Stefan Nagel

Everyone who knows anything about finance or government budgeting knows that a crypto reserve fund is an extremely bad idea

Our estimates are consistent with bank stock prices (they fell strongly when interest rates went up 2022-2023), but not with banks' estimates of their own interest-rate risk exposure (most of them reported in 10Ks in 2021 that a future rise in interest rates would *raise* their equity values).

All taken together, franchise value has positive duration -- it falls when interest rates go up. As a consequence, while banks' holdings of long duration securities may help stabilize net interest margins, they do not hedge franchise value.

Franchise costs, an interest-rate insensitive stream of costs to run the bank, induce negative duration. But we find empirically that banks earn an interest-rate insensitive spread component on the lending side that more than offsets the franchise costs.

Banks earn a spread on deposits, empirically approx. beta x fed funds rate, with beta < 0. As this cash flow floats proportional to the fed funds rate, its duration is zero. When interest rates rise, the cash flow goes up, but the discount rate rise exactly offsets the valuation effect.

New paper alert! We estimate bank franchise value and its exposure to interest rate risk, i.e., its duration. We look at the combined effect of several moving parts: (1/n)

Yes.

Now that @benmoll.bsky.social has gotten everybody's attention, let me tell you about the JMP of my brilliant student Michael Cai, which deals directly with Ben's challenge:

How can we model expectations in HA models in a way that is both tractable and consistent with the evidence?

#EconSky

New paper: benjaminmoll.com/challenge/

I remember… it was soooo good! 😋

Grad students: Read everything Jesse Shapiro posts at scholar.harvard.edu/shapiro/note.... Office meetings and student talks are often just me reciting "write an aspirational intro", "Your audience does not care about your topic", or "No one wants to see your underwear".

Post a picture you took (no description) to bring some zen to the timeline

I hope everyone moves from Twitter/X here

The Compliance Doom Loop Why the rules keep growing

42000 companies must prepare sustainability statements based on 1052 data points, 783 mandatory.
We're not just adding a cost to business—we're shifting the incentives for where talent goes and risking a poverty trap: "The Compliance Doom Loop."
www.siliconcontinent.com/p/the-compli...