Monetary Policy

Using a household survey with information treatments conducted in the aftermath of the SVB’s collapse, we examine the potential for a large bank’s failure to trigger bank runs and the effectiveness of public communication in containing such a risk. We find that news about SVB’s collapse increases households’ propensity to withdraw bank deposits as people become more worried that their bank may fail and expect larger losses on deposits in case of bank failure. Communication by the Federal Reserve in support of the banking sector and information about FDIC deposit insurance can contain the risk of bank runs, while communication from politicians influences only their electoral base.

Economists have proposed two main theories to explain the recent spike in prices. Progressives have attributed the rise in inflation to corporate greed and have suggested price controls in response. Other economists have turned back to the New Consensus in Macroeconomics that arose in the 1970s in response to steep inflation blamed on the large Keynesian fiscal expansion of the preceding decades. Matías Vernengo writes that neither camp has correctly diagnosed the problems with current inflation. Proponents of Greedflation overlook the price stability of the last few decades even as market concentration increased. On the other hand, advocates of the New Consensus similarly forget their history and the commodity shocks and price-wage spiral that were the real culprit for inflation in the 1970s.

Social trust in democratic institutions affects the ability of those institutions to carry out policy. In new research, Rustam Jamilov shows how decreasing trust in the U.S. institutions has reduced the ability of the Federal Reserve to influence the economy in states that exhibit lower levels of trust.

The implementation of central bank digital currencies as the primary medium of exchange would exacerbate the flaws of our current fiat system which encourage banks to overextend credit and create liabilities that they cannot redeem. This will worsen the already recurring cycles of financial crises, writes Vibhu Vikramaditya.

Following up their recent analysis of risk in the banking system, DeMarzo, Jiang, Krishnamurthy, Matvos, Piskorski and Seru argue that banks should be required...

Laurence Kotlikoff and Rick Miller argue that banking as we know it is dying. It’s time to arrange a smooth transition to limited purpose...

Far before the collapse of SVB, I provided systematic evidence that banks appear to benefit from their directorships on Federal Reserve Banks. The fact...

Viral Acharya and Raghuram Rajan explain how quantitative easing contributed to the problems underlying the recent bank failures such as that of Silicon Valley...

Given the recent banking turmoil and failure of SVB and Signature and issues in First Republic, it is important to understand the risk to...

Nobel Laureate and bank run expert Douglas Diamond argues that the Fed’s choice to signal long-term low interest rates, and then suddenly reverse course...