees and Financial Crisis” Review of Economic Studies 2004 --- banks have a strong incentive to default together and not alone, because that’s when they get bailed out
• Fiorella de Fiore and Oreste Tristani Optimal Monetary Policy in a Model of the Credit Channel, Working paper 2008 – banks have time-varying costs to monitor firms, these costs drive default spreads and enter the Fed’s optimal policy function (since the Fed cares about welfare, which includes entrepreneurs’ utility)
• Kocherlakota 2009 Assessing resolutions of the banking crisis when the government guarantees the debt of bank, it generates a debt overhang problem. The paper compares various proposals for alleviating this problem.

Housing:

• Longstaff “Borrower Credit and the Valuation of Mortgage Backed Securities” Real Estate Economics 2005

Recent financial market innovations

• Parlour & Winton http://faculty.haas.berkeley.edu/parlour/Research/Loan_Sales_CDS_2008_08_30.pdf Working paper 2008
• Brennan, Hein & Poon, “Tranching and Rating”, Working paper 2008
• Campbell & Hercowitz “Welfare Implications of the Transition to High Household Debt”, Working paper 2006

Global imbalances

• Mendoza, Quadrini & Rios Rull “Financial Integration, Financial Development and Global Imbalances”, forthcoming JPE

Quantitative implications for aggregates

• Cooley, Marimon & Quadrini “Aggregate Consequences of Limited Contract Inforceability” Journal of Political Economics 2004
• Cordoba & Ripoll, “Credit Cycle Redux” Journal of International Economics 2003

• Chari, Christiano & Kehoe’s note on myths (can be presented together with another paper): http://www.minneapolisfed.org/research/WP/WP666.pdf
• Cohen-Cole et al. “Looking Behind the Aggregates: A reply to “Facts and Myths about the Financial Crisis 2008”, Working paper Boston Fed
• Christiano’s reply
• Eisfeldt & Rampini Capital Reallocation and Liquidity Journal of Monetary Economics 2006
• He and Krishnamurthy A Model of Capital and Crisis NBER working paper 2008

+++++++++++++++++++++++++++++++++++++++++++++++++++

Past quarters

Spring 2009

Apr 20 + 27: Marcello Miccoli presents “The Leverage Cycle” by John Geanakoplos, forthcoming the NBER Macroannual

May 4, Tim Landvoigt presents Economic Catastrophe Bonds by Coval, Jurek and Stafford, forthcoming American Economic Review.

May 11 Johannes Stroebel presents Bank Lending during the Financial Crisis of 2008 by Ivashina and Scharfstein

May 18 Theresa Kuchler presents “Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market” by Khwaja and Mian

May 25 Memorial Day

Winter 2009

• Jan 12: Josie Smith will present Lucas & McDonald “An Option-Based approach to evaluating the risk of Fennie Mae and Freddie Mac”, Journal of Monetary Economics 2006

• Jan 19: Martin Luther King Day
• Jan 26: Dominic Coey will present Gorton & Pennacchi “Banks and Loan Sales: Marketing Nonmarketable Assets” Journal of Monetary Economics 1995

• Feb 2: Elizabeth Stone will present Central bank policy with derivatives: Zapatero Reverter “Exchange rate interventions with options” 2002

• Feb 9: Kester Tong will present his own work on debt

• Feb 16: Max Floetotto will present Christiano et al. on nominal firm debt “Financial factors in business cycle analysis” , Working paper and Appendix

• Feb 23: Edison Yu will present Christiano et al. “Monetary policy and stock market boom-bust cycles”, ECB Working paper 2008

• Mar 2: Johannes Stroebel will present his work with Theresa Kuchler on mortgage default

• March 9 : Reading group meeting in Los Altos (do we have enough cars?) Theresa Kuchler will present Himmelberg, Mayer, Sinai Assessing High House Prices and then we’ll celebrate the end of the quarter with some pizza.

Fall 2008

Oct 13: Josie Smith presents Holmstrom & Tirole, “Financial Intermediation, Loanable Funds and the Real Sector” QJE 1997

Oct 20: Elizabeth Stone presents Kocherlakota “Creating Business Cycles Through Credit Constraints” Quarterly Review 2000

Oct 27. Kester Tong presents Gale & Gottardi “Illiquidity and Under-Valuation of Firms”, Working paper 2008

Nov 3 & 10: Caballero, Hoshi & Kashyap, “Zombie Lending and Depressed Restructuring in Japan”, American Economic Review Forthcoming

Related: Hoshi & Kashyap, “Will the TARP succeed? Lessons from Japan”, NBER Working paper 2008 presented by Johannes Stroebel & Dominic Coey

Nov 17: Gerardi, Shapiro and Willen “Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures” http://www.bos.frb.org/economic/wp/wp2007/wp0715.pdf Working paper 2007 presented by Edison Yu

Nov 24: Kaplan & Zingales “Do Investment Cash-Flow Sensitivities Provide Useful Measures of Financing Constraints?” QJE 1997 presented by Max Floetotto

Dec 1: Pulvino “Do Asset Fire Sales Exist? An Empirical Investigation of Commercial Aircraft Transactions” JFE 1998 presented by Theresa Kuchler

Dec 8: Pedro Gete (University of Chicago)

“Housing Markets and Current Account Dynamics”