Mr.Juan Sole

Mr.Andrea Pescatori

We show evidence that interest rate hikes slowdown loan growth but lead intermediation to migrate from banks’ balance sheets to non-banks via increased securitization activity. As such, higher interest rates have the potential for unintended consequences; raising systemic risk rather than lowering it by pushing more intermediation activity to more weakly regulated sectors. In the past, this increased securitization activity was driven primarily byb private-label securitization. On the other hand, the government sponsored entities like Freddie Mac and Fannie Mae appear to react to higher policy rates by cutting back on their securitization activity but expanding loans to the Federal Home Loan Bank system.

Watch Out for Unintended Consequences

Credit, Securitization and Monetary Policy

Ali Alichi

Mr.Kory Kantenga

The paper uses a combination of micro-level datasets to document the rise of income polarization—what some have referred to as the “hollowing out” of the income distribution—in the United States, since the 1970s. While in the initial decades more middle-income households moved up, rather than down, the income ladder, since the turn of the current century, most of polarization has been towards lower incomes. This result is striking and in contrast with findings of other recent contributions. In addition, the paper finds evidence that, after conditioning on income and household characteristics, the marginal propensity to consume from permanent changes in income has somewhat fallen in recent years. We assess the potential impacts of these trends on private consumption. During 1998-2013, the rise in income polarization and lower marginal propensity to consume have suppressed the level of real consumption at the aggregate level, by about 31⁄2 percent—equivalent to more than one year of consumption.

Mr.Juan Sole

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