We document large, longer term, joint regime shifts in asset valuations and the real federal funds rate‐ spread. To interpret these findings, we estimate a novel macrofinance model of monetary transmission and find that the documented regimes coincide with shifts in the parameters of a policy rule, with long‐term consequences for the real interest rate. Estimates imply that two‐thirds of the decline in the real interest rate since the early 1980s is attributable to regime changes in monetary policy. The model explains how infrequent changes in the stance of monetary policy can generate persistent changes in asset valuations and the equity premium.
We test whether measures of influence on regulators affect stress test outcomes. The large trading banks—those most plausibly ‘Too Big to Fail’ – face the toughest tests. Supervisory stress tests have a greater effect on large trading banks’ portfolios; the large banks respond by making more conservative (initial) capital plans; and, despite their more conservative capital plans, the large banks still fail their tests more frequently than other banks. In contrast, while we find little evidence that political or regulatory connections affect the quantitative element of the stress tests, these connected banks do face less scrutiny under its qualitative dimension.
Journal of Financial and Quantitative Analysis202257(8), f1-f4open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.
Journal of Financial and Quantitative Analysis202257(8), b1-b2open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.
Journal of Financial and Quantitative Analysis202257(7), f1-f4open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.
Journal of Financial and Quantitative Analysis202257(7), b1-b3open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.
Journal of Financial and Quantitative Analysis202257(4), f1-f4open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.
Journal of Financial and Quantitative Analysis202257(6), f1-f4open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.
Journal of Financial and Quantitative Analysis202257(6), b1-b4open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.
Journal of Financial and Quantitative Analysis202257(5), b1-b3open access
An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.