FRBSF Working Papers

Working Papers

Preliminary versions of economic research.


05 Domestic Bond Markets and Inflation
  Rose Spiegel | February 2015
  + abstract
This paper explores the relationship between inflation and the existence of a local, nominal, publicly-traded, long-maturity, domestic-currency bond market. Bond holders are exposed to capital losses through inflation and therefore represent a potential anti-inflationary force; we ask whether their influence is apparent both theoretically and empirically. We develop a simple theoretical model with heterogeneous agents where the issuance of such bonds leads to political pressure on the government to choose a lower inflation rate. We then check this prediction empirically using a panel of data, examining inflation before and after the introduction of a domestic bond market. Inflation-targeting countries with a bond market experience inflation approximately three to four percentage points lower than those without one. This effect is economically and statistically significant; it is also insensitive to a variety of estimation strategies, including using political and fiscal variables suggested by theory to account for the potential endogeneity of domestic bond issuance. Notably, we do not find a similar effect for short-term or foreign-currency bonds.
04 Does Medicare Part D Save Lives?
  Dunn Shapiro | February 2015
  + abstract
This paper studies the impact of Medicare Part D on mortality for the population over the age of 65. We identify the effects of the reform using variation in drug coverage across counties before the reform was implemented. Studying mortality rates immediately before and after the reform, we find that cardiovascular-related mortality drops significantly in those counties most affected by Part D, while mortality rates for noncardiovascular diseases remain statistically unchanged. Estimates suggest that between 19,000 and 27,000 more individuals were alive in mid-2007 because of the Part D implementation in 2006.
03 The Effect of Extended Unemployment Insurance Benefits: Evidence from the 2012-2013 Phase-Out
  Farber Rothstein Valletta | January 2015
  + abstract
Unemployment Insurance benefit durations were extended during the Great Recession, reaching 99 weeks for most recipients. The extensions were rolled back and eventually terminated by the end of 2013. Using matched CPS data from 2008-2014, we estimate the effect of extended benefits on unemployment exits separately during the earlier period of benefit expansion and the later period of rollback. In both periods, we find little or no effect on job-finding but a reduction in labor force exits due to benefit availability. We estimate that the rollbacks reduced the labor force participation rate by about 0.1 percentage point in early 2014.
02 Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach
  Gelain Lansing Natvik | January 2015
  + abstract
We use a simple quantitative asset pricing model to “reverse-engineer” the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage contract (one-period versus long-term). We find that the model with moving average forecast rules and long-term mortgage debt does best in plausibly matching the patterns observed in the data. Counterfactual simulations show that shifting lending standards (as measured by a loan-to-equity limit) were an important driver of the episode while movements in the mortgage interest rate were not. Our results lend support to the view that the U.S. housing boom was a classic credit-fueled bubble involving over-optimistic projections about future housing values, relaxed lending standards, and ineffective mortgage regulation.
01 Resolving the Spanning Puzzle in Macro-Finance Term Structure Models
  Bauer Rudebusch | January 2015
  + abstract
Previous macro-finance term structure models (MTSMs) imply that macroeconomic state variables are spanned by (i.e., perfectly correlated with) model-implied bond yields. However, this theoretical implication appears inconsistent with regressions showing that much macroeconomic variation is unspanned and that the unspanned variation helps forecast excess bond returns and future macroeconomic fluctuations. We resolve this contradiction—or “spanning puzzle”—by reconciling spanned MTSMs with the regression evidence, thus salvaging the previous macro-finance literature. Furthermore, we statistically reject “unspanned” MTSMs, which are an alternative resolution of the spanning puzzle, and show that their knife-edge restrictions are economically unimportant for determining term premia.


28 Betting the House
  Jordá Schularick Taylor | December 2014
  + abstract
Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection methods to demonstrate that loose monetary conditions lead to booms in real estate lending and house prices bubbles; these, in turn, materially heighten the risk of financial crises. Both effects have become stronger in the postwar era.
27 A Dynamic Model of Price Signaling, Consumer Learning, and Price Adjustment
  Osborne Shapiro | November 2014
  + abstract
We examine a model of consumer learning and price signaling where price and quality are optimally chosen by a monopolist. Through numerical solution and simulation of the model we find that price signaling causes the firm to raise its prices, lower its quality, and dampen the degree to which it passes on cost shocks to price. We identify two mechanisms through which signaling affects pass-through. The first is static: holding quality fixed, price signaling increases the curvature of demand relative to the case where quality is known, which ultimately acts to dampen how prices respond to changes in cost. The second is dynamic: a firm that engages in signaling recognizes that changing prices today affects consumer beliefs about the relationship between prices and quality in the future. We also find that signaling can lead to asymmetric pass-through. If the cost of adjusting quality is sufficiently high, then cost increases pass through to a greater extent than cost decreases.
26 Financial Frictions, the Housing Market, and Unemployment
  Branch Petrosky-Nadeau Rocheteau | November 2014
  + abstract
We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. It also triggers a reallocation of workers, with the direction of the change depending on firms’ market power in the goods market. A calibrated version of the model under adaptive learning can account for house prices, sectoral labor flows, and unemployment rate changes over 1996-2010.
25 The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises
  Kwan Wong Hui | October 2014
  + abstract
The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank’s foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which would seem more relevant to the host country policy makers. We find global banks using the foreign branches in Hong Kong as a funding source during the liquidity crunch in home country, suggesting that global banks manage their liquidity risk globally. After the central bank at home country introduced liquidity facility to relieve funding pressure, the effect disappeared. We also find strong evidence that foreign branches originated from crisis countries lend significantly less in Hong Kong relative to their controls, suggesting the presence of the lending channel in the transmission of shocks from the home country to the host country.
24 Shopping Time
  Petrosky-Nadeau Wasmer Zeng | September 2014
  + abstract
The renewal of interest in macroeconomic theories of search frictions in the goods market requires a deeper understanding of the cyclical properties of the intensive margins in this market. We review the theoretical mechanisms that promote either procyclical or countercyclical movements in time spent searching for consumer goods and services, and then use the American Time Use Survey to measure shopping time through the Great Recession. Average time spent searching declined in the aggregate over the period 2008-2010 compared to 2005-2007, and the decline was largest for the unemployed who went from spending more to less time searching for goods than the employed. Cross-state regressions point towards a procyclicality of consumer search in the goods market. At the individual level, time allocated to different shopping activities is increasing in individual and household income. Overall, this body of evidence supports procyclical consumer search effort in the goods market and a conclusion that price comparisons cannot be a driver of business cycles.
23 The Great Mortgaging: Housing Finance, Crises, and Business Cycles
  Jordá Schularick Taylor | September 2014
  + abstract
This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks’ balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a central role in the modern macroeconomy.
22 Explaining Exchange Rate Anomalies in a Model with Taylor-rule Fundamentals and Consistent Expectations
  Lansing Ma | February 2015
  + abstract
We introduce boundedly-rational expectations into a standard asset-pricing model of the exchange rate, where cross-country interest rate differentials are governed by Taylor-type rules. Agents augment a lagged-information random walk forecast with a term that captures news about Taylor-rule fundamentals. The coefficient on fundamental news is pinned down using the moments of observable data such that the resulting forecast errors are close to white noise. The model generates volatility and persistence that is remarkably similar to that observed in monthly exchange rate data for Canada, Japan, and the U.K. Regressions performed on model-generated data can deliver the well-documented forward premium anomaly.
21 The Extent and Cyclicality of Career Changes: Evidence for the U.K.
  Carrillo-Tudela Hobijn She Visschers | August 2014
  + abstract
Using quarterly data for the U.K. from 1993 through 2012, we document that in economic downturns a smaller fraction of unemployed workers change their career when starting a new job. Moreover, the proportion of total hires that involves a career change for the worker also drops in recessions. Together with a simultaneous drop in overall turnover, this implies that the number of career changes declines during recessions. These results indicate that recessions are times of subdued reallocation rather than of accelerated and involuntary structural transformation. We back this interpretation up with evidence on who changes careers, which industries and occupations they come from and go to, and at which wage gains.
20 Financial Crises and the Composition of Cross-Border Lending
  Cerutti Hale Minoiu | August 2014
  + abstract
We examine the composition and drivers of cross-border bank lending between 1995 and 2012, distinguishing between syndicated and non-syndicated loans. We show that on-balance sheet syndicated loan exposures, which account for almost one third of total cross-border loan exposures, increased during the global financial crisis due to large drawdowns on credit lines extended before the crisis. Our empirical analysis of the drivers of cross-border loan exposures in a large bilateral dataset leads to three main results. First, banks with lower levels of capital favor syndicated over other kinds of cross-border loans. Second, borrower country characteristics such as level of development, economic size, and capital account openness, are less important in driving syndicated than non-syndicated loan activity, suggesting a diversification motive for syndication. Third, information asymmetries between lender and borrower countries became more binding for both types of cross-border lending activity during the recent crisis.
19 The Rise in Home Currency Issuance
  Hale Jones Spiegel | October 2014
  + abstract
Using a large sample of private international bond issues, we document a substantial decline in the share of international bonds denominated in major reserve currencies over the last two decades, and an increase in bonds denominated in issuers’ home currencies. These secular trends appear to have accelerated notably after the global financial crisis. Observed increases in home currency foreign bond issuance was larger in countries with stable inflation and lower government debt, and in emerging markets that adopted explicit inflation targeting policies. We then present a model that demonstrates how the global financial crisis could have a persistent impact on home currency bond issuance. Firms that issue for the first time in their home currencies during disruptive episodes, such as the crisis, find their relative costs of issuance in home currencies remain lower after conditions return to normal, due to the increased depth of the home currency market. Empirically, we show that countries with more stable inflation and lower government debt were more likely to benefit from the opportunity to switch to home currency foreign bond issuance presented by the crisis.
18 Transmission of Quantitative Easing: The Role of Central Bank Reserves
  Christensen Krogstrup | March 2015
  + abstract
We argue that the issuance of central bank reserves per se can matter for the effect of central bank large-scale asset purchases—commonly known as quantitative easing—on long-term interest rates. This effect is independent of the assets purchased, and runs through a reserve-induced portfolio balance channel. For evidence we analyze the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities. We find that declines in long-term yields following the announcements mainly reflected reduced term premiums suggestive of reserve-induced portfolio balance effects.
17 Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models
  Carvalho Nechio | October 2014
  + abstract
We study how real exchange rate dynamics are affected by monetary policy in dynamic, stochastic, general equilibrium, sticky-price models. Our analytical and quantitative results show that the source of interest rate persistence – policy inertia or persistent policy shocks – is key. When the monetary policy rule has a strong interest rate smoothing component, these models fail to generate high real exchange rate persistence in response to monetary shocks, as policy inertia hampers their ability to generate a hump-shaped response to such shocks. Moreover, in the presence of persistent monetary shocks, increasing policy inertia may decrease real exchange rate persistence.
16 Long-Run Risk is the Worst-Case Scenario
  Bidder Dew-Becker | December 2014
  + abstract
We study an investor who is unsure of the dynamics of the economy. Not only are parameters unknown, but the investor does not even know what order model to estimate. She estimates her consumption process non-parametrically and prices assets using a pessimistic model that minimizes lifetime utility subject to a constraint on statistical plausibility. The equilibrium is exactly solvable and we show that the pricing model always includes long-run risks. With a single free parameter determining risk preferences, the model generates high and volatile risk premia, excess volatility in stock returns, return predictability, interest rates that are uncorrelated with expected consumption growth, and investor expectations that are consistent with survey evidence. Risk aversion is equal to 4.8, there is no stochastic volatility or disasters, and the pricing model is statistically nearly indistinguishable from the true data-generating process. The analysis yields a general characterization of behavior under a very broad form of model uncertainty.
15 Productivity and Potential Output Before, During, and After the Great Recession
  Fernald | June 2014
  + abstract
U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules explanations that focus on disruptions during or since the recession, and industry and state data rule out “bubble economy” stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about ¾ of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.
+ supplement – data for replication (244 Mb)
Online_appendix_to.pdf – Online appendix
14 A Wedge in the Dual Mandate: Monetary Policy and Long-Term Unemployment
  Rudebusch Williams | May 2014
  + abstract
In standard macroeconomic models, the two objectives in the Federal Reserve’s dual mandate—full employment and price stability—are closely intertwined. We motivate and estimate an alternative model in which long-term unemployment varies endogenously over the business cycle but does not affect price inflation. In this new model, an increase in long-term unemployment as a share of total unemployment creates short-term tradeoffs for optimal monetary policy and a wedge in the dual mandate. In particular, faced with high long-term unemployment following the Great Recession, optimal monetary policy would allow inflation to overshoot its target more than in standard models.
13 Recent Extensions of U.S. Unemployment Benefits: Search Responses in Alternative Labor Market States
  Valletta | May 2014
  + abstract
In response to the 2007-09 “Great Recession,” the maximum duration of U.S. unemployment benefits was increased from the normal level of 26 weeks to an unprecedented 99 weeks. I estimate the impact of these extensions on job search, comparing them with the more limited extensions associated with the milder 2001 recession. The analyses rely on monthly matched microdata from the Current Population Survey. I find that a 10-week extension of UI benefits raises unemployment duration by about 1.5 weeks, with little variation across the two episodes. This estimate lies in the middle-to-upper end of the range of past estimates.
12 Has U.S. Monetary Policy Tracked the Efficient Interest Rate?
  Curdia Ferrero Ng Tambalotti | May 2014
  + abstract
Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of the monetary policy reaction function, in which the interest rate tracks the evolution of a Wicksellian efficient rate of return as the primary indicator of real activity, fits the U.S. data better than otherwise identical Taylor rules. This surprising result holds for a wide variety of specifications of the other ingredients of the policy rule and of approaches to the measurement of the output gap. Moreover, it is robust across two different models of private agents’ behavior.
+ supplement
wp14-12appendix.pdf – Supplemental Appendix
11 Labor Markets in the Global Financial Crisis: The Good, the Bad and the Ugly
  Daly Fernald Jordà Nechio | April 2014
  + abstract
This note examines labor market performance across countries through the lens of Okun’s Law. We find that after the 1970s but prior to the global financial crisis of the 2000s, the Okun’s Law relationship between output and unemployment became more homogenous across countries. These changes presumably reflected institutional and technological changes. But, at least in the short term, the global financial crisis undid much of this convergence, in part because the affected countries adopted different labor market policies in response to the global demand shock.
10 The Euro and the Geography of International Debt Flows
  Hale Obstfeld | December 2014
  + abstract
Greater financial integration between core and peripheral EMU members not only had an effect on both sets of countries but also spilled over beyond the euro area. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. We present a stylized model that illustrates possible mechanisms for these developments. We then analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery. Moreover, we present evidence that large core EMU banks’ lending to periphery borrowers was linked to their borrowing from outside of the euro area.
09 Inflation Expectations and the News
  Bauer | March 2014
  + abstract
This paper provides new evidence on the importance of inflation expectations for variation in nominal interest rates, based on both market-based and survey-based measures of inflation expectations. Using the information in TIPS breakeven rates and inflation swap rates, I document that movements in inflation compensation are important for explaining variation in long-term nominal interest rates, both unconditionally as well as conditionally on macroeconomic data surprises. Daily changes in inflation compensation and changes in long-term nominal rates generally display a close statistical relationship. The sensitivity of inflation compensation to macroeconomic data surprises is substantial, and it explains a sizable share of the macro response of nominal rates. The paper also documents that survey expectations of inflation exhibit significant comovement with variation in nominal interest rates, as well as significant responses to macroeconomic news.
08 Did Consumers Want Less Debt? Consumer Credit Demand Versus Supply in the Wake of the 2008-2009 Financial Crisis
  Gropp Krainer Laderman | February 2014
  + abstract
We explore the sources of household balance sheet adjustment following the collapse of the housing market in 2006. First, we use microdata from the Federal Reserve Board’s Senior Loan Officer Opinion Survey to document that banks cumulatively tightened consumer lending standards more in counties that experienced a house price boom in the mid-2000s than in nonboom counties. We then use the idea that renters, unlike homeowners, did not experience an adverse wealth shock when the housing market collapsed to examine the relative importance of two explanations for the observed deleveraging and the sluggish pickup in consumption after 2008. First, households may have optimally adjusted to lower wealth by reducing their demand for debt and implicitly, their demand for consumption. Alternatively, banks may have been more reluctant to lend in areas with pronounced real estate declines. Our evidence is consistent with the second explanation. Renters with low risk scores, compared to homeowners in the same markets, reduced their levels of nonmortgage debt and credit card debt more in counties where house prices fell more. The contrast suggests that the observed reductions in aggregate borrowing were more driven by cutbacks in the provision of credit than by a demand-based response to lower housing wealth.
07 Monetary Policy Effectiveness in China: Evidence from a FAVAR Model
  Fernald Spiegel Swanson | February 2014
  + abstract
We use a broad set of Chinese economic indicators and a dynamic factor model framework to estimate Chinese economic activity and inflation as latent variables. We incorporate these latent variables into a factor-augmented vector autoregression (FAVAR) to estimate the effects of Chinese monetary policy on the Chinese economy. A FAVAR approach is particularly well-suited to this analysis due to concerns about Chinese data quality, a lack of a long history for many series, and the rapid institutional and structural changes that China has undergone. We find that increases in bank reserve requirements reduce economic activity and inflation, consistent with previous studies. In contrast to much of the literature, however, we find that changes in Chinese interest rates also have substantial impacts on economic activity and inflation, while other measures of changes in credit conditions, such as shocks to M2 or lending levels, do not once other policy variables are taken into account. Overall, our results indicate that the monetary policy transmission channels in China have moved closer to those of Western market economies.
06 Scraping By: Income and Program Participation After the Loss of Extended Unemployment Benefits
  Rothstein Valletta | February 2014
  + abstract
Despite unprecedented extensions of available unemployment insurance (UI) benefits during the “Great Recession” of 2007-09 and its aftermath, large numbers of recipients exhausted their maximum available UI benefits prior to finding new jobs. Using SIPP panel data and an event-study regression framework, we examine the household income patterns of individuals whose jobless spells outlast their UI benefits, comparing the periods following the 2001 and 2007-09 recessions. Job loss reduces household income roughly by half on average, and for UI recipients benefits replace just under half of this loss. Accordingly, when benefits end the household loses UI income equal to roughly one-quarter of total pre-separation household income (and about one-third of pre-exhaustion household income). Only a small portion of this loss is offset by increased income from food stamps and other safety net programs. The share of families with income below the poverty line nearly doubles. These patterns were generally similar following the 2001 and 2007-09 recessions and do not vary dramatically by household age or income prior to job loss.
05 Mortgage Choice in the Housing Boom: Impacts of House Price Appreciation and Borrower Type
  Furlong Takhtamanova Lang | March 2014
  + abstract
The U.S. housing boom during the first part of the past decade was marked by rapid house price appreciation and greater access to mortgage credit for lower credit-rated borrowers. The subsequent collapse of the housing market and the high default rates on residential mortgages raise the issue of whether the pace of house price appreciation and the mix of borrowers may have affected the influence of fundamentals in housing and mortgage markets. This paper examines that issue in connection with one aspect of mortgage financing, the choice among fixed-rate and adjustable-rate mortgages. This analysis is motivated in part by the increased use of adjustable-rate mortgage financing, notably among lower credit-rated borrowers, during the peak of the housing boom. Based on analysis of a large sample of loan level data, we find strong evidence that house price appreciation dampened the influence of a number of fundamentals (mortgage pricing terms and other interest rate related metrics) that previous research finds to be important determinants of mortgage financing choices. With regard to the mix of borrowers, the evidence indicates that, while low risk-rated borrowers were affected on the margin more by house price appreciation, on balance those borrowers tended be at least as responsive to fundamentals as high risk rated borrowers. The higher propensity of low credit-rated borrowers to choose adjustable-rate financing compared with high credit-rated borrowers in the housing boom appears to have been related to borrower credit risk metrics. Given the evidence related to loan pricing terms, other interest rate metrics and fixed effects, the relation of credit risk to mortgage financing choice seems more consistent with considerations such as credit constraints, risk preferences, and mortgage tenor than just a systematic lack of financial sophistication among higher credit risk borrowers.
04 Breaking the “Iron Rice Bowl” and Precautionary Savings: Evidence from Chinese State-Owned Enterprises Reform
  He Huang Liu Zhu | April 2014
  + abstract
We use China’s large-scale reform of state-owned enterprises (SOE) in the late 1990s as a natural experiment to identify and quantify the importance of precautionary savings for wealth accumulation. Before the reform, SOE workers enjoyed the same job security as government employees. After the reform, a cumulative of over 35 million SOE workers have been laid off, although government employees kept their “iron rice bowl.” The change in unemployment risks for SOE workers relative to that of government employees before and after the reform provides a clean identification of income uncertainty that helps us estimate the importance of precautionary savings. In our estimation, we correct a self-selection bias in occupational choices and we disentangle the effects of uncertainty from pessimistic outlook. We obtain evidence that precautionary savings contribute to about one-third of the wealth accumulations for SOE workers between 1995 and 2002. Precautionary savings motive is thus an important factor that drives the observed rising Chinese saving rate.
03 Can Spanned Term Structure Factors Drive Stochastic Yield Volatility?
  Christensen Lopez Rudebusch | January 2014
  + abstract
The ability of the usual factors from empirical arbitrage-free representations of the term structure—that is, spanned factors—to account for interest rate volatility dynamics has been much debated. We examine this issue with a comprehensive set of new arbitrage-free term structure specifications that allow for spanned stochastic volatility to be linked to one or more of the yield curve factors. Using U.S. Treasury yields, we find that much realized stochastic volatility cannot be associated with spanned term structure factors. However, a simulation study reveals that the usual realized volatility metric is misleading when yields contain plausible measurement noise. We argue that other metrics should be used to validate stochastic volatility models.
02 The Future of U.S. Economic Growth
  Fernald Jones | January 2014
  + abstract
Modern growth theory suggests that more than 3/4 of growth since 1950 reflects rising educational attainment and research intensity. As these transition dynamics fade, U.S. economic growth is likely to slow at some point. However, the rise of China, India, and other emerging economies may allow another few decades of rapid growth in world researchers. Finally, and more speculatively, the shape of the idea production function introduces a fundamental uncertainty into the future of growth. For example, the possibility that artificial intelligence will allow machines to replace workers to some extent could lead to higher growth in the future.
01 Modernization and discrete measures of democracy
  Benhabib Corvalan Spiegel | January 2014
  + abstract
We reassess the empirical evidence for a positive relationship between income and democracy, commonly known as the “modernization hypothesis,” using discrete democracy measures. While discrete measures have been advocated in the literature, they pose estimation problems under fixed effects due to incidental parameter issues. We use two methods to address these issues, the bias-correction method of Fernandez-Val, which directly computes the marginal effects, and the parameterized Wooldridge method. Estimation under the Fernandez-Val method consistently indicates a statistically and economically important role for income in democracy, while under the Wooldridge method we obtain much smaller and not always statistically significant coefficients. A likelihood ratio test rejects the pooled full sample used under the Wooldridge estimation method against the smaller fixed effects sample that only admits observations with changing democracy measures. Our analysis therefore favors a positive role for income in promoting democracy, but does not preclude a role for institutions in determining democratic status as the omitted countries under Fernandez Val-fixed effect method appear to differ systematically by institutional quality measures which have a positive impact on democratization.


40 Disability Benefit Growth and Disability Reform in the U.S.: Lessons from Other OECD Nations
  Burkhauser Daly McVicar Wilkins | December 2013
  + abstract
Unsustainable growth in program costs and beneficiaries, together with a growing recognition that even people with severe impairments can work, led to fundamental disability policy reforms in the Netherlands, Sweden, and Great Britain. In Australia, rapid growth in disability recipiency led to more modest reforms. Here we describe the factors driving unsustainable DI program growth in the U.S., show their similarity to the factors that led to unsustainable growth in these other four OECD countries, and discuss the reforms each country implemented to regain control over their cash transfer disability program. Although each country took a unique path to making and implementing fundamental reforms, shared lessons emerge from their experiences.
39 Modeling Yields at the Zero Lower Bound: Are Shadow Rates the Solution?
  Christensen Rudebusch | December 2013
  + abstract
Recent U.S. Treasury yields have been constrained to some extent by the zero lower bound (ZLB) on nominal interest rates. In modeling these yields, we compare the performance of a standard affine Gaussian dynamic term structure model (DTSM), which ignores the ZLB, and a shadow-rate DTSM, which respects the ZLB. We find that the standard affine model is likely to exhibit declines in fit and forecast performance with very low interest rates. In contrast, the shadow-rate model mitigates ZLB problems significantly and we document superior performance for this model class in the most recent period.
38 A Probability-Based Stress Test of Federal Reserve Assets and Income
  Christensen Lopez Rudebusch | December 2013
  + abstract
To support the economy, the Federal Reserve amassed a large portfolio of long-term bonds. We assess the Fed’s associated interest rate risk — including potential losses to its Treasury securities holdings and declines in remittances to the Treasury. Unlike past examinations of this interest rate risk, we attach probabilities to alternative interest rate scenarios. These probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields. The resulting probability-based stress test finds that the Fed’s losses are unlikely to be large and remittances are unlikely to exhibit more than a brief cessation.
37 Sovereigns versus Banks: Credit, Crises, and Consequences
  Jordà Schularick Taylor | February 2014
  + abstract
Two separate narratives have emerged in the wake of the Global Financial Crisis. One interpretation speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies. However, the two may interact in important and understudied ways. This paper examines the co-evolution of public and private sector debt in advanced countries since 1870. We find that in advanced economies significant financial stability risks have mostly come from private sector credit booms rather than from the expansion of public debt. However, we find evidence that high levels of public debt have tended to exacerbate the effects of private sector deleveraging after crises, leading to more prolonged periods of economic depression. We uncover three key facts based on our analysis of around 150 recessions and recoveries since 1870: (i) in a normal recession and recovery real GDP per capita falls by 1.5 percent and takes only 2 years to regain its previous peak, but in a financial crisis recession the drop is typically 5 percent and it takes over 5 years to regain the previous peak; (ii) the output drop is even worse and recovery even slower when the crisis is preceded by a credit boom; and (iii) the path of recovery is worse still when a credit-fueled crisis coincides with elevated public debt levels. Recent experience in the advanced economies provides a useful out-of-sample comparison, and meshes closely with these historical patterns. Fiscal space appears to be a constraint in the aftermath of a crisis, then and now.
36 Physician Payments Under Health Care Reform
  Dunn Shapiro | March 2014
  + abstract
This study examines the impact of major health insurance reform on payments made in the health care sector. We study the prices of services paid to physicians in the privately insured market during the Massachusetts health care reform. The reform increased the number of insured individuals as well as introduced an online marketplace where insurers compete. We estimate that, over the reform period, physician payments increased at least 10.8 percentage points relative to control areas. Payment increases began around the time legislation passed the House and Senate—the period in which their was a high probability of the bill eventually becoming law. This result is consistent with fixed-duration payment contracts being negotiated in anticipation of future demand and competition.
35 The Impact of Reserves Practices on Bank Opacity
  Iannotta Kwan | July 2014
  + abstract
This paper finds that banking firms’ unexpected loan loss provisions had a significant effect of increasing bank opacity, both before and during the 2007-09 financial crisis. Furthermore, during the financial crisis, the extent to which banks delayed loan loss recognition is found to have had a significant effect on bank opacity, confirming an important concern raised by the Financial Crisis Advisory Group. Overall, banks’ practices in managing reserves seem to have a material impact on their opacity.
34 A Regime-Switching Model of the Yield Curve at the Zero Bound
  Christensen | January 2015
  + abstract
This paper presents a regime-switching model of the yield curve with two states. One is a normal state, the other is a zero-bound state that represents the case when the monetary policy target rate is at its zero lower bound for a prolonged period, as the U.S. economy has been since December 2008. The model delivers estimates of the time-varying probability of exiting the zero-bound state, and it outperforms standard three- and four-factor term structure models as well as a shadow-rate model at matching short-rate expectations and the compression in yield volatility near the zero lower bound.
33 Optimal Monetary Policy and Capital Account Restrictions in a Small Open Economy
  Liu Spiegel | February 2015
  + abstract
Declines in interest rates in advanced economies during the global financial crisis resulted in surges in capital flows to emerging market economies and triggered advocacy of capital control policies. We evaluate the effectiveness for macroeconomic stabilization and the welfare implications of the use of capital account policies in a monetary DSGE model of a small open economy. Our model features incomplete markets, imperfect asset substitutability, and nominal rigidities. In this environment, policymakers can respond to fluctuations in capital flows through capital account policies such as sterilized interventions and taxing capital inflows, in addition to conventional monetary policy. Our welfare analysis suggests that optimal sterilization and capital controls are complementary policies.
32 Output and Unemployment Dynamics
  Daly Fernald Jordà Nechio | November 2014
  + abstract
The evolution of the secular and business-cycle comovement between different components of the production function and unemployment, Okun’s law, provides important stylized facts for macro modelers. We show that total hours worked adjust two-to-one to changes in the unemployment rate. The cyclicality of productivity has changed over time and as a function of the type of shock hitting the economy. Even the responses of different margins to shocks vary over time. We document these and other features of the data using the growth-accounting decomposition in Fernald (2014).
31 Factor Specificity and Real Rigidities
  Carvalho Nechio | September 2014
  + abstract
We develop a multisector model in which capital and labor are free to move across firms within each sector, but cannot move across sectors. To isolate the role of sectoral specificity, we compare our model with otherwise identical multisector economies with either economy-wide factor markets (as in Chari et al. 2000) or firm-specific factor markets (as in Woodford 2005). Sectoral factor specificity generates within-sector strategic substitutability and tends to induce across-sector strategic complementarity in price setting. Our model can produce either more or less monetary non-neutrality than those other two models, depending on parameterization and the distribution of price rigidity across sectors. Under the empirical distribution for the U.S., our model behaves similarly to an economy with firm-specific factors in the short-run, and later on approaches the dynamics of the model with economy-wide factor markets. This is consistent with the idea that factor price equalization might take place gradually over time, so that firm-specificity might be a reasonable short-run approximation, whereas economy-wide markets might be a better description of how factors of production are allocated in the longer run.
30 Implications of Labor Market Frictions for Risk Aversion and Risk Premia
  Swanson | September 2014
  + abstract
A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. This ability to absorb shocks along both margins can greatly alter the household’s attitudes toward risk, as shown in Swanson (2012). The present paper analyzes how frictional labor markets affect that analysis. Risk aversion is higher: 1) in recessions, 2) in countries with more frictional labor markets, and 3) for households that have more difficulty finding a job. These predictions are consistent with empirical evidence from a variety of sources. Traditional, fixed-labor measures of risk aversion show no stable relationship to the equity premium in a standard real business cycle model with search frictions, while the closed-form expressions derived in the present paper match the equity premium closely.
29 Frequency Shifting
  Bidder | September 2013
  + abstract
What determines the frequency domain properties of a stochastic process? How much risk comes from high frequencies, business cycle frequencies or low frequency swings? If these properties are under the influence of an agent, who is compensated by a principal according to the distribution of risk across frequencies, then the nature of this contracting problem will affect the spectral properties of the endogenous outcome. We imagine two thought experiments: in the first, the principal (or “regulator”) is myopic with regard to certain frequencies—he is characterized by a filter—and the agent (“bank”) chooses to hide risk by shifting power from frequencies to which the regulator is attuned to those to which he is not. Thus, the regulator is fooled into thinking there has been an overall reduction in risk when, in fact, there has simply been a frequency shift. In the second thought experiment, the regulator is not myopic, but simply cares more about risk from certain frequencies, perhaps due to the preferences of the constituents he represents or because certain types of market incompleteness make certain frequencies of risk more damaging. We model this intuition by positing a filter design problem for the agent and also by a particular type of portfolio selection problem, in which the agent chooses among investment projects with different spectral properties. We discuss implications of these models for macroprudential policy and regulatory arbitrage.
28 Doubts and Variability: A Robust Perspective on Exotic Consumption Series
  Bidder Smith | September 2013
  + abstract
In order for consumption based asset pricing models to reconcile data on returns with that on consumption, researchers have resorted to augmenting the consumption series in exotic ways. When an agent’s consumption series is subject to changes in volatility, we show that concerns for model misspecification can induce fears of both disasters and long run risk. We appeal to this pessimistic view to explain why introducing stochastic volatility in the presence of model uncertainty helps generate a more plausible unconditional market price of risk and time variation in the conditional market price of risk. Our analysis is based on a parameterization derived from Bayesian estimation of our stochastic volatility model using US consumption data.
27 The Decline of the U.S. Labor Share
  Elsby Hobijn Sahin | September 2013
  + abstract
Over the past quarter century, labor’s share of income in the United States has trended downwards, reaching its lowest level in the postwar period after the Great Recession. Detailed examination of the magnitude, determinants and implications of this decline delivers five conclusions. First, around one third of the decline in the published labor share is an artifact of a progressive understatement of the labor income of the self-employed underlying the headline measure. Second, movements in labor’s share are not a feature solely of recent U.S. history: The relative stability of the aggregate labor share prior to the 1980s in fact veiled substantial, though offsetting, movements in labor shares within industries. By contrast, the recent decline has been dominated by trade and manufacturing sectors. Third, U.S. data provide limited support for neoclassical explanations based on the substitution of capital for (unskilled) labor to exploit technical change embodied in new capital goods. Fourth, institutional explanations based on the decline in unionization also receive weak support. Finally, we provide evidence that highlights the offshoring of the labor-intensive component of the U.S. supply chain as a leading potential explanation of the decline in the U.S. labor share over the past 25 years.
26 Does Quantitative Easing Affect Market Liquidity?
  Christensen Gillan | July 2014
  + abstract
The Federal Reserve’s second program of large-scale asset purchases, or quantitative easing—frequently referred to as QE2—included repeated purchases of Treasury inflation protected securities (TIPS). Using a counterfactual analysis, we quantify the effect QE2 had on a model-free measure of combined liquidity premiums in TIPS yields and inflation swap rates. We find that, for the duration of the QE2 program, the liquidity premium measure averaged 12 to 14 basis points lower than expected, a reduction of about 50 percent. This suggests that one benefit of quantitative easing is to improve market liquidity.
25 The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy
  Jordà Taylor | September 2013
  + abstract
Elevated government debt levels in advanced economies have risen rapidly as sovereigns absorbed private sector losses and cyclical deficits blew up in the Global Financial Crisis and subsequent slump. A rush to fiscal austerity followed but its justifications and impacts have been heavily debated. Research on the effects of austerity on macroeconomic aggregates remains unsettled, mired by the difficulty of identifying multipliers from observational data. This paper reconciles seemingly disparate estimates of multipliers within a unified framework. We do this by first evaluating the validity of common identification assumptions used by the literature and find that they are largely violated in the data. Next, we use new propensity score methods for time-series data with local projections to quantify how contractionary austerity really is, especially in economies operating below potential. We find that the adverse effects of austerity may have been understated.
24 Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited
  Angrist Jordà Kuersteiner | August 2013
  + abstract
We develop flexible semiparametric time series methods that are then used to assess the causal effect of monetary policy interventions on macroeconomic aggregates. Our estimator captures the average causal response to discrete policy interventions in a macro-dynamic setting, without the need for assumptions about the process generating macroeconomic outcomes. The proposed procedure, based on propensity score weighting, easily accommodates asymmetric and nonlinear responses. Application of this estimator to the effects of monetary restraint shows the Fed to be an effective inflation fighter. Our estimates of the effects of monetary accommodation, however, suggest the Federal Reserve’s ability to stimulate real economic activity is more modest. Estimates for recent financial crisis years are similar to those for the earlier, pre-crisis period.
23 Temptation and Self-Control: Some Evidence and Applications
  Huang Liu Zhu | August 2013
  + abstract
This paper studies the empirical relevance of temptation and self-control using household-level data from the Consumer Expenditure Survey. We construct an infinite-horizon consumption-savings model that allows, but does not require, temptation and self-control in preferences. In the presence of temptation, a wealth-consumption ratio, in addition to consumption growth, becomes a determinant of the asset-pricing kernel, and the importance of this additional pricing factor depends on the strength of temptation. To identify the presence of temptation, we exploit an implication of the theory that a more tempted individual should be more likely to hold commitment assets such as IRA or 401(k) accounts. Our estimation provides empirical support for temptation preferences. Based on our estimates, we explore some quantitative implications of this class of preferences for capital accumulation in a neoclassical growth model and the welfare cost of the business cycle.
22 Land Prices and Unemployment
  Liu Miao Zha | August 2013
  + abstract
We integrate the housing market and the labor market in a dynamic general equilibrium model with credit and search frictions. The model is confronted with the U.S. macroeconomic time series. Our estimated model can account for two prominent facts observed in the data. First, the land price and the unemployment rate tend to move in opposite directions over the business cycle. Second, a shock that moves the land price is capable of generating large volatility in unemployment. Our estimation indicates that a 10 percent drop in the land price leads to a 0.34 percentage point increase of the unemployment rate (relative to its steady state).
21 Measuring the Effect of the Zero Lower Bound on Yields and Exchange Rates in the U.K. and Germany
  Swanson Williams | August 2013
  + abstract
The zero lower bound on nominal interest rates began to constrain many central banks’ setting of short-term interest rates in late 2008 or early 2009. According to standard macroeconomic models, this should have greatly reduced the effectiveness of monetary policy and increased the efficacy of fiscal policy. However, these models also imply that asset prices and private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current level of the monetary policy rate. Thus, interest rates with a year or more to maturity are arguably more relevant for asset prices and the economy, and it is unclear to what extent those yields have been affected by the zero lower bound. In this paper, we apply the methods of Swanson and Williams (2013) to medium- and longer-term yields and exchange rates in the U.K. and Germany. In particular, we compare the sensitivity of these rates to macroeconomic news during periods when short-term interest rates were very low to that during normal times. We find that: 1) USD/GBP and USD/EUR exchange rates have been essentially unaffected by the zero lower bound, 2) yields on German bunds were essentially unconstrained by the zero bound until late 2012, and 3) yields on U.K. gilts were substantially constrained by the zero lower bound in 2009 and 2012, but were surprisingly responsive to news in 2010–11. We compare these findings to the U.S. and discuss their broader implications.
20 The Effect of Capital Controls and Prudential FX Measures on Options-Implied Exchange Rate Stability
  Rodriguez Wu | May 2013
  + abstract
Has the recent wave of capital controls and prudential foreign exchange (FX) measures been effective in promoting exchange rate stability? We tackle this question by studying a panel of 25 countries/currencies from July 1, 2009, to June 30, 2011. We calculate daily measures of exchange rate volatility, absolute crash risk, and tail risk implied in currency option prices, and we construct indices of capital controls and prudential FX measures taking into account the exact date when policy changes are implemented. Using a difference-in-differences approach, we find evidence that (i) tightening controls on non-residents suppresses daily exchange rate fluctuations at the cost of increasing the frequency of outliers, (ii) easing controls on residents truly improves exchange rate stability over all dimensions, and (iii) tightening prudential FX measures not specific to derivative markets reduces absolute crash risk and tail risk, with no effect on volatility.
19 Assessing the Historical Role of Credit: Business Cycles, Financial Crises and the Legacy of Charles S. Peirce
  Jordà | July 2013
  + abstract
This paper provides a historical overview on financial crises and their origins. The objective is to discuss a few of the modern statistical methods that can be used to evaluate predictors of these rare events. The problem involves prediction of binary events and therefore fits modern statistical learning, signal processing theory, and classification methods. The discussion also emphasizes the need to supplement statistics and computational techniques with economics. A forecast’s success in this environment hinges on the economic consequences of the actions taken as a result of the forecast, rather than on typical statistical metrics of prediction accuracy.
18 Monetary Policy Expectations at the Zero Lower Bound
  Bauer Rudebusch | February 2014
  + abstract
Obtaining monetary policy expectations from the yield curve is difficult near the zero lower bound (ZLB). Standard dynamic term structure models, which ignore the ZLB, can be misleading. Shadow-rate models are better suited for this purpose, because they account for the distributional asymmetry in projected short rates induced by the ZLB. Besides providing better interest rate fit and forecasts, our shadow-rate models deliver estimates of the future monetary policy liftoff from the ZLB that are closer to survey expectations. We also document significant improvements for inference about monetary policy expectations when macroeconomic factors are included in the term structure model.
17 State Incentives for Innovation, Star Scientists and Jobs: Evidence from Biotech
  Moretti Wilson | July 2013
  + abstract
We evaluate the effects of state-provided financial incentives for biotech companies, which are part of a growing trend of placed-based policies designed to spur innovation clusters. We estimate that the adoption of subsidies for biotech employers by a state raises the number of star biotech scientists in that state by about 15 percent over a three year period. A 10% decline in the user cost of capital induced by an increase in R&D tax incentives raises the number of stars by 22%. Most of the gains are due to the relocation of star scientist to adopting states, with limited effect on the productivity of incumbent scientists already in the state. The gains are concentrated among private sector inventors. We uncover little effect of subsidies on academic researchers, consistent with the fact that their incentives are unaffected. Our estimates indicate that the effect on overall employment in the biotech sector is of comparable magnitude to that on star scientists. Consistent with a model where workers are fairly mobile across states, we find limited effects on salaries in the industry. We uncover large effects on employment in the non-traded sector due to a sizable multiplier effect, with the largest impact on employment in construction and retail. Finally, we find limited evidence of a displacement effect on states that are geographically close, or states that economically close as measured by migration flows.
16 Are State Governments Roadblocks to Federal Stimulus? Evidence from Highway Grants in the 2009 Recovery Act
  Leduc Wilson | January 2014
  + abstract
We examine how state governments adjusted spending in response to the large temporary increase in federal highway grants under the 2009 American Recovery and Reinvestment Act (ARRA). The mechanism used to apportion ARRA highway grants to states allows us to isolate exogenous changes in these grants. We find that states increased highway spending in 2010 nearly dollar-for-dollar with their apportioned grants, implying little if any crowd-out. We show that our results are not unique to the ARRA period, but rather are consistent with a strong effect from grants dating back at least to the early 1980s.
15 A Defense of Moderation in Monetary Policy
  Williams | July 2013
  + abstract
This paper examines the implications of uncertainty about the effects of monetary policy for optimal monetary policy with an application to the current situation. Using a stylized macroeconomic model, I derive optimal policies under uncertainty for both conventional and unconventional monetary policies. According to an estimated version of this model, the U.S. economy is currently suffering from a large and persistent adverse demand shock. Optimal monetary policy absent uncertainty would quickly restore real GDP close to its potential level and allow the inflation rate to rise temporarily above the longer-run target. By contrast, the optimal policy under uncertainty is more muted in its response. As a result, output and inflation return to target levels only gradually. This analysis highlights three important insights for monetary policy under uncertainty. First, even in the presence of considerable uncertainty about the effects of monetary policy, the optimal policy nevertheless responds strongly to shocks: uncertainty does not imply inaction. Second, one cannot simply look at point forecasts and judge whether policy is optimal. Indeed, once one recognizes uncertainty, some moderation in monetary policy may well be optimal. Third, in the context of multiple policy instruments, the optimal strategy is to rely on the instrument associated with the least uncertainty and use alternative, more uncertain instruments only when the least uncertain instrument is employed to its fullest extent possible.
14 Bank Linkages and International Trade
  Hale Candelaria Caballero Borisov | July 2013
  + abstract
We show that bank linkages have a positive effect on international trade. We construct the global banking network (GBN) at the bank level, using individual syndicated loan data from Loan Analytics for 1990-2007. We compute network distance between bank pairs and aggregate it to country pairs as a measure of bank linkages between countries. We use data on bilateral trade from IMF DOTS as the subject of our analysis and data on bilateral bank lending from BIS locational data to control for financial integration and financial flows. Using gravity approach to modeling trade with country-pair and year fixed effects, we find that new connections between banks in a given country-pair lead to an increase in trade flow in the following year, even after controlling for the stock and flow of bank lending between the two countries. We conjecture that the mechanism for this effect is that bank linkages reduce the risk exporters face and present four sets of results that supports this conjecture.
13 Inequality and Mortality: New Evidence from U.S. County Panel Data
  Daly Wilson | May 2013
  + abstract
A large body of past research, looking across countries, states, and metropolitan areas, has found positive and statistically significant associations between income inequality and mortality. By contrast, in recent years more robust statistical methods using larger and richer data sources have generally pointed to little or no relationship between inequality and mortality. This paper aims both to document how methodological shortcomings tend to positively bias this statistical association and to advance this literature by estimating the inequality-mortality relationship. We use a comprehensive and rich new data set that combines U.S. county-level data for 1990 and 2000 on age-race-gender-specific mortality rates, a rich set of observable covariates, and previously unused Census data on local income inequality (Gini index and three income percentile ratios). Using panel data estimation techniques, we find evidence of a statistically significant negative relationship between mortality and inequality. This finding that increased inequality is associated with declines in mortality at the county level suggests a change in course for the literature. In particular, the emphasis to date on the potential psychosocial and resource allocation costs associated with higher inequality is likely missing important offsetting positives that may dominate.
12 China’s Financial Linkages with Asia and the Global Financial Crisis
  Glick Hutchison | May 2013 | Pacific Basin Working Paper
  + abstract
This paper presents empirical evidence on asset market linkages between China and Asia and how these linkages have shifted during and after the global financial crisis of 2008-2009. We find only weak cross-country linkages in longer-term interest rates, but much stronger linkages in equity markets. This finding is consistent with the greater development and liberalization of equity markets relative to bond markets in China, as well as increasing business and trade linkages in the region. We also find that the strength of the correlation of equity prices changes between China and other Asia countries increased markedly during the crisis and has remained high in recent years. We attribute this development to greater “attentiveness” of international investors to China’s role as a source and destination of equity finance during the crisis rather than to any greater financial deepening and liberalization, as China did not implement any major policy measures during this period. By contrast, the transmission of U.S. equity returns to Asian countries decreased after the crisis.
11 The Effects of Unconventional and Conventional U.S. Monetary Policy on the Dollar
  Glick Leduc | May 2013
  + abstract
We examine the effects of unconventional and conventional monetary policy announcements on the value of the dollar using high-frequency intraday data. Identifying monetary policy surprises from changes in interest rate futures prices in narrow windows around policy announcements, we find that surprise easings in monetary policy since the crisis began have had significant effects on the value of the dollar. We document that these changes are comparable to the effects of conventional policy changes prior to the crisis.
10 Is Asia Decoupling from the United States (Again)?
  Leduc Spiegel | May 2013
  + abstract
The recovery from the recent global financial crisis exhibited a decline in the synchronization of Asian output with the rest of the world. However, a simple model based on output gaps demonstrates that the decline in business cycle synchronization during the recovery from the global financial crisis was exceptionally steep by historical standards. We posit two potential reasons for this exceptionally steep decline: First, financial markets during this recovery improved from particularly distressed conditions relative to previous downturns. Second, monetary policy during the recovery from the crisis was constrained in western economies by the zero bound, but less so in Asia. To test these potential explanations, we examine the implications of an increase in corporate bond spreads similar to that which took place during the recent European financial crisis in a 3‐region open‐economy DSGE model. Our results confirm that global business cycle synchronization is reduced when zero‐bound constraints across the world differ. However, we find that the impact of reduced financial contagion actually goes modestly against our predictions.
09 Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market
  Farber Valletta | April 2013
  + abstract
In response to the Great Recession and sustained labor market downturn, the availability of unemployment insurance (UI) benefits was extended to new historical highs in the United States, up to 99 weeks as of late 2009 into 2012. We exploit variation in the timing and size of UI benefit extensions across states to estimate the overall impact of these extensions on unemployment duration, comparing the experience with the prior extension of benefits (up to 72 weeks) during the much milder downturn in the early 2000s. Using monthly matched individual data from the U.S. Current Population Survey (CPS) for the periods 2000-2005 and 2007-2012, we estimate the effects of UI extensions on unemployment transitions and duration. We rely on individual variation in benefit availability based on the duration of unemployment spells and the length of UI benefits available in the state and month, conditional on state economic conditions and individual characteristics. We find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from both sets of UI extensions. The effect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment (the job finding rate). The magnitude of the overall effect on exits and duration is similar across the two episodes of benefit extensions. Although the overall effect of UI extensions on exits from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term.In response to the Great Recession and sustained labor market downturn, the availability of unemployment insurance (UI) benefits was extended to new historical highs in the United States, up to 99 weeks as of late 2009 into 2012. We exploit variation in the timing and size of UI benefit extensions across states to estimate the overall impact of these extensions on unemployment duration, comparing the experience with the prior extension of benefits (up to 72 weeks) during the much milder downturn in the early 2000s. Using monthly matched individual data from the U.S. Current Population Survey (CPS) for the periods 2000-2005 and 2007-2012, we estimate the effects of UI extensions on unemployment transitions and duration. We rely on individual variation in benefit availability based on the duration of unemployment spells and the length of UI benefits available in the state and month, conditional on state economic conditions and individual characteristics. We find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from both sets of UI extensions. The effect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment (the job finding rate). The magnitude of the overall effect on exits and duration is similar across the two episodes of benefit extensions. Although the overall effect of UI extensions on exits from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term.
08 Downward Nominal Wage Rigidities Bend the Phillips Curve
  Daly Hobijn | January 2014
  + abstract
We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.
07 Estimating Shadow-Rate Term Structure Models with Near-Zero Yields
  Christensen Rudebusch | March 2013
  + abstract
Standard Gaussian affine dynamic term structure models do not rule out negative nominal interest rates — a conspicuous defect with yields near zero in many countries. Alternative shadow-rate models, which respect the nonlinearity at the zero lower bound, have been rarely used because of the extreme computational burden of their estimation. However, by valuing the call option on negative shadow yields, we provide the first estimates of a three-factor shadow-rate model. We validate our option-based results by closely matching them using a simulation-based approach. We also show that the shadow short rate is sensitive to model fit and specification.
06 Persistence of Regional Inequality in China
  Candelaria Daly Hale | March 2013 | Pacific Basin Working Paper
  + abstract
Regional inequality in China appears to be persistent and even growing in the last two decades. We study potential explanations for this phenomenon. After making adjustments for the difference in the cost of living across provinces, we find that some of the inequality in real wages could be attributed to differences in quality of labor, industry composition, labor supply elasticities, and geographical location of provinces. These factors, taken together, explain about half of the cross-province real wage difference. Interestingly, we find that inter-province redistribution did not help offset regional inequality during our sample period. We also demonstrate that inter-province migration, while driven in part by levels and changes in wage differences across provinces, does not offset these differences. These results imply that cross-province labor market mobility in China is still limited, which contributes to the persistence of cross-province wage differences.
05 On the Importance of the Participation Margin for Market Fluctuations
  Elsby Hobijn Şahin | February 2013
  + abstract
Conventional analyses of cyclical fluctuations in the labor market ascribe a minor role to the labor force participation margin. In contrast, a flows-based decomposition of the variation in labor market stocks reveals that transitions at the participation margin account for around one-third of the cyclical variation in the unemployment rate. This result is robust to adjustments of data for spurious transitions, and for time aggregation. Inferences from conventional, stocks-based analyses of labor force participation are shown to be subject to a stock-flow fallacy, neglecting the offsetting forces of worker flows that underlie the modest cyclicality of the participation rate. A novel analysis of history dependence in worker flows demonstrates that a large part of the contribution of the participation margin can be traced to cyclical fluctuations in the composition of the unemployed by labor market attachment.
04 Price Setting in an Innovative Market
  Copeland Shapiro | February 2013
  + abstract
We examine how the confluence of competition and upstream innovation influences downstream firms’ profit-maximizing strategies. In particular, we analyze how, in light of these forces, the downstream firm sets the price of the product over its life cycle. We focus on personal computers (PCs) and introduce two novel data sets that describe prices and sales in the industry. Our main result is that a vintage-capital model that combines a competitive market structure with a rapid rate of innovation is well able to explain the observed paths of prices, as well as sales and consumer income, over a typical PC’s product cycle. The analysis implies that rapid price declines are not caused by upstream innovation alone, but rather by the combination of upstream innovation and a competitive environment.
03 House Prices, Expectations, and Time-Varying Fundamentals
  Gelain Lansing | May 2014
  + abstract
We investigate the behavior of the equilibrium price-rent ratio for housing in a standard asset pricing model and compare the model predictions to survey evidence on the return expectations of real-world housing investors. We allow for time-varying risk aversion (via external habit formation) and time-varying persistence and volatility in the stochastic process for rent growth, consistent with U.S. data for the period 1960 to 2013. Under fully-rational expectations, the model significantly underpredicts the volatility of the U.S. price-rent ratio for reasonable levels of risk aversion. We demonstrate that the model can approximately match the volatility of the price-rent ratio in the data if near-rational agents continually update their estimates for the mean, persistence and volatility of fundamental rent growth using only recent data (i.e., the past 4 years), or if agents employ a simple moving-average forecast rule for the price-rent ratio that places a large weight on the most recent observation. These two versions of the model can be distinguished by their predictions for the correlation between expected future returns on housing and the price-rent ratio. Only the moving-average model predicts a positive correlation such that agents tend to expect high future returns when prices are high relative to fundamental—a feature that is consistent with a wide variety of survey evidence from real estate and stock markets.
02 Monetary Regime Change and Business Cycles
  Curdia Finocchiaro | October 2012
  + abstract
This paper proposes a simple method to structurally estimate a model over a period of time containing a regime shift. It then evaluates to which degree it is relevant to explicitly acknowledge the break in the estimation procedure. We apply our method on Swedish data, and estimate a DSGE model explicitly taking into account the monetary regime change in 1993, from exchange rate targeting to inflation targeting. We show that ignoring the break in the estimation leads to spurious estimates of model parameters including parameters in both policy and non-policy economic relations. Accounting for the regime change suggests that monetary policy reacted strongly to exchange rate movements in the first regime, and mostly to inflation in the second. The sources of business cycle fluctuations and their transmission mechanism are significantly affected by the exchange rate regime.
01 Rare Shocks, Great Recessions
  Curdia Del Negro Greenwald | June 2013
  + abstract
We estimate a DSGE model where rare large shocks can occur, by replacing the commonly used Gaussian assumption with a Student-t distribution. Results from the Smets and Wouters (2007) model estimated on the usual set of macroeconomic time series over the 1964-2011 period indicate that the Student-t specification is strongly favored by the data even when we allow for low-frequency variation in the volatility of the shocks, and that the estimated degrees of freedom are quite low for several shocks that drive U.S. business cycles, implying an important role for rare large shocks. This result holds even if we exclude the Great Recession period from the sample. We also show that inference about low-frequency changes in volatility and in particular, inference about the magnitude of the Great Moderation is different once we allow for fat tails.


26 Decomposing Medical-Care Expenditure Growth
  Dunn Liebman Shapiro | November 2012
  + abstract
Medical-care expenditures have been rising rapidly, accounting for almost one-fifth of GDP in 2009. In this study, we assess the sources of the rising medical-care expenditures in the commercial sector. We employ a novel framework for decomposing expenditure growth into four components at the disease level: service price growth, service utilization growth, treated disease prevalence growth, and demographic shift. The decomposition shows that growth in prices and treated prevalence are the primary drivers of medical-care expenditure growth over the 2003 to 2007 period. There was no growth in service utilization at the aggregate level over this period. Price and utilization growth were especially large for the treatment of malignant neoplasms. For many conditions, treated prevalence has shifted towards preventive treatment and away from treatment for late-stage illnesses.
25 House Lock and Structural Unemployment
  Valletta | April 2013
  + abstract
A recent decline in internal migration in the United States may have been caused in part by falling house prices, through the “lock in” effects of financial constraints faced by households whose housing debt exceeds the market value of their home. I analyse the relationship between such “house lock” and the elevated levels and persistence of unemployment during the recent recession and its aftermath, using data for the years 2008-11. Because house lock is likely to extend job search in the local labour market for homeowners whose home value has declined, I focus on differences in unemployment duration between homeowners and renters across geographic areas differentiated by the severity of the decline in home prices. The empirical analyses rely on microdata from the monthly Current Population Survey (CPS) files and an econometric method that enables the estimation of individual and aggregate covariate effects on unemployment durations using repeated cross-section data. I do not uncover systematic evidence to support the house-lock hypothesis.
24 Beveridge Curve Shifts across Countries since the Great Recession
  Hobijn Sahin | July 2013
  + abstract
We document the shift in the Beveridge curve in the U.S. since the Great Recession. We argue that a decline in quits, the relatively poor performance of the construction sector, and the extension of unemployment insurance benefits have largely driven this shift. We then introduce a method to estimate fitted Beveridge curves for other OECD countries for which data on vacancies and employment by job tenure are available. We show that Portugal, Spain, and the U.K. also experienced rightward shifts in their Beveridge curves. Besides the U.S., these are among the countries with the highest house price and construction employment declines in our sample.
23 Top Incomes, Rising Inequality, and Welfare
  Lansing Markiewicz | February 2014
  + abstract
This paper develops a stylized general-equilibrium model of skill-biased technological change that approximates the dramatic upward shift in the share of total income going to the top decile of U.S. households since 1980. Under realistic assumptions, we show that all agents in the economy can benefit from the technology change, provided that the observed rise in U.S. redistributive transfers over this period is taken into account. We show that the increase in capital’s share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses. Depending on assumptions, the model can produce simulations in which rising income inequality is associated with either faster or slower output growth relative to the no-change trend.
22 The Macroeconomic Effects of Large-Scale Asset Purchase Programs
  Curdia Chen Ferrero | October 2012
  + abstract
We simulate the Federal Reserve second Large-Scale Asset Purchase program in a DSGE model with bond market segmentation estimated on U.S. data. GDP growth increases by less than a third of a percentage point and inflation barely changes relative to the absence of intervention. The key reasons behind our findings are small estimates for both the elasticity of the risk premium to the quantity of long-term debt and the degree of financial market segmentation. Absent the commitment to keep the nominal interest rate at its lower bound for an extended period, the effects of asset purchase programs would be even smaller.
21 The Economic Security Index: A New Measure for Research and Policy Analysis
  Valletta Hacker Huber Nichols Rehm Schlesinger Craig | October 2012
  + abstract
This paper presents the Economic Security Index (ESI), a new, more comprehensive measure of economic insecurity. By combining data from multiple surveys, we create an integrated measure of volatility in available household resources, accounting for fluctuations in income and out-of pocket medical expenses, as well as financial wealth sufficient to buffer against these shocks. We find that insecurity has risen steadily since the mid-1980s for virtually all subgroups of Americans, albeit with cyclical ups and downs. We also find, however, that there is substantial disparity in the degree to which different groups are exposed to economic risk. As the ESI derives from a data-independent conceptual foundation, it can be measured using different data sources. We find that the degree and disparity by which insecurity has risen is robust across these sources.
20 Housing Supply and Foreclosures
  Krainer Hedberg | September 2012
  + abstract
We explore the role of foreclosure inventories in a model of housing supply. The foreclosure variable is necessary to account for the steep and sustained drop in new construction activity following the U.S. housing market bust beginning in 2006. There is modest evidence that local banking conditions play a role in determining housing starts. Even with state-level foreclosures and banking variables in the model, there is a sizeable post-2006 residual common to all states. We argue that, in addition to observable macro and local factors, housing starts in the Great Recession have been weighed down in part by aggregate uncertainty factors
19 A Quarterly, Utilization-Adjusted Series on Total Factor Productivity
  Fernald | April 2014
  + abstract
This paper describes a real-time, quarterly growth-accounting database for the U.S. business sector. The data on inputs, including capital, are used to produce a quarterly series on total factor productivity (TFP). In addition, the dataset implements an adjustment for variations in factor utilization—labor effort and the workweek of capital. The utilization adjustment follows Basu, Fernald, and Kimball (BFK, 2006). Using relative prices and input/output information, the series are also decomposed into separate TFP and utilization-adjusted TFP series for equipment investment (including consumer durables) and “consumption” (defined as business output less equipment and consumer durables).
+ supplement
quarterly_tfp.xls – Data on quarterly utilization-adjusted TFP
18 Productivity and Potential Output before, during, and after the Great Recession
  Fernald | September 2012
  + abstract
This paper makes four points about the recent dynamics of productivity and potential output. First, after accelerating in the mid-1990s, labor and total-factor productivity growth slowed after the early to mid 2000s. This slowdown preceded the Great Recession. Second, in contrast to some informal commentary, productivity performance during the Great Recession and early in the subsequent recovery was roughly in line with previous experience during deep recessions. In particular, the evidence suggests substantial labor and capital hoarding. During the recovery, measures of factor utilization fairly quickly rebounded, and TFP and labor productivity returned to their anemic mid-2000s trends. Third, a plausible benchmark for the slower pace of underlying technology along with demographic assumptions from the Congressional Budget Office imply steady-state GDP growth of just over 2 percent per year—lower than most estimates. Finally, during the recession and recovery, potential output grew even more slowly— reflecting especially the effect of weak investment on growth in capital input. Half or more of the shortfall of actual output relative to pre-recession estimates of the potential trend reflects a reduction in potential.
17 Risk Aversion, Risk Premia, and the Labor Margin with Generalized Recursive Preferences
  Swanson | September 2013
  + abstract
A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. This ability to absorb shocks along both margins greatly alters the household’s attitudes toward risk, as shown by Swanson (2012). The present paper extends that analysis to the case of generalized recursive preferences, as in Epstein and Zin (1989) and Weil (1989), including multiplier preferences, as in Hansen and Sargent (2001). Understanding risk aversion for these preferences is especially important because they are the primary mechanism being used to bring macroeconomic models into closer agreement with asset pricing facts. Measures of risk aversion commonly used in the literature—including traditional, fixed-labor measures and Cobb-Douglas composite-good measures—show no stable relationship to the equity premium in a standard macroeconomic model, while the closed-form expressions derived in this paper match the equity premium closely. Thus, measuring risk aversion correctly—taking into account the household’s labor margin—is necessary for risk aversion to correspond to asset prices in the model.
16 Relative Status and Well-Being: Evidence from U.S. Suicide Deaths
  Daly Wilson Johnson | September 2012
  + abstract
We assess the importance of interpersonal income comparisons using data on suicide deaths. We examine whether suicide risk is related to others’ income, holding own income and other individual and environmental factors fixed. We estimate models of the suicide hazard using two independent data sets: (1) the National Longitudinal Mortality Study and (2) the National Center for Health Statistics’ Multiple Cause of Death Files combined with the 5 percent Public Use Micro Sample of the 1990 decennial census. Results from both data sources show that, controlling for own income and individual characteristics, individual suicide risk rises with others’ income.
15 Should Transportation Spending Be Included in a Stimulus Program? A Review of the Literature
  Leduc Wilson | September 2012
  + abstract
Transportation spending often plays a prominent role in government efforts to stimulate the economy during downturns. Yet, despite the frequent use of transportation spending as a form of fiscal stimulus, there is little known about its short- or medium-run effectiveness. Does it translate quickly into higher employment and economic activity or does it impact the economy only slowly over time? This paper reviews the empirical findings in the literature for the United States and other developed economies and compares the effects of transportation spending to those of other types of government spending.
14 Mussa Redux and Conditional PPP
  Bergin Glick Wu | September 2012
  + abstract
Long half-lives of real exchange rates are often used as evidence against monetary sticky price models. In this study we show how exchange rate regimes alter the long-run dynamics and half-life of the real exchange rate, and we recast the classic defense of such models by Mussa (1986) from an argument based on short-run volatility to one based on long-run dynamics. The first key result is that the extremely persistent real exchange rate found commonly in post Bretton Woods data does not apply to the preceding fixed exchange rate period in our sample, where the half-live was roughly half as large. This result suggests a reinterpretation of Mussa’s original finding, indicating that up to two thirds of the rise in variance of the real exchange rate in the recent floating rate period is actually due to the rise in persistence of the response to shocks, rather than due to a rise in the variance of shocks themselves. This result also suggests a way to resolve the “PPP puzzle,” reconciling real exchange rate persistence with volatility. The second key result explains the rise in persistence over time by identifying underlying shocks using a panel VECM model. Shocks to the nominal exchange rate induce more persistent real exchange rate responses compared to price shocks, and these shocks became more prevalent under a flexible exchange rate regime.
13 Capital Controls and Optimal Chinese Monetary Policy
  Chang Liu Spiegel | January 2015
  + abstract
China’s external policies, including capital controls, managed exchange rates, and sterilized interventions, constrain its monetary policy options for maintaining macroeconomic stability following external shocks. We study optimal monetary policy in a dynamic stochastic general equilibrium (DSGE) model that incorporates these “Chinese characteristics.” The model highlights a monetary policy tradeoff between domestic price stability and costly sterilization. The same DSGE framework allows us to evaluate the welfare implications of alternative liberalization policies. Capital account and exchange rate liberalization would have allowed the Chinese central bank to better stabilize the external shocks experienced during the global financial crisis.
12 International Channels of the Fed’s Unconventional Monetary Policy
  Bauer Neely | December 2013
  + abstract
Previous research has established that the Federal Reserve’s large scale asset purchases (LSAPs) significantly influenced international bond yields. We use dynamic term structure models to uncover to what extent signaling and portfolio balance channels caused these declines. For the U.S. and Canada, the evidence supports the view that LSAPs had substantial signaling effects. For Australian and German yields, signaling effects were present but likely more moderate, and portfolio balance effects appear to have played a relatively larger role than in the U.S. and Canada. Portfolio balance effects were small for Japanese yields and signaling effects basically nonexistent. These findings about LSAP channels are consistent with predictions based on interest rate dynamics during normal times: Signaling effects tend to be large for countries with strong yield responses to conventional U.S. monetary policy surprises, and portfolio balance effects are consistent with the degree of substitutability across international bonds, as measured by the covariance between foreign and U.S. bond returns.
11 House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy
  Lansing Gelain Mendicino | February 2013
  + abstract
Progress on the question of whether policymakers should respond directly to financial variables requires a realistic economic model that captures the links between asset prices, credit expansion, and real economic activity. Standard DSGE models with fully-rational expectations have difficulty producing large swings in house prices and household debt that resemble the patterns observed in many industrial countries over the past decade. We show that the introduction of simple moving-average forecast rules for a subset of agents can significantly magnify the volatility and persistence of house prices and household debt relative to otherwise similar model with fully-rational expectations. We evaluate various policy actions that might be used to dampen the resulting excess volatility, including a direct response to house price growth or credit growth in the central bank’s interest rate rule, the imposition of a more restrictive loan-to-value ratio, and the use of a modified collateral constraint that takes into account the borrower’s wage income. Of these, we find that a debt-to-income type constraint is the most effective tool for dampening overall excess volatility in the model economy. While an interest-rate response to house price growth or credit growth can stabilize some economic variables, it can significantly magnify the volatility of others, particularly inflation.
10 Uncertainty Shocks are Aggregate Demand Shocks
Leduc Liu | February 2014
  + abstract
We present some empirical evidence and a theoretical argument that uncertainty shocks act like a negative aggregate demand shock, which raises unemployment and lowers inflation. We measure uncertainty using survey data from the United States and the United Kingdom. We estimate the macroeconomic effects of uncertainty shocks in a vector autoregression (VAR) model and document that uncertainty shocks accounted for about one percentage point increase in the unemployment rate in the Great Recession and recovery. We present a DSGE model to show that uncertainty shocks can be contractionary in a flexible-price economy with search frictions, in contrast to the standard Real Business Cycle model. We also show that the interactions between search frictions and nominal rigidities help amplify the macroeconomic effects of uncertainty shocks.
+ supplement
wp12-10bk_appendix.pdf – Supplemental Appendix
09 The Industry-Occupation Mix of U.S. Job Openings and Hires
  Hobijn | July 2012
  + abstract
I introduce a method that combines data from the U.S. Current Population Survey, Job Openings and Labor Turnover Survey, and state-level Job Vacancy Surveys to construct annual estimates of the number of job openings in the U.S. in the Spring by industry and occupation. I present these estimates for 2005-2011. The results reveal that: (i) During the Great Recession job openings for all occupations declined. (ii) Job openings rates and vacancy yields vary a lot across occupations. (iii) Changes in the occupation mix of job openings and hires account for the bulk of the decline in measured aggregate match efficiency since 2007. (iv) The majority of job openings in all industries and occupations are filled with persons who previously did not work in the same industry or occupation.
08 Real Exchange Rate Dynamics in Sticky-Price Models with Capital
  Nechio Carvalho | July 2012
  + abstract
The standard argument for abstracting from capital accumulation in sticky-price macro models is based on their short-run focus: over this horizon, capital does not move much. This argument is more problematic in the context of real exchange rate (RER) dynamics, which are very persistent. In this paper we study RER dynamics in sticky-price models with capital accumulation. We analyze both a model with an economy-wide rental market for homogeneous capital, and an economy in which capital is sector specific. We find that, in response to monetary shocks, capital increases the persistence and reduces the volatility of RERs. Nevertheless, versions of the multi-sector sticky-price model of Carvalho and Nechio (2011) augmented with capital accumulation can match the persistence and volatility of RERs seen in the data, irrespective of the type of capital. When comparing the implications of capital specificity, we find that, perhaps surprisingly, switching from economy-wide capital markets to sector-specific capital tends to decrease the persistence of RERs in response to monetary shocks. Finally, we study how RER dynamics are affected by monetary policy and find that the source of interest rate persistence – policy inertia or persistent policy shocks – is key.
07 Pricing Deflation Risk with U.S. Treasury Yields
  Christensen Lopez Rudebusch | July 2014
  + abstract
We use an arbitrage-free term structure model with spanned stochastic volatility to determine the value of the deflation protection option embedded in Treasury inflation protected securities (TIPS). The model accurately prices the deflation protection option prior to the financial crisis when its value was near zero; at the peak of the crisis in late 2008 when deflationary concerns spiked sharply; and in the post-crisis period. During 2009, the average value of this option at the five-year maturity was 41 basis points on a par-yield basis. The option value is shown to be closely linked to overall market uncertainty as measured by the VIX, especially during and after the 2008 financial crisis.
06 The Response of Interest Rates to U.S. and U.K. Quantitative Easing
  Christensen Rudebusch | May 2012
  + abstract
We analyze the declines in government bond yields that followed the announcements of plans by the Federal Reserve and the Bank of England to buy longer-term government debt. Using empirical dynamic term structure models, we decompose these declines into changes in expectations about future monetary policy and changes in term premiums. We find that declines in U.S. Treasury yields mainly reflected lower policy expectations, while declines in U.K. yields appeared to reflect reduced term premiums. Thus, the relative importance of the signaling and portfolio balance channels of quantitative easing may depend on market institutional structures and central bank communications policies.
05 Empirical Simultaneous Prediction Regions for Path-Forecasts
  Jorda | May 2012
  + abstract
This paper investigates the problem of constructing prediction regions for forecast trajectories 1 to H periods into the future ?a path forecast. We take the more general view that the null model is only approximative and in some cases it may be altogether unavailable. As a consequence, one cannot derive the usual analytic expressions nor resample from the null model as is usually done when bootstrap methods are used. The paper derives methods to construct approximate rectangular regions for simultaneous probability coverage which correct for serial correlation. The techniques appear to work well in simulations and in an application to the Greenbook path-forecasts of growth and inflation.
04 Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment
  Leduc Wilson | June 2012
  + abstract
We examine the dynamic macroeconomic effects of public infrastructure investment both theoretically and empirically, using a novel data set we compiled on various highway spending measures. Relying on the institutional design of federal grant distributions among states, we construct a measure of government highway spending shocks that captures revisions in expectations about future government investment. We find that shocks to federal highway funding has a positive effect on local GDP both on impact and after 6 to 8 years, with the impact effect coming from shocks during (local) recessions. However, we find no permanent effect (as of 10 years after the shock). Similar impulse responses are found in a number of other macroeconomic variables. The transmission channel for these responses appears to be through initial funding leading to building, over several years, of public highway capital which then temporarily boosts private sector productivity and local demand. To help interpret these findings, we develop an open economy New Keynesian model with productive public capital in which regions are part of a monetary and fiscal union. We show that the presence of productive public capital in this model can yield impulse responses with the same qualitative pattern that we find empirically.
+ supplement

wp12-04bkAppendices.pdf – Appendices to Working Paper 2012-04

03 Lost in Translation? Teacher Training and Outcomes in High School Economics Classes
  Valletta Hoff Lopus | August 2012
  + abstract
Using data from a 2006 survey of California high school economics classes, we assess the effects of teacher characteristics on student achievement. We estimate value-added models of outcomes on multiple choice and essay exams, with matched classroom pairs for each teacher enabling random-effects and fixed-effects estimation. The results show a substantial impact of specialized teacher experience and college-level coursework in economics. However, the latter is associated with higher scores on the multiple-choice test and lower scores on the essay test, suggesting that a portion of teachers’ content knowledge may be “lost in translation” when conveyed to their students.
02 Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates
  Williams Swanson | January 2013
  + abstract
The federal funds rate has been at the zero lower bound for over four years, since December 2008. According to many macroeconomic models, this should have greatly reduced the effectiveness of monetary policy and increased the efficacy of fiscal policy. However, standard macroeconomic theory also implies that private-sector decisions depend on the entire path of expected future short term interest rates, not just the current level of the overnight rate. Thus, interest rates with a year or more to maturity are arguably more relevant for the economy, and it is unclear to what extent those yields have been constrained. In this paper, we measure the effects of the zero lower bound on interest rates of any maturity by estimating the time-varying high-frequency sensitivity of those interest rates to macroeconomic announcements relative to a benchmark period in which the zero bound was not a concern. We find that yields on Treasury securities with a year or more to maturity were surprisingly responsive to news throughout 2008–10, suggesting that monetary and fiscal policy were likely to have been about as effective as usual during this period. Only beginning in late 2011 does the sensitivity of these yields to news fall closer to zero. We offer two explanations for our findings: First, until late 2011, market participants expected the funds rate to lift off from zero within about four quarters, minimizing the effects of the zero bound on medium and longer-term yields. Second, the Fed’s unconventional policy actions seem to have helped offset the effects of the zero bound on medium- and longer-term rates.
01 Do People Understand Monetary Policy?
  Carvalho Nechio | April 2014
  + abstract
We combine questions from the Michigan Survey about future information, unemployment, and interest rates to investigate whether households are aware of the basic features of U.S. monetary policy. Our findings provide evidence that some households form their expectations in a way that is consistent with a Taylor (1993)-type rule. We also document a large degree of variation in the pattern of responses over the business cycle. In particular, the negative relationship between unemployment and interest rates that is apparent in the data only shows up in households’ answers during periods of labor market weakness.


30 Central Bank Announcements of Asset Purchases and the Impact on Global Financial and Commodity Markets
  Glick Leduc | December 2011
  + abstract
We present evidence on the effects of large-scale asset purchases by the Federal Reserve and the Bank of England since 2008. We show that announcements about these purchases led to lower long-term interest rates and depreciations of the U.S. dollar and the British pound on announcement days, while commodity prices generally declined despite this more stimulative financial environment. We suggest that LSAP announcements likely involved signaling effects about future growth that led investors to downgrade their U.S. growth forecasts lowering longterm US yields, depreciating the value of the U.S. dollar, and triggering a decline in commodity prices. Moreover, our analysis illustrates the importance of controlling for market expectations when assessing these effects. We find that positive U.S. monetary surprises led to declines in commodity prices, even as long-term interest rates fell and the U.S. dollar depreciated. In contrast, on days of negative U.S. monetary surprises, i.e. when markets evidently believed that monetary policy was less stimulatory than expected, long-term yields, the value of the dollar, and commodity prices all tended to increase.
29 The Labor Market in the Great Recession: an Update
  Hobijn Valletta | October 2011
  + abstract
Since the end of the Great Recession in mid-2009, the unemployment rate has recovered slowly, falling by only one percentage point from its peak. We find that the lackluster labor market recovery can be traced in large part to weakness in aggregate demand; only a small part seems attributable to increases in labor market frictions. This continued labor market weakness has led to the highest level of long-term unemployment in the U.S. in the postwar period, and a blurring of the distinction between unemployment and nonparticipation. We show that flows from nonparticipation to unemployment are important for understanding the recent evolution of the duration distribution of unemployment. Simulations that account for these flows suggest that the U.S. labor market is unlikely to be subject to high levels of structural long-term unemployment after aggregate demand recovers.
+ supplement – Zip file with Excel workbooks for replication purposes

EHSV_BPEAFall2011Slides.pdf – Presentation as given at Brookings Panel

28 A Chronology of Turning Points in Economic Activity: Spain, 1850-2011
  Berge Jorda | November 2011
  + abstract
This paper codifies in a systematic and transparent way a historical chronology of business cycle turning points for Spain reaching back to 1850 at annual frequency, and 1939 at monthly frequency. Such an exercise would be incomplete without assessing the new chronology itself and against others —this we do with modern statistical tools of signal detection theory. We also use these tools to determine which of several existing economic activity indexes provide a better signal on the underlying state of the economy. We conclude by evaluating candidate leading indicators and hence construct recession probability forecasts up to 12 months in the future.
27 When Credit Bites Back: Leverage, Business Cycles, and Crises
  Jorda Schularick Taylor | October 2012
  + abstract
This paper studies the role of credit in the business cycle, with a focus on private credit overhang. Based on a study of the universe of over 200 recession episodes in 14 advanced countries between 1870 and 2008, we document two key facts of the modern business cycle: financial-crisis recessions are more costly than normal recessions in terms of lost output; and for both types of recession, more credit-intensive expansions tend to be followed by deeper recessions and slower recoveries. In additional to unconditional analysis, we use local projection methods to condition on a broad set of macroeconomic controls and their lags. Then we study how past credit accumulation impacts the behavior of not only output but also other key macroeconomic variables such as investment, lending, interest rates, and inflation. The facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle.
26 Land-Price Dynamics and Macroeconomic Fluctuations
  Liu Wang Zha | September 2011
  + abstract
We argue that positive co-movements between land prices and business investment are a driving force behind the broad impact of land-price dynamics on the macroeconomy. We develop an economic mechanism that captures the co-movements by incorporating two key features into a DSGE model: We introduce land as a collateral asset in firms’ credit constraints and we identify a shock that drives most of the observed fluctuations in land prices. Our estimates imply that these two features combine to generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through the joint dynamics of land prices and business investment.
25 Prepayment and Delinquency in the Mortgage Crisis Period
  Krainer Laderman | September 2011
  + abstract
We study the interaction of borrower mortgage prepayment and mortgage delinquency during the period between 2001 and 2010. We show that when house prices flattened and began their subsequent decline, borrowers had increasingly slow prepayments and that this decline in prepayment rates roughly coincided with the sharp increase in their delinquency rates. Low credit score borrowers, in particular, display a pronounced negative correlation between default rates and prepayment rates. Shortfalls of actual prepayment rates from predicted rates based on an estimated prepayment model suggest that, in addition to the effects of declining house prices, tighter lending standards also may have played a role in weak prepayment activity.
24 Evidence and Implications of Regime Shifts: Time-Varying Effects of the U.S. and Japanese Economies on House Prices in Hawaii
  Krainer Wilcox | July 2012
  + abstract
We show that local house prices may be driven almost entirely by the demands of one identifiable group for several years and then by demands of another group at other times. We present evidence that house prices in Hawaii were subject to such regime shifts. Prices responded to demands associated with U.S. incomes and wealth for most years from 1975 through 2008. For about a decade starting in the middle of the 1980s, after the Japanese yen appreciated dramatically and Japanese housing and stock market wealth soared, however, house prices in Hawaii responded to Japanese incomes and wealth. Estimated models with these regime shifts outperformed conventional, constant coefficient models. The regime-shifting model helps explain why, when, and by how much the volatility and the elasticities of house prices in Hawaii with respect to the incomes and wealth of the U.S. and Japan varied over time
23 Dissecting Aggregate Real Wage Fluctuations: Individual Wage Growth and the Composition Effect
  Daly Hobijn Wiles | May 2012
  + abstract
Using data from the Current Population Survey from 1980 through 2011 we examine what drives the variation and cyclicality of the growth rate of real wages over time. We employ a novel decomposition technique that allows us to divide the time series for median weekly earnings growth into the part associated with the wage growth of persons employed at the beginning and end of the period (the wage growth effect) and the part associated with changes in the composition of earners (the composition effect). The relative importance of these two effects varies widely over the business cycle. When the labor market is tight job switchers get large wage increases, making them account for half of the variation in median weekly earnings growth over our sample. Their wage growth, as well as that of job-stayers, is procyclical. During labor market downturns, this procyclicality is largely offset by the change in the composition of the workforce, leading aggregate real wages to be almost non-cyclical. Most of this composition effect works through the part-time employment margin. Remarkably, the unemployment margin neither accounts for much of the variation in nor much of the cyclicality of median weekly earnings growth.
+ supplement

wp11-23bk_sept2011supplement.pdf – September 2011 WP version

22 Currency Crises
  Glick Hutchison | September 2011
  + abstract
A currency crisis is a speculative attack on the foreign exchange value of a currency, resulting in a sharp depreciation or forcing the authorities to sell foreign exchange reserves and raise domestic interest rates to defend the currency. This article discusses analytical models of the causes of currency and associated crises, presents basic measures of the incidence of crises, evaluates the accuracy of empirical models in predicting crises, and reviews work measuring the consequences of crises on the real economy. Currency crises have large measurable costs on the economy, but our ability to predict the timing and magnitude of crises is limited by our theoretical understanding of the complex interactions between macroeconomic fundamentals, investor expectations and government policy.
21 The Signaling Channel for Federal Reserve Bond Purchases
  Bauer Rudebusch | April 2013
  + abstract
Previous research has emphasized the portfolio balance effects of Federal Reserve bond purchases, in which a reduced bond supply lowers term premia. In contrast, we find that such purchases have important signaling effects that lower expected future short-term interest rates. Our evidence comes from a model-free analysis and from dynamic term structure models that decompose declines in yields following Fed announcements into changes in risk premia and expected short rates. To overcome problems in measuring term premia, we consider bias-corrected model estimation and restricted risk price estimation. In comparison with other studies, our estimates of signaling effects are larger in magnitude and statistical significance.
20 Nominal Interest Rates and the News
  Bauer | January 2014
  + abstract
This paper provides new estimates of the impact of monetary policy actions and macroeconomic news on the term structure of nominal interest rates. The key novelty is to parsimoniously capture the impact of news on all interest rates using a simple no-arbitrage model. The different types of news are analyzed in a common framework by recognizing their heterogeneity, which allows for a systematic comparison of their effects. This approach leads to novel empirical findings: First, monetary policy causes a substantial amount of volatility in both short-term and long-term interest rates. Second, macroeconomic data surprises have small and mostly insignificant effects on the long end of the term structure. Third, the term-structure response to macroeconomic news is consistent with considerable interest-rate smoothing by the Federal Reserve. Fourth, monetary policy surprises are multidimensional while macroeconomic surprises are one-dimensional.
19 Gender Ratios at Top PhD Programs in Economics
  Hale Regev | August 2011
  + abstract
Analyzing university faculty and graduate student data for the top-ten U.S. economics departments between 1987 and 2007, we find that there are persistent differences in gender composition for both faculty and graduate students across institutions and that the share of female faculty and the share of women in the entering PhD class are positively correlated. We find, using instrumental variables analysis, robust evidence that this correlation is driven by the causal effect of the female faculty share on the gender composition of the entering PhD class. This result provides an explanation for persistent underrepresentation of women in economics, as well as for persistent segregation of women across academic fields.
18 Dollar Illiquidity and Central Bank Swap Arrangements during the Global Financial Crisis
  Rose Spiegel | August 2011
  + abstract
While the global financial crisis was centered in the United States, it led to a surprising appreciation in the dollar, suggesting global dollar illiquidity. In response, the Federal Reserve partnered with other central banks to inject dollars into the international financial system. Empirical studies of the success of these efforts have yielded mixed results, in part because their timing is likely to be endogenous. In this paper, we examine the cross-sectional impact of these interventions. Theory consistent with dollar appreciation in the crisis suggests that their impact should be greater for countries that have greater exposure to the United States through trade and financial channels, less transparent holdings of dollar assets, and greater illiquidity difficulties. We examine these predictions for observed cross-sectional changes in CDS spreads, using a new proxy for innovations in perceived changes in sovereign risk based upon Google-search data. We find robust evidence that auctions of dollar assets by foreign central banks disproportionately benefited countries that were more exposed to the United States through either trade linkages or asset exposure. We obtain weaker results for differences in asset transparency or illiquidity. However, several of the important announcements concerning the international swap programs disproportionately benefited countries exhibiting greater asset opaqueness.
+ supplement

wp11-18appendix.pdf – Online Appendix

17 New Evidence on Cyclical and Structural Sources of Unemployment
  Trehan Chen Kannan Loungani | May 2011
  + abstract
We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors–real GDP changes (Okun’s law), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25%. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.
16 Could the U.S. Treasury Benefit from Issuing More TIPS?
  Christensen Gillan | June 2012
  + abstract
Yes. We analyze the economic benefit of Treasury Inflation Protected Securities (TIPS) issuance by estimating the inflation risk premium that penalizes nominal Treasuries vis-a-vis TIPS and the cost derived from TIPS liquidity disadvantage. To account for the latter, we introduce a novel model-independent range for the liquidity premium in TIPS exploiting additional information from inflation swaps. We also adjust our model estimates for finite-sample bias. The resulting measure provides a lower bound to the benefit of TIPS, which is positive on average. Thus, our analysis suggests that the Treasury could save billions of dollars by significantly expanding its TIPS program.
15 Should Central Banks Lean Against Changes in Asset Prices?
  Leduc Natal | May 2011
  + abstract
How should monetary policy be conducted in the presence of endogenous feedback loops between asset prices, firms’ financial health, and economic activity? We reconsider this question in the context of the financial accelerator model and show that, when the level of natural output is inefficient, the optimal monetary policy under commitment leans considerably against movements in asset prices and risk premia. We demonstrate that an endogenous feedback loop is crucial for this result and that price stability is otherwise quasi-optimal absent this feature. We also show that the optimal policy can be closely approximated and implemented using a speed-limit rule that places a substantial weight on the growth of financial variables.
14 Bank Relationships, Business Cycles, and Financial Crises
  Hale | July 2011
  + abstract
The importance of information asymmetries in the capital markets is commonly accepted as one of the main reasons for home bias in investment. We posit that effects of such asymmetries may be reduced through relationships between banks established through bank-to-bank lending and provide evidence to support this claim. To analyze dynamics of formation of such relationships during 1980-2009 time period, we construct a global banking network of 7938 banking institutions from 141 countries. We find that recessions and banking crises tend to have negative effects on the formation of new connections and that these effects are not the same for all countries or all banks. We also find that the global financial crisis of 2008-09 had a large negative impact on the formation of new relationships in the global banking network, especially by large banks that have been previously immune to effects of banking crises and recessions.
13 The Impact of Creditor Protection on Stock Prices in the Presence of Credit Crunches
  Hale Razin Tong | April 2011
  + abstract
Data show that better creditor protection is correlated across countries with lower average stock market volatility. Moreover, countries with better creditor protection seem to have suffered lower decline in their stock market indexes during the current financial crisis. To explain this regularity, we use a Tobin q model of investment and show that stronger creditor protection increases the expected level and lowers the variance of stock prices in the presence of credit crunches. There are two main channels through which creditor protection enhances the performance of the stock market: (1) The credit-constrained stock price increases with better protection of creditors; (2) The probability of a credit crunch leading to a binding credit constraint falls with strong protection of creditors. We find strong empirical support for both predictions using data on stock market performance, amount and cost of credit, and creditor rights protection for 52 countries over the period 1980-2007. In particular, we find that crises are more frequent in countries with poor creditor protection. Using propensity score matching we also show that during crises stock market returns fall by more in countries with poor creditor protection.
12 Correcting Estimation Bias in Dynamic Term Structure Models
  Bauer Rudebusch Wu | April 2012
  + abstract
The affine dynamic term structure model (DTSM) is the canonical empirical finance representation of the yield curve. However, the possibility that DTSM estimates may be distorted by small-sample bias has been largely ignored. We show that conventional estimates of DTSM coefficients are indeed severely biased, and this bias results in misleading estimates of expected future short-term interest rates and of long-maturity term premia. We provide a variety of bias-corrected estimates of affine DTSMs, both for maximally-flexible and over-identified specifications. Our estimates imply short rate expectations and term premia that are more plausible from a macro-finance perspective.
11 Trust in Public Institutions over the Business Cycle
  Stevenson Wolfers | March 2011
  + abstract
We document that trust in public institutions—and particularly trust in banks, business and government—has declined over recent years. U.S. time series evidence suggests that this partly reflects the pro-cyclical nature of trust in institutions. Cross-country comparisons reveal a clear legacy of the Great Recession, and those countries whose unemployment grew the most suffered the biggest loss in confidence in institutions, particularly in trust in government and the financial sector. Finally, analysis of several repeated cross-sections of confidence within U.S. states yields similar qualitative patterns, but much smaller magnitudes in response to state-specific shocks.
10 Extracting Deflation Probability Forecasts from Treasury Yields
  Christensen Lopez Rudebusch | February 2011
  + abstract
We construct probability forecasts for episodes of price deflation (i.e., a falling price level) using yields on nominal and real U.S. Treasury bonds. The deflation probability forecasts identify two “deflation scares” during the past decade: a mild one following the 2001 recession, and a more serious one starting in late 2008 with the deepening of the financial crisis. The estimated deflation probabilities are generally consistent with those from macroeconomic models and surveys of professional forecasters, but they also provide highfrequency insight into the views of financial market participants. The probabilities can also be used to price the deflation option embedded in real Treasury bonds.
09 Reestablishing the Income-Democracy Nexus
  Benhabib Corvalon Spiegel | February 2011
  + abstract
A number of recent empirical studies have cast doubt on the “modernization theory” of democratization, which posits that increases in income are conducive to increases in democracy levels. This doubt stems mainly from the fact that while a strong positive correlation exists between income and democracy levels, the relationship disappears when one controls for country fixed effects. This raises the possibility that the correlation in the data reflects a third causal characteristic, such as institutional quality. In this paper, we reexamine the robustness of the income-democracy relationship. We extend the research on this topic in two imensions: first, we make use of newer income data, which allows for the construction of larger samples with more within-country observations. Second, we concentrate on panel estimation methods that explicitly allow for the fact that the primary measures of democracy are censored with substantial mass at the boundaries, or binary censored variables. Our results show that when one uses both the new income data available and a properly non linear estimator, a statistically significant positive income-democracy relationship is robust to the inclusion of country fixed effects.
08 Let’s Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2
  Swanson | February 2011
  + abstract
This paper undertakes a modern event-study analysis of Operation Twist and compares its effects to those that should be expected for the recent quantitative policy announced by the Federal Reserve, dubbed “QE2″. We first show that Operation Twist and QE2 are similar in magnitude. We identify six significant, discrete announcements in the course of Operation Twist that potentially could have had a major effect on financial markets, and show that four did have statistically significant effects. The cumulative effect of these six announcements on longer-term Treasury yields is highly statistically significant but moderate, amounting to about 15 basis points. This estimate is consistent both with Modigliani and Sutch’s (1966) time series analysis and with the lower end of empirical estimates of Treasury supply effects in the literature.
07 Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks
  Lansing | September 2014
  + abstract
This paper develops a production-based asset pricing model with two types of agents and concentrated ownership of physical capital. A temporary but persistent “distribution shock” causes the income share of capital owners to fluctuate in a procyclical manner, consistent with U.S. data. The concentrated ownership model significantly magnifies the equity risk premium relative to a representative-agent model because the capital owners’ consumption is more-strongly linked to volatile dividends from equity. With a steady-state risk aversion coefficient around 4, the model delivers an unlevered equity premium of 3.9% relative to short-term bonds and a premium of 1.2% relative to long-term bonds.
06 The Wage Premium Puzzle and the Quality of Human Capital
  Marquis Trehan Tantivong | February 2011
  + abstract
The wage premium for high-skilled workers in the United States, measured as the ratio of the 90th-to-10th percentiles from the wage distribution, increased by 20 percent from the 1970s to the late 1980s. A large literature has emerged to explain this phenomenon. A leading explanation is that skill-biased technolog- ical change (SBTC) increased the demand for skilled labor relative to unskilled labor. In a calibrated vintage capital model with heterogenous labor, this paper examines whether SBTC is likely to have been a major factor in driving up the wage premium. Our results suggest that the contribution of SBTC is very small, accounting for about 1/20th of the observed increase. By contrast, a gradual and very modest shift in the distribution of human capital across workers can easily account for the large observed increase in wage inequality.
05 A Rising Natural Rate of Unemployment: Transitory or Permanent?
  Daly Hobijn Sahin Valletta | September 2011
  + abstract
The U.S. unemployment rate has remained stubbornly high since the 2007-2009 recession leading many to conclude that structural, rather than cyclical, factors are to blame. Relying on a standard job search and matching framework and empirical evidence from a wide array of labor market indicators, we examine whether the natural rate of unemployment has increased since the recession began, and if so, whether the underlying causes are transitory or persistent. Our analyses suggest that the natural rate has risen over the past several years, with our preferred estimate implying an increase from its pre-recession level of close to a percentage point. An assessment of the underlying factors responsible for this increase, including labor market mismatch, extended unemployment benefits, and uncertainty about overall economic conditions, implies that only a small fraction of this increase is likely to be persistent.
+ supplement

wp11-05bkJanuary2011.pdf – Prior version of paper January 2011

JEP-slides.pdf – Slides with updated results covering data through August 7, 2012

JEP-Beveridge-curve.xlsm – Replication files covering data through August 7, 2012

04 Evidence on Financial Globalization and Crisis: Capital Raisings
  Hale | January 2011
  + abstract
Financial globalization opened international capital markets to investors and firms all over the world. Foreign capital raisings by firms have increased substantially since the early 1990s in terms of equity as well as debt. I review the literature on the determinants and patterns of cross-border capital raisings and their effects on developments of domestic markets, highlighting the differences between mature and emerging economies. I focus on the effects the introduction of the euro had on European and global capital markets by bringing into existence a currency area comparable in size to that of the United States. Finally, I discuss the effects of financial crises on foreign capital raisings and review capital raisings during the 2007-09 global financial crisis.
03 Restrictions on Risk Prices in Dynamic Term Structure Models
  Bauer | February 2015
  + abstract
Restrictions on the risk-pricing in dynamic term structure models (DTSMs) can unleash the power of no-arbitrage by creating a tighter link between cross-sectional and time-series variation of interest rates. This paper presents a new econometric framework for estimation of affine Gaussian DTSMs under restrictions on risk prices, which addresses the issues of a large model space and of model uncertainty using a Bayesian approach. A simulation study demonstrates the good performance of the proposed method, both for model choice and for inference about the objects of interest. I obtain novel results for the U.S. Treasury yield curve. The data strongly favor tight restrictions on risk pricing: only level risk is priced, and only changes in the slope affect term premia. Incorporating the restrictions into an otherwise standard model substantially alters its conclusions. Interest rate persistence is significantly higher than in a maximally-flexible model, hence expectations of future short rates are more variable, and the role for term premia is somewhat diminished. Hence, restrictions on risk prices help resolve the puzzle of implausibly stable short-rate expectations which has plagued this literature. Restricted models attribute a larger share of the secular decline in long-term interest rates over the last twenty years to the expectations component, consistent with survey evidence on expectations of future interest rates and inflation.
02 Cross-Country Causes and Consequences of the Crisis: An Update
  Rose Spiegel | January 2011 | Pacific Basin Working Paper
  + abstract
We update Rose and Spiegel (2010a, b) and search for simple quantitative models of macroeconomic and financial indicators of the “Great Recession” of 2008-09. We use a cross-country approach and examine a number of potential causes that have been found to be successful indicators of crisis intensity by other scholars. We check a number of different indicators of crisis intensity, and a variety of different country samples. While countries with higher income and looser credit market regulation seemed to suffer worse crises, we find few clear reliable indicators in the pre-crisis data of the incidence of the Great Recession. Countries with current account surpluses seemed better insulated from slowdowns.
01 Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?
  Chung Laforte Reifschneider Williams | January 2011
  + abstract
Before the recent recession, the consensus among researchers was that the zero lower bound (ZLB) probably would not pose a significant problem for monetary policy as long as a central bank aimed for an inflation rate of about 2 percent; some have even argued that an appreciably lower target inflation rate would pose no problems. This paper reexamines this consensus in the wake of the financial crisis, which has seen policy rates at their effective lower bound for more than two years in the United States and Japan and near zero in many other countries. We conduct our analysis using a set of structural and time series statistical models. We find that the decline in economic activity and interest rates in the United States has generally been well outside forecast confidence bands of many empirical macroeconomic models. In contrast, the decline in inflation has been less surprising. We identify a number of factors that help to account for the degree to which models were surprised by recent events. First, uncertainty about model parameters and latent variables, which were typically ignored in past research, significantly increases the probability of hitting the ZLB. Second, models that are based primarily on the Great Moderation period severely understate the incidence and severity of ZLB events. Third, the propagation mechanisms and shocks embedded in standard DSGE models appear to be insufficient to generate sustained periods of policy being stuck at the ZLB, such as we now observe. We conclude that past estimates of the incidence and effects of the ZLB were too low and suggest a need for a general reexamination of the empirical adequacy of standard models. In addition to this statistical analysis, we show that the ZLB probably had a first-order impact on macroeconomic outcomes in the United States. Finally, we analyze the use of asset purchases as an alternative monetary policy tool when short-term interest rates are constrained by the ZLB, and find that the Federal Reserve’s asset purchases have been effective at mitigating the economic costs of the ZLB. In particular, model simulations indicate that the past and projected expansion of the Federal Reserve’s securities holdings since late 2008 will lower the unemployment rate, relative to what it would have been absent the purchases, by 1-1/2 percentage points by 2012. In addition, we find that the asset purchases have probably prevented the U.S. economy from falling into deflation.


32 Which Industries are Shifting the Beveridge Curve?
  Barnichon Elsby Hobijn Sahin | October 2011
  + abstract
The negative relationship between the unemployment rate and the job openings rate, known as the Beveridge curve, has been relatively stable in the U.S. over the last decade. Since the summer of 2009, in spite of firms reporting more job openings, the U.S. unemployment rate has not declined in line with the Beveridge curve. We decompose the recent deviation from the Beveridge curve into different parts using data from the Job Openings and Labor Turnover Survey (JOLTS). We find that most of the current deviation from the Beveridge curve can be attributed to a shortfall in hires per vacancy. This shortfall is broad-based across all industries and is particularly pronounced in construction, transportation, trade, and utilities, and leisure and hospitality. Construction alone accounts for more than half of the Beveridge curve gap.
31 The State of the Safety Net in the Post-Welfare Reform Era
  Bitler Hoynes | October 2010
  + abstract
The passage of the 1996 welfare reform bill led to sweeping changes to the central U.S. cash safety net program for families with children. Importantly, along with other changes, the reform imposed lifetime time limits for receipt of welfare de facto ending the entitlement nature of cash welfare for poor families with children in the United States. Despite dire predictions about poverty and deprivation, the previous research shows that caseloads declined and employment increased, with no detectible increase in poverty or worsening of child-well-being. We re-evaluate these results in light of the severe recession which began in December 2007. In particular, we examine how the cyclicality of the response of program caseloads and family wellbeing has been altered by the implementation of welfare reform. We find that use of food stamps and non-cash safety net program participation have become significantly more responsive across economic cycles after welfare reform, going up more after reform when unemployment increases. By contrast, there is no evidence that cash welfare for families with children is more responsive after reform, and some evidence that it might be less so. There is some evidence that poverty increases more with the unemployment rate after reform (and no evidence that poverty increases less with unemployment after reform). We find that reform has led to no significant effects on the cyclical responsiveness of food consumption, food insecurity, health insurance, household crowding, or health.
30 The Happiness—Suicide Paradox
  Daly Oswald Wilson Wu | February 2010
  + abstract
Suicide is an important scientific phenomenon. Yet its causes remain poorly understood. This study documents a paradox: the happiest places have the highest suicide rates. The study combines findings from two large and rich individual-level data sets—one on life satisfaction and another on suicide deaths—to establish the paradox in a consistent way across U.S. states. It replicates the finding in data on Western industrialized nations and checks that the paradox is not an artifact of population composition or confounding factors. The study concludes with the conjecture that people may find it particularly painful to be unhappy in a happy place, so that the decision to commit suicide is influenced by relative comparisons.
29 On Variance Bounds for Asset Price Changes
  Lansing | November 2014
  + abstract
This paper considers variance bounds for stock price changes in a general setting that allows for ex-dividend stock prices, risk averse investors, and exponentially-growing dividends. I show that providing investors with more information about future dividends can either increase or decrease the variance of stock price changes, depending on some key parameters, namely, those governing the properties of dividends and the stochastic discount factor. This finding contrasts with the results of Engel (2005) who shows that news about future dividends will always decrease the variance of stock price changes in a specialized setting with cum-dividend stock prices and risk neutral investors.
28 Subjective Well-Being, Income, Economic Development and Growth
  Sacks Stevenson Wolfers | September 2010
  + abstract
We explore the relationships between subjective well-being and income, as seen across individuals within a given country, between countries in a given year, and as a country grows through time. We show that richer individuals in a given country are more satisfied with their lives than are poorer individuals, and establish that this relationship is similar in most countries around the world. Turning to the relationship between countries, we show that average life satisfaction is higher in countries with greater GDP per capita. The magnitude of the satisfaction-income gradient is roughly the same whether we compare individuals or countries, suggesting that absolute income plays an important role in influencing well-being. Finally, studying changes in satisfaction over time, we find that as countries experience economic growth, their citizens‘ life satisfaction typically grows, and that those countries experiencing more rapid economic growth also tend to experience more rapid growth in life satisfaction. These results together suggest that measured subjective well-being grows hand in hand with material living standards.
27 The 2007-09 Financial Crisis and Bank Opaqueness
  Flannery Kwan Nimalendran | September 2010
  + abstract
Doubts about the accuracy with which outside investors can assess a banking firm’s value motivate many government interventions in the banking market. The recent financial crisis has reinforced concerns about the possibility that banks are unusually opaque. Yet the empirical evidence, thus far, is mixed. This paper examines the trading characteristics of bank shares over the period from January 1990 through September 2009. We find that bank share trading exhibits sharply different features before vs. during the crisis. Until mid-2007, large (NYSE-traded) banking firms appear to be no more opaque than a set of control firms, and smaller (NASD-traded) banks are, at most, slightly more opaque. During the crisis, however, both large and small banking firms exhibit a sharp increase in opacity, consistent with the policy interventions implemented at the time. Although portfolio composition is significantly related to market microstructure variables, no specific asset category(s) stand out as particularly important in determining bank opacity.
26 Foreign Stock Holdings: The Role of Information
  Nechio | September 2014
  + abstract
Using the Survey of Consumer Finances data about individual stocks ownership, I compare households’ decision to invest in domestic versus foreign stocks. The data show that information plays a larger role in households’ decision to enter foreign stock markets. Households that invest in foreign stocks are more sophisticated in their sources of information – they use the Internet more often as a main source of information, talk to their brokers, trade more frequently, and shop more for investment opportunities. Adding to the wedge between the two groups of investors, foreign stock owners are also substantially wealthier, more educated, and less risk averse than households who focus on domestic stocks only. Furthermore, ownership of foreign stocks increases if the household is headed by women.
+ supplement

wp10-26bk-appendix.pdf – Appendix

25 Job Creation Tax Credits and Job Growth: Whether, When, and Where?
  Chirinko Wilson | December 2010
  + abstract
This paper studies the effects of Job Creation Tax Credits (JCTCs) enacted by U.S. states over the past 20 years. First, we investigate whether JCTCs stimulate within-state job growth. Second, we evaluate when JCTCs’ effects occur? In particular, we test for negative anticipation effects between JCTC enactment and when legislation goes into effect. Third, we assess from where any increased employment comes from – in-state or out-of-state? These questions are investigated in an event study framework applied to monthly panel data on employment, the JCTC effective and legislative dates, and various controls.
24 Risk Aversion, Investor Information, and Stock Market Volatility
  Lansing LeRoy | April 2014
  + abstract
This paper employs a standard asset pricing model to derive theoretical volatility measures in a setting that allows for varying degrees of investor information about the dividend process. We show that the volatility of the price-dividend ratio increases monotonically with investor information but the relationship between investor information and equity return volatility (or equity premium volatility) can be non-monotonic, depending on risk aversion and other parameter values. Under some plausible calibrations and information assumptions, we show that the model can match the standard deviations of equity market variables in long-run U.S. data. In the absence of concrete knowledge about investors’ information, it becomes more difficult to conclude that observed volatility in the data is excessive.
23 Entry Dynamics and the Decline in Exchange-Rate Pass-Through
  Gust Leduc Vigfusson | September 2010
  + abstract
The degree of exchange-rate pass-through to import prices is low. An average passthrough estimate for the 1980s would be roughly 50 percent for the United States implying that, following a 10 percent depreciation of the dollar, a foreign exporter selling to the U.S. market would raise its price in the United States by 5 percent. Moreover, substantial evidence indicates that the degree of pass-through has since declined to about 30 percent. Gust, Leduc, and Vigfusson (2010) demonstrate that, in the presence of pricing complementarity, trade integration spurred by lower costs for importers can account for a significant portion of the decline in pass-through. In our framework, pass-through declines solely because of markup adjustments along the intensive margin. In this paper, we model how the entry and exit decisions of exporting firms affect pass-through. This is particularly important since the decline in pass-through has occurred as a greater concentration of foreign firms are exporting to the United States. We find that the effect of entry on pass-through is quantitatively small and is more than offset by the adjustment of markups that arise only along the intensive margin. Even though entry has a relatively small impact on pass-through, it nevertheless plays an important role in accounting for the secular rise in imports relative to GDP. In particular, our model suggests that over 3/4 of the rise in the U.S. import share since the early 1980s is due to trade in new goods. Thus, a key insight of this paper is that adjustment of markups that occur along the intensive margin are quantitatively more important in accounting for secular changes in pass-through than adjustments that occur along the extensive margin.
22 Credit Constraints and Self-fulfilling Business Cycles
  Liu Wang | September 2011
  + abstract
We argue that credit constraints not just amplify fundamental shocks, they can also lead to self-fulfilling business cycles. To make this point, we study a model in which productive firms are credit constrained, with credit limits determined by equity value. A drop in equity value tightens credit constraints and reallocates resources from productive to unproductive firms. This reallocation reduces aggregate productivity and further depresses equity value and further tightens credit constraints, generating a financial multiplier that amplifies the effects of fundamental shocks. At the aggregate level, credit externality manifests as increasing returns and thus can lead to self-fulfilling business cycles.
21 If You Try, You’ll Get By: Chinese Private Firms’ Efficiency Gains from Overcoming Financial Constraints
  Hale Long | January 2011 | Pacific Basin Working Paper
  + abstract
In this paper we demonstrate that private firms in China have more difficult access to external finance than state owned firms and argue that they make adjustments to reduce their demand for external funds. In particular, we show that private firms have lower levels of inventory and trade credit and that these levels decrease with the difficulty of obtaining external finance. Nevertheless, we find no evidence that these lower levels of inventory and trade credit lead to lower productivity or profitability.
20 Asset Class Diversification and Delegation of Responsibilities between Central Banks and Sovereign Wealth Funds
  Aizenman Glick | September 2010 | Pacific Basin Working Paper
  + abstract
This paper presents a model comparing the optimal degree of asset class diversification abroad by a central bank and a sovereign wealth fund. We show that if the central bank manages its foreign asset holdings in order to meet balance of payments needs, particularly in reducing the probability of sudden stops in foreign capital inflows, it will place a high weight on holding safer foreign assets. In contrast, if the sovereign wealth fund, acting on behalf of the Treasury, maximizes the expected utility of a representative domestic agent, it will opt for relatively greater holding of more risky foreign assets. We also show how the diversification differences between the strategies of the bank and SWF is affected by the government’s delegation of responsibilities and by various parameters of the economy, such as the volatility of equity returns and the total amount of public foreign assets available for management.
19 China’s Monetary Policy and the Exchange Rate
  Mehrotra Sanchez-Fung | September 2010 | Pacific Basin Working Paper
  + abstract
The paper models monetary policy in China using a hybrid McCallum-Taylor empirical reaction function. The feedback rule allows for reactions to inflation and output gaps, and to developments in a trade-weighted exchange rate gap measure. The investigation finds that monetary policy in China has, on average, accommodated inflationary developments. But exchange rate shocks do not significantly affect monetary policy behavior, and there is no evidence of a structural break in the estimated reaction function at the end of the strict dollar peg in July 2005. The paper also runs an exercise incorporating survey-based inflation expectations into the policy reaction function and meets with some success.
18 Growth Accounting with Misallocation: Or, Doing Less with More in Singapore
  Fernald Neiman | May 2010 | Pacific Basin Working Paper
  + abstract
We derive aggregate growth-accounting implications for a two-sector economy with heterogeneous capital subsidies and monopoly power. In this economy, measures of total factor productivity (TFP) growth in terms of quantities (the primal) and real factor prices (the dual) can diverge from each other as well as from true technology growth. These distortions potentially give rise to dynamic reallocation effects that imply that change in technology needs to be measured from the bottom up rather than the top down. We show an example, for Singapore, of how incomplete data can be used to obtain estimates of aggregate and sectoral technology growth as well as reallocation e¤ects. We also apply our framework to reconcile divergent TFP estimates in Singapore and to resolve other empirical puzzles regarding Asian development.
17 Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act
  Wilson | October 2011
  + abstract
This paper estimates the “jobs multiplier” of fiscal stimulus spending using the state-level allocations of federal stimulus funds from the American Recovery and Reinvestment Act (ARRA) of 2009. Because the level and timing of stimulus funds that a state receives was potentially endogenous, I exploit the fact that most of these funds were allocated according to exogenous formulary allocation factors such as the number of federal highway miles in a state or its youth share of population. Cross-state IV results indicate that ARRA spending in its first year yielded about eight jobs per million dollars spent, or $125,000 per job.
16 Technology Diffusion and Postwar Growth
  Comin Hobijn | June 2010
  + abstract
In the aftermath of WorldWar II, the world’s economies exhibited very different rates of economic recovery. We provide evidence that those countries that caught up the most with the U.S. in the postwar period are those that also saw an acceleration in the speed of adoption of new technologies. This acceleration is correlated with the incidence of U.S. economic aid and technical assistance in the same period. We interpret this as supportive of the interpretation that technology transfers from the U.S. to Western European countries and Japan were an important factor in driving growth in these recipient countries during the postwar decades.
15 The Illusive Quest: Do International Capital Controls Contribute to Currency Stability?
  Glick Hutchison | May 2010
  + abstract
We investigate the effectiveness of capital controls in insulating economies from currency crises, focusing in particular on both direct and indirect effects of capital controls and how these relationships may have changed over time in response to global financial liberalization and the greater mobility of international capital. We predict the likelihood of currency crises using standard macroeconomic variables and a probit equation estimation methodology with random effects. We employ a comprehensive panel data set comprised of 69 emerging market and developing economies over 1975-2004. Both standard and duration-adjusted measures of capital control intensity (allowing controls to “depreciate” over time) suggest that capital controls have not effectively insulated economies from currency crises at any time during our sample period. Maintaining real GDP growth and limiting real overvaluation are critical factors preventing currency crises, not capital controls. However, the presence of capital controls greatly increases the sensitivity of currency crises to changes in real GDP growth and real exchange rate overvaluation, making countries more vulnerable to changes in fundamentals. Our model suggests that emerging markets weathered the 2007-08 crisis relatively well because of strong output growth and exchange rate flexibility that limited overvaluation of their currencies.
14 The Micro-Macro Disconnect of Purchasing Power Parity
  Bergin Glick Wu | May 2010
  + abstract
The persistence of aggregate real exchange rates is a prominent puzzle, particularly since adjustment of international relative prices in microeconomic data is much faster. This paper finds that adjustment to the law of one price in disaggregated data is not just a faster version of the adjustment to purchasing power parity in the aggregate data; while aggregate real exchange rate adjustment works primarily through the foreign exchange market, adjustment in disaggregated data is a qualitatively distinct process, working through adjustment in local-currency goods prices. These distinct adjustment dynamics appear to arise from distinct classes of shocks generating macro and micro price deviations. A vector error correction model nesting aggregate and disaggregated relative prices permits identification of distinct macroeconomic and good-specific shocks. When half-lives are estimated conditional on shocks, the macro-micro disconnect puzzle disappears: microeconomic relative prices adjust to macro shocks just as slowly as do aggregate real exchange rates. These results provide evidence against theories of real exchange rate behavior based on sticky prices and on heterogeneity across goods.
13 Optimal Monetary Policy in Open Economies
  Giancarlo Corsetti Luca Dedola and Sylvain Leduc | June 2010
  + abstract
This chapter studies optimal monetary stabilization policy in interdependent open economies, by proposing a unified analytical framework systematizing the existing literature. In the model, the combination of complete exchange-rate pass-through (`producer currency pricing’) and frictionless asset markets ensuring efficient risk sharing, results in a form of open-economy `divine coincidence': in line with the prescriptions in the baseline New-Keynesian setting, the optimal monetary policy under cooperation is characterized by exclusively inward-looking targeting rules in domestic output gaps and GDP-deflator inflation. The chapter then examines deviations from this benchmark, when cross-country strategic policy interactions, incomplete exchange-rate pass-through (‘local currency pricing’) and asset market imperfections are accounted for. Namely, failure to internalize international monetary spillovers results in attempts to manipulate international relative prices to raise national welfare, causing inefficient real exchange rate fluctuations. Local currency pricing and incomplete asset markets (preventing efficient risk sharing) shift the focus of monetary stabilization to redressing domestic as well as external distortions: the targeting rules characterizing the optimal policy are not only in domestic output gaps and inflation, but also in misalignments in the terms of trade and real exchange rates, and cross-country demand imbalances.
12 Monetary Policy Mistakes and the Evolution of Inflation Expectations
  Orphanides Williams | May 2011
  + abstract
What monetary policy framework, if adopted by the Federal Reserve, would have avoided the Great Inflation of the 1960s and 1970s? We use counterfactual simulations of an estimated model of the U.S. economy to evaluate alternative monetary policy strategies. We show that policies constructed using modern optimal control techniques aimed at stabilizing inflation, economic activity, and interest rates would have succeeded in achieving a high degree of economic stability as well as price stability only if the Federal Reserve had possessed excellent information regarding the structure of the economy or if it had acted as if it placed relatively low weight on stabilizing the real economy. Neither condition held true. We document that policymakers at the time both had an overly optimistic view of the natural rate of unemployment and put a high priority on achieving full employment. We show that in the presence of realistic informational imperfections and with an emphasis on stabilizing economic activity, an optimal control approach would have failed to keep inflation expectations well anchored, resulting in high and highly volatile inflation during the 1970s. Finally, we show that a strategy of following a robust first-difference policy rule would have been highly effective at stabilizing inflation and unemployment in the presence of informational imperfections. This robust monetary policy rule yields simulated outcomes that are close to those seen during the period of the Great Moderation starting in the mid-1980s.
11 Financial Crisis and Bank Lending
  Kwan | May 2010
  + abstract
This paper estimates the amount of tightening in bank commercial and industrial (C&I) loan rates during the financial crisis. After controlling for loan characteristics and bank fixed effects, as of 2010:Q1, the average C&I loan spread was 66 basis points or 23 percent above normal. From about 2005 to 2008, the loan spread averaged 23 basis points below normal. Thus, from the unusually loose lending conditions in 2007 to the much tighter conditions in 2010:Q1, the average loan spread increased by about 1 percentage point. I find that large and medium-sized banks tightened their loan rates more than small banks; while small banks tended to tighten less, they always charged more. Using loan size to proxy for bank-dependent borrowers, while small loans tend to have a higher spread than large loans, I find that small loans actually tightened less than large loans in both absolute and percentage terms. Hence, the results do not indicate that bank-dependent borrowers suffered more from bank tightening than large borrowers. The channels through which banks tightened loan rates include reducing the discounts on large loans and raising the risk premium on more risky loans. There also is evidence that noncommitment loans were priced significantly higher than commitment loans at the height of the liquidity shortfall in late 2007 and early 2008, but this premium dropped to zero following the introduction of emergency liquidity facilities by the Federal Reserve. In a cross section of banks, certain bank characteristics are found to have significant effects on loan prices, including loan portfolio quality, capital ratios, and the amount of unused loan commitments. These findings provide evidence on the supply-side effect of loan pricing.
10 Simple and Robust Rules for Monetary Policy
  Taylor Williams | April 2010
  + abstract
This paper focuses on simple normative rules for monetary policy which central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past two decades substantial progress has been made in establishing that such rules are robust. They perform well with a variety of newer and more rigorous models and policy evaluation methods. Simple rules are also frequently more robust than fully optimal rules. Important progress has also been made in understanding how to adjust simple rules to deal with measurement error and expectations. Moreover, historical experience has shown that simple rules can work well in the real world in that macroeconomic performance has been better when central bank decisions were described by such rules. The recent financial crisis has not changed these conclusions, but it has stimulated important research on how policy rules should deal with asset bubbles and the zero bound on interest rates. Going forward the crisis has drawn attention to the importance of research on international monetary issues and on the implications of discretionary deviations from policy rules.
09 Expectations and Economic Fluctuations: An Analysis Using Survey Data
  Leduc Sill | February 2010
  + abstract
Using survey-based measures of future U.S. economic activity from the Livingston Survey and the Survey of Professional Forecasters, we study how changes in expectations, and their interaction with monetary policy, contribute to fluctuations in macroeconomic aggregates. We find that changes in expected future economic activity are a quantitatively important driver of economic fluctuations: a perception that good times are ahead typically leads to a significant rise in current measures of economic activity and inflation. We also find that the short-term interest rate rises in response to expectations of good times as monetary policy tightens. Our results provide quantitative evidence on the importance of expectations-driven business cycles and on the role that monetary policy plays in shaping them.
08 Do Banks Propagate Debt Market Shocks?
  Hale Santos | December 2013
  + abstract
Recent financial crisis demonstrated that the banking system can be a pathway for shock transmission. In this paper, we analyze how banks transmit shocks that hit the debt market to their borrowers. Our paper shows that when banks experience a shock to the cost of their bond financing, they pass a portion of their extra costs or savings to their corporate borrowers. While banks do not offer special protection from bond market shocks to their relationship borrowers, they also do not treat all of them equally. Relationship borrowers that are not bank-dependent are the least exposed to bond market shocks via their bank loans. In contrast, banks pass the highest portion of the increase in their cost of bond financing to their relationship borrowers that rely exclusively on banks for external funding. These findings show that banks put more weight on the informational advantage they have over their relationship borrowers than on the prospects of future business with these borrowers. They also show a potential side effect of the recent proposals to require banks to use CoCos or other long-term funding.
07 The Labor Market in the Great Recession
  Elsby Hobijn Sahin | March 2010
  + abstract
This paper documents the adjustment of the labor market during the recession, and places it in the broader context of previous postwar downturns. What emerges is a picture of labor market dynamics with three key recurring themes: 1. From the perspective of a wide range of labor market outcomes, the 2007 recession represents the deepest downturn in the labor market in the postwar era. 2. Until recently, the nature of labor market adjustment in the current recession has displayed a notable resemblance to that observed in past severe downturns. 3. During the latter half of 2009, however, the path of adjustment has exhibited important departures from that seen in prior deep recessions.
+ supplement

EHSBPEASlides.pdf – Slide package

updated_charts.pdf – Updated charts, March 2011

06 Aggregation and the PPP Puzzle in a Sticky Price Model
  Carvalho Nechio | August 2010
  + abstract
We study the purchasing power parity (PPP) puzzle in a multi-sector, two-country, sticky-price model. Across sectors, firms differ in the extent of price stickiness, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, this leads sectoral real exchange rates to have heterogeneous dynamics. We show analytically that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent than in a counterfactual one-sector world economy that features the same average frequency of price changes, and is otherwise identical to the multi-sector world economy. When simulated with a sectoral distribution of price stickiness that matches the microeconomic evidence for the U.S. economy, the model produces a half-life of deviations from PPP of 39 months. In contrast, the half-life of such deviations in the counterfactual one-sector economy is only slightly above one year. As a by-product, our model provides a decomposition of this difference in persistence that allows a structural interpretation of the different approaches found in the empirical literature on aggregation and the real exchange rate. In particular, we reconcile the apparently conflicting findings that gave rise to the “PPP Strikes Back debate” (Imbs et al. 2005a,b and Chen and Engel 2005).
+ supplement

sr351.pdf – Earlier version, issued as New York Fed Working Paper

05 Should the Central Bank Be Concerned About Housing Prices?
  Jeske Liu | December 2010
  + abstract
Housing is an important component of the consumption basket. Since both rental prices and goods prices are sticky, the literature suggests that optimal monetary policy should stabilize both types of prices, with the optimal weight on rental inflation proportional to the housing expenditure share. In a two-sector DSGE model with sticky rental prices and goods prices, however, we find that the optimal weight on rental inflation in the Taylor rule is small–much smaller than that implied by the housing expenditure share. We show that the asymmetry in policy responses to rent inflation versus goods inflation stems from the asymmetry in factor intensity between the two sectors.
04 Bond Currency Denomination and the Yen Carry Trade
  Candelaria Lopez Spiegel | February 2010 | Pacific Basin Working Paper
  + abstract
We examine the determinants of issuance of yen-denominated international bonds over the period from 1990 through 2010. This period was marked by low Japanese interest rates that led some investors to pursue \carry trades,” which consisted of funding investments in higher interest rate currencies with low interest rate, yen-denominated obligations. In principle, bond issuers that have exibility in their funding currency could also conduct a carry-trade strategy by funding in yen during this low interest rate period. We examine the characteristics of firms who appeared to have adopted this strategy using a data set containing almost 80,000 international bond issues. Our results suggest that there was a movement towards issuing in yen in the international bond markets starting in 2003, but this appears to have ended with the outbreak of the global financial crisis in 2007. Furthermore, the breakdown of carry-trade conditions in 2007 corresponds to a resurgence in the ability of economic fundamentals, such as the volume of trade with Japan, to explain the decision to issue international bonds denominated in yen.
03 Inaccurate Age and Sex Data in the Census PUMS files: Evidence and Implications
  Alexander Davern Stevenson | January 2010 | CSIP Working Paper
  + abstract
We discover and document errors in public use microdata samples (“PUMS files”) of the 2000 Census, the 2003-2006 American Community Survey, and the 2004-2009 Current Population Survey. For women and men ages 65 and older, age- and sex-specific population estimates generated from the PUMS files differ by as much as 15% from counts in published data tables. Moreover, an analysis of labor force participation and marriage rates suggests the PUMS samples are not representative of the population at individual ages for those ages 65 and over.


29Can lower tax rates be bought? Business rent-seeking and tax competition among U.S. states
 Robert S. Chirinko Daniel J. Wilson
28Do credit constraints amplify macroeconomic fluctuations?
 Zheng Liu Pengfei Wang Tao Zha
27Financial choice in a non-Ricardian model of trade
 Katheryn N. Russ Diego Valderrama
26Risk aversion, the labor margin, and asset pricing in DSGE models
 Eric T. Swanson
25A theory of banks, bonds, and the distribution of firm size
 Katheryn N. Russ Diego Valderrama
24The role of capital service-life in a model with heterogenous labor and vintage capital
 Milton H. Marquis Wuttipan Tantivong Bharat Trehan
23Heeding Daedalus: Optimal inflation and the zero lower bound
 John C. Williams
22Mortgage loan securitization and relative loan performance
 John Krainer Elizabeth Laderman
21A state level database for the manufacturing sector: construction and sources
 Robert S. Chirinko Daniel J. Wilson
20Mortgage default and mortgage valuation
 John Krainer Stephen F. LeRoy Munpyung O
19Household inflation experiences in the U.S.: a comprehensive approach
 Bart Hobijn Kristin Mayer Carter Stennis Giorgio Topa
18Cross-country causes and consequences of the 2008 crisis: international linkages and American exposure
 Andrew K. Rose Mark M. Spiegel
17Cross-country causes and consequences of the 2008 crisis: early warning
 Andrew K. Rose Mark M. Spiegel
16Monetary policy response to oil price shocks
 Jean-Marc Natal
15Welfare-based optimal monetary policy with unemployment and sticky prices: a linear-quadratic framework
 Federico Ravenna Carl E. Walsh
14Foreign entry into underwriting services: evidence from Japan’s “Big Bang” deregulation
 Mark M. Spiegel Jose A. Lopez
13Do central bank liquidity facilities affect interbank lending rates?
 Jens H. E. Christensen Jose A. Lopez Glenn D. Rudebusch
12The welfare consequences of monetary policy
 Federico Ravenna Carl E. Walsh
11The paradox of declining female happiness
 Betsey Stevenson Justin Wolfers
10Survey measures of expected inflation and the inflation process
 Bharat Trehan
09The international dimension of productivity and demand shocks in the U.S. economy
 Giancarlo Corsetti Luca Dedola Sylvain Leduc
08The effect of an employer health insurance mandate on health insurance coverage and the demand for labor: evidence from Hawaii
 Thomas C. Buchmueller John DiNardo Robert G. Valletta
07Beyond Kuznets: persistent regional inequality in China
 Christopher Candelaria Mary Daly Galina Hale
06The Olympic effect
 Andrew K. Rose Mark M. Spiegel
05What do we know and not know about potential output?
 Susanto Basu John G. Fernald
04Unemployment dynamics in the OECD
 Michael Elsby Bart Hobijn Aysegül Sahin
03CONDI: a cost-of-nominal-distortions index
 Stefano Eusepi Bart Hobijn Andrea Tambalotti
02EAD calibration for corporate credit lines
 Gabriel Jiménez Jose A. Lopez Jesús Saurina
01Sources of the Great Moderation: shocks, friction, or monetary policy?
 Zheng Liu Daniel F. Waggoner Tao Zha


35Consumption-habits in a new Keynesian business cycle model
 Richard Dennis
34Inflation expectations and risk premiums in an arbitrage-free model of nominal and real bond yields
 Jens H. E. Christensen Jose A. Lopez Glenn D. Rudebusch
33Sovereign wealth funds: stylized facts about their determinants and governance
 Joshua Aizenman Reuven Glick
32Navigating the trilemma: capital flows and monetary policy in China
 Reuven Glick Michael Hutchison
31The bond premium in a DSGE model with long-run real and nominal risks
 Glenn Rudebusch Eric Swanson
30Do nominal rigidities matter for the transmission of technology shocks?
 Zheng Liu Louis Phaneuf
29Exporting deflation? Chinese exports and Japanese prices
 David Weinstein Christian Broda
28China’s exporters and importers: firms, products, and trade partners
 Kalina Manova Zhiwei Zhang
27Why do foreigners invest in the United States?
 Kristin J. Forbes
26Current account dynamics and monetary policy
 Andrea Ferrero Mark Gertler Lars E.O. Svensson
25When bonds matter: home bias in goods and assets
 Nicolas Coeurdacier Pierre-Olivier Gourinchas
24Inventories, lumpy trade, and large devaluations
 George Alessandria Joseph Kaboski Virgiliu Midrigan
23How much of South Korea’s growth miracle can be explained by trade policy?
 Michelle Connolly Kei-Mu Yi
22Asymmetric expectation effects of regime shifts in monetary policy
 Zheng Liu Daniel F. Waggoner Tao Zha
21Timeless perspective policymaking: When is discretion superior?
 Richard Dennis
20Who drove the boom in euro-denominated bond issues?
 Galina Hale Mark M. Spiegel
19Happiness, unhappiness, and suicide: an empirical assessment
 Mary C. Daly Daniel J. Wilson
18Learning, adaptive expectations, and technology shocks
 Kevin X.D. Huang Zheng Liu Tao Zha
17Loan officers and relationship lending to SMEs
 Hirofumi Uchida Gregory F. Udell Nobuyoshi Yamori
16The adjustment of global external balances: does partial exchange rate pass-through to trade prices matter?
 Christopher Gust Sylvain Leduc Nathan Sheets
15Sterilization, monetary policy, and global financial integration
 Joshua Aizenman Reuven Glick
14Do banks price their informational monopoly?
 Galina Hale Joao A. C. Santos
13Understanding changes in exchange rate pass-through
 Yelena Takhtamanova
12Climate change and asset prices: hedonic estimates for North American ski resorts
 Van Butsic Ellen Hanak Robert G. Valletta
11Monetary and financial integration in the EMU: Push or pull?
 Mark M. Spiegel
10Financial globalization and monetary policy discipline
 Mark M. Spiegel
09Imperfect knowledge and the pitfalls of optimal control monetary policy
 Athanasios Orphanides John C. Williams
08Speculative growth and overreaction to technology shocks
 Kevin J. Lansing
07An arbitrage-free generalized Nelson-Siegel term structure model
 Jens H. E. Christensen Francis X. Diebold Glenn D. Rudebusch
06Capital-labor substitution, equilibrium indeterminacy, and the cyclical behavior of labor income
 Jang-Ting Guo Kevin J. Lansing
05Learning, expectations formation and the pitfalls of optimal control monetary policy
 Athanasios Orphanides John C. Williams
04A black swan in the money market
 John B. Taylor John C. Williams
2007-25Examining the bond premium puzzle with a DSGE model
 Glenn D. Rudebusch Eric T. Swanson


2008-03Tax competition among U.S. states: racing to the bottom or riding on a seesaw?
 Bob Chirinko Daniel J. Wilson
 Joshua Aizenman Mark M. Spiegel
2008-01International financial remoteness and macroeconomic volatility
 Andrew K. Rose Mark M. Spiegel
33Subprime mortgage delinquency rates
 Mark Doms Fred Furlong John Krainer
31Capital controls: myth and reality, a portfolio balance approach to capital controls
 Nicolas E. Magud Carmen Reinhart Kenneth Rogoff
30Financial integration in East Asia
 Hiroshi Fujiki Akiko Terada-Hagiwara
29Optimal reserve management and sovereign debt
 Laura Alfaro Fabio Kanczuk
28The determinants of household saving in China: a dynamic panel analysis of provincial data
 Charles Yuji Horioka Junmin Wan
27Productivity and the dollar
 Giancarlo Corsetti Luca Dedola Sylvain Leduc
26Pricing-to-market, trade costs, and international relative prices
 Andrew Atkeson Ariel Burstein
24Convergence and anchoring of yield curves in the Euro area
 Michael Ehrmann Marcel Fratzscher Refet S. Gürkaynak Eric T. Swanson
23How does competition impact bank risk-taking?
 Gabriel Jiménez Jose A. Lopez Jesús Saurina
22Determinants of access to external finance: evidence from Spanish firms
 Raquel Lago González Jose A. Lopez Jesús Saurina
21Regional economic conditions and the variability of rates of return in commercial banking
 Frederick Furlong John Krainer
20The affine arbitrage-free class of Nelson-Siegel term structure models
 Jens H.E. Christensen Francis X. Diebold Glenn D. Rudebusch
19Learning and optimal monetary policy
 Richard Dennis Federico Ravenna
18Imperfect information, self-selection and the market for higher education
 Tali Regev
17Do countries default in “bad times”?
 Michael Tomz Mark L. J. Wright
16Forecasting recessions: the puzzle of the enduring power of the yield curve
 Glenn D. Rudebusch John C. Williams
15Real wage cyclicality in the PSID
 Eric T. Swanson
14Empirical analysis of corporate credit lines
 Gabriel Jiménez Jose A. Lopez Jesús Saurina
13The composition of capital inflows when emerging market firms face financing constraints
 Katherine A. Smith Diego Valderrama
12Relative status and well-being: evidence from U.S. suicide deaths
 Mary C. Daly Daniel J. Wilson Norman J. Johnson
11Welfare-maximizing monetary policy under parameter uncertainty
 Rochelle M. Edge Thomas Laubach John C. Williams
10Rational and near-rational bubbles without drift
 Kevin J. Lansing
09Model uncertainty and monetary policy
 Richard Dennis
08Robust monetary policy with imperfect knowledge
 Athanasios Orphanides John C. Williams
06Productivity shocks in a model with vintage capital and heterogeneous labor
 Milton H. Marquis Bharat Trehan
05Innovations in mortgage markets and increased spending on housing
 Mark Doms John Krainer
04Monetary policy in a small open economy with a preference for robustness
 Richard Dennis Kai Leitemo Ulf Söderström
03Marriage and divorce: changes and their driving forces
 Betsey Stevenson Justin Wolfers
02Currency crises and foreign credit in emerging markets: credit crunch or demand effect?
 Galina Hale Carlos Arteta
01Wealth effects out of financial and housing wealth: cross country and age group comparisons
 Eva Sierminska Yelena Takhtamanova
2006-13Are there productivity spillovers from foreign direct investment in China?
 Galina Hale Cheryl Long


2007-32Capital account liberalization: theory, evidence, and speculation
 Peter Blair Henry
2007-07Market power and relationships in small business lending
 Elizabeth Laderman
50Global price dispersion: are prices converging or diverging?
 Paul R. Bergin Reuven Glick
49State investment tax incentives: what are the facts?
 Robert S. Chirinko Daniel J. Wilson
48Unemployment insurance and the uninsured
 Tali Regev
47State investment tax incentives: a zero-sum game?
 Robert S. Chirinko Daniel J. Wilson
46Macroeconomic implications of changes in the term premium
 Glenn D. Rudebusch Brian P. Sack Eric T. Swanson
45Foreign bank lending and bond underwriting in Japan during the lost decade
 Jose A. Lopez Mark M. Spiegel
44Beyond the classroom: using Title IX to measure the return to high school sports
 Betsey Stevenson
43The impact of divorce laws on marriage-specific capital
 Betsey Stevenson
42Evidence on the costs and benefits of bond IPOs
 Galina Hale João A. C. Santos
41Exchange-rate effects on China’s trade: an interim report
 Jaime Marquez John W. Schindler
40Global current account adjustment: a decomposition
 Michael B. Devereux Amartya Lahiri Ke Pang
39Saving and interest rates in Japan: why they have fallen and why they will remain low
 R. Anton Braun Daisuke Ikeda Douglas H. Joines
38The U.S. current account deficit and the expected share of world output
 Charles Engel John H. Rogers
37A quantitative analysis of China’s structural transformation
 Robert Dekle Guillaume Vandenbroucke
35Incomplete information processing: a solution to the forward discount puzzle
 Philippe Bacchetta Eric van Wincoop
34Computer use and the U.S. wage distribution, 1984-2003
 Robert G. Valletta
33Non-economic engagement and international exchange: the case of environmental treaties
 Andrew K. Rose Mark M. Spiegel
32Moderate inflation and the deflation-depression link
 Jess Benhabib Mark M. Spiegel
31Revealing the secrets of the temple: the value of publishing central bank interest rate projections
 Glenn D. Rudebusch John C. Williams
30Monetary policy in a low inflation economy with learning
 John C. Williams
29Information and communications technology as a general-purpose technology: evidence from U.S industry data
 Susanto Basu John Fernald
28Measuring oil-price shocks using market-based information
 Michele Cavallo Tao Wu
27Safe and sound banking, 20 years later: what was proposed and what has been adopted
 Fred Furlong Simon Kwan
26Aggregate shocks or aggregate information? costly information and business cycle comovement
 Laura Veldkamp Justin Wolfers
25FDI spillovers and firm ownership in China: labor markets and backward linkages
 Galina Hale Cheryl Long
24Endogenous skill bias in technology adoption: city-level evidence from the IT revolution
 Paul Beaudry Mark Doms Ethan Lewis
23Futures prices as risk-adjusted forecasts of monetary policy
 Monika Piazzesi Eric T. Swanson
22The frequency of price adjustment and New Keynesian business cycle dynamics
 Richard Dennis
21Sovereign debt crises and credit to the private sector
 Carlos Arteta Galina Hale
20The relative price and relative productivity channels for aggregate fluctuations
 Eric T. Swanson
19Quantitative easing and Japanese bank equity values
 Takeshi Kobayashi Mark Spiegel Nobuyoshi Yamori
18Labor supply and personal computer adoption
 Mark Doms Ethan Lewis
17Measuring the miracle: market imperfections and Asia’s growth experience
 John Fernald Brent Neiman
16The bond yield “conundrum” from a macro-finance perspective
 Glenn D. Rudebusch Eric T. Swanson Tao Wu
15Time-varying U.S. inflation dynamics and the New-Keynesian Phillips curve
 Kevin J. Lansing
14Inflation targeting under imperfect knowledge
 Athanasios Orphanides John C. Williams
12Keeping up with the Joneses and staying ahead of the Smiths: evidence from suicide data
 Mary C. Daly Daniel J. Wilson
11Interpreting prediction market prices as probabilities
 Justin Wolfers Eric Zitzewitz
10Methods for robust control
 Richard Dennis Kai Leitemo Ulf Söderström
09Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden
 Refet S. Gürkaynak Andrew T. Levin Eric T. Swanson
08Partisan impacts on the economy: evidence from prediction markets and close elections
 Erik Snowberg Justin Wolfers Eric Zitzewitz
06Five open questions about prediction markets
 Justin Wolfers Eric Zitzewitz
04Market-based measures of monetary policy expectations
 Refet S. Gürkaynak Brian Sack Eric Swanson
03Could capital gains smooth a current account rebalancing?
 Michele Cavallo Cédric Tille
01Higher-order perturbation solutions to dynamic, discrete-time rational expectations models
 Eric Swanson Gary Anderson Andrew Levin


2006-36Dual labor markets and business cycles
 David Cook Hiromi Nosaka
2006-07Pegged exchange rate regimes — a trap?
 Joshua Aizenman Reuven Glick
2006-05Sovereign debt, volatility, and insurance
 Kenneth Kletzer
2006-02Monetary policy shocks, inventory dynamics, and price-setting behavior
 Yongseung Jung Tack Yun
26Macroeconomic derivatives: an initial analysis of market-based macro forecasts, uncertainty, and risk
 Refet S. Gürkaynak Justin Wolfers
25Why has the U.S. Beveridge curve shifted back? new evidence using regional data
 Robert G. Valletta
24Optimal nonlinear policy: signal extraction with a non-normal prior
 Eric T. Swanson
23Markov perfect industry dynamics with many firms
 Gabriel Y. Weintraub C. Lanier Benkard Benjamin Van Roy
22Empirical analysis of the average asset correlation for real estate investment trusts
 Jose A. Lopez
21Trend breaks, long-run restrictions, and the contractionary effects of technology improvements
 John G. Fernald
20Robust control with commitment: a modification to Hansen-Sargent
 Richard Dennis
19Monetary policy inertia: fact or fiction?
 Glenn D. Rudebusch
18Accounting for the secular “decline” of U.S. manufacturing
 Milton Marquis Bharat Trehan
17Monetary policy with imperfect knowledge
 Athanasios Orphanides John C. Williams
16Government employment and the dynamic effects of fiscal policy shocks
 Michele P. Cavallo
15Monetary policy under uncertainty in micro-founded macroeconometric models
 Andrew T. Levin Alexei Onatski John C. Williams Noah Williams
14The value of knowledge spillovers
 Yi Deng
13Tradability, productivity, and understanding international economic integration
 Paul R. Bergin Reuven Glick
12The IMF in a world of private capital markets
 Barry Eichengreen Kenneth Kletzer Ashoka Mody
11Collateral damage: trade disruption and the economic impact of war
 Reuven Glick Alan M. Taylor
10Maintenance expenditures and indeterminacy under increasing returns to scale
 Jang-Ting Guo Kevin J. Lansing
09How have borrowers fared in banking mega-mergers?
 Kenneth A. Carow Edward J. Kane Rajesh P. Narayanan
08Beggar thy neighbor? the in-state vs. out-of-state impact of state R&D tax credits
 Daniel J. Wilson
07Exchange rate overshooting and the costs of floating
 Michele Cavallo Kate Kisselev Fabrizio Perri Nouriel Roubini
06Alternative measures of the Federal Reserve banks’ cost of equity capital
 Michelle L. Barnes Jose Lopez
05Offshore financial centers: parasites or symbionts?
 Andrew K. Rose Mark M. Spiegel
04Modeling bond yields in finance and macroeconomics
 Francis X. Diebold Monika Piazzesi Glenn D. Rudebusch
03Government consumption expenditures and the current account
 Michele Cavallo
02On using relative prices to measure capital-specific technological progress
 Milton Marquis Bharat Trehan
2004-24North-South technological diffusion and dynamic gains from trade
 Michelle P. Connolly Diego Valderrama
2004-23Implications of intellectual property rights for dynamic gains from trade
 Michelle P. Connolly Diego Valderrama
2004-16Asset price declines and real estate market illiquidity: evidence from Japanese land values
 John Krainer Mark Spiegel Nobuyoshi Yamori
2004-15Currency crises, capital account liberalization, and selection bias
 Reuven Glick Xueyan Guo Michael Hutchison
2004-06Lock-in of extrapolative expectations in an asset pricing model
 Kevin J. Lansing
2003-09Endogenous nontradability and macroeconomic implications
 Paul R. Bergin Reuven Glick


2005-01The welfare consequences of ATM surcharges: evidence from a structural entry model
 Gautam Gowrisankaran John Krainer
35Dollar bloc or dollar block: external currency pricing and the East Asian crisis
 David Cook Michael B. Devereux
34Private capital flows, capital controls, and default risk
 Mark L . J. Wright
33Putting the brakes on Sudden Stops: the financial frictions-moral hazard tradeoff of asset price guarantees
 Enrique G. Mendoza Ceyhun Bora Durdu
31Defaultable debt, interest rates and the current account
 Mark Aguiar Gita Gopinath
30Monetary policy and the currency denomination of debt: a tale of two equilibria
 Roberto Chang Andres Velasco
29How do trade and financial integration affect the relationship between growth and volatility
 M. Ayhan Kose Eswar S. Prasad Marco E. Terrones
28When in peril, retrench: testing the portfolio channel of contagion
 Fernando A. Broner R. Gaston Gelos Carmen Reinhart
27Market price accounting and depositor discipline in Japanese regional banks
 Mark Spiegel Nobuyoshi Yamori
26Deposit insurance, regulatory forbearance and economic growth: implications for the Japanese banking crisis
 Robert Dekle Kenneth Kletzer
25The recent shift in term structure behavior from a no-arbitrage macro-finance perspective
 Glenn D. Rudebusch Tao Wu
22Using a long-term interest rate as the monetary policy instrument
 Bruce McGough Glenn D. Rudebusch John C. Williams
21Investment behavior of U.S. firms over heterogeneous capital goods: a snapshot
 Daniel J. Wilson
20Financial contracting and the choice between private placement and publicly offered bonds
 Simon H. Kwan Willard T. Carleton
19Testing the strong-form of market discipline: the effects of public market signals on bank risk
 Simon H. Kwan
18The ins and outs of poverty in advanced economies: poverty dynamics in Canada, Germany, Great Britain, and the United States
 Robert G. Valletta
17Specifying and estimating New Keynesian models with instrument rules and optimal monetary policies
 Richard Dennis
14Transition dynamics in vintage capital models: explaining the postwar catch-up of Germany and Japan
 Simon Gilchrist John C. Williams
13IT and beyond: the contribution of heterogeneous capital to productivity
 Daniel Wilson
12Why the apple doesn’t fall far: understanding intergenerational transmission of human capital
 Sandra Black Paul Devereux Kjell Salvanes
11Robust estimation and monetary policy with unobserved structural change
 John C. Williams
10Time varying equilibrium real rates and monetary policy analysis
 Bharat Trehan Tao Wu
09Consumer sentiment, the economy, and the news media
 Mark Doms Norman Morin
08Productivity, tradability, and the long-run price puzzle
 Paul Bergin Reuven Glick Alan M. Taylor
07Monetary and financial integration: evidence from Portuguese borrowing patterns
 Mark M. Spiegel
05Using securities market information for bank supervisory monitoring
 John Krainer Jose A. Lopez
04Learning and shifts in long-run productivity growth
 Rochelle M. Edge Thomas Laubach John C. Williams
03Evaluating interest rate covariance models within a value-at-risk framework
 Miguel A. Ferreira Jose A. Lopez
02The improving relative status of black men
 Kenneth Couch Mary Daly


2004-32Country spreads and emerging countries
 Mart´in Uribe Vivian Z. Yue
2004-01Does regional economic performance affect bank health? New analysis of an old question
 Mary Daly John Krainer Jose A. Lopez
24The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations
 Athanasios Orphanides John C. Williams
23What’s driving the new economy?: the benefits of workplace innovation
 Sandra E. Black Lisa M. Lynch
22How workers fare when employers innovate
 Sandra E. Black Lisa M. Lynch Anya Krivelyova
21The responses of wages and prices to technology shocks
 Rochelle M. Edge Thomas Laubach John C. Williams
20How fast do personal computers depreciate? concepts and new estimates
 Mark E. Doms Wendy E. Dunn Stephen D. Oliner Daniel E. Sichel
19IT investment and firm performance in U.S. retail trade
 Mark E. Doms Ron S. Jarmin Shawn D. Klimek
18The macroeconomy and the yield curve: a nonstructural analysis
 Francis X. Diebold Glenn D. Rudebusch S. Boragan Aruoba
17A macro-finance model of the term structure, monetary policy, and the economy
 Glenn D. Rudebusch Tao Wu
16New Keynesian optimal-policy models: an empirical assessment
 Richard Dennis
15Communications equipment: what has happened to prices?
 Mark Doms
14When do matched-model and hedonic techniques yield similar measures?
 Mark Doms Ana Aizcorbe Carol Corrado
13Prices for local area network equipment
 Mark Doms Chris Forman
12Left behind: SSI in the era of welfare reform
 Richard V. Burkhauser Mary C. Daly
11Inflation scares and forecast-based monetary policy
 Athanasios Orphanides John C. Williams
10Robust monetary policy with competing reference models
 Andrew T. Levin John C. Williams
08Military expenditure, threats, and growth
 Joshua Aizenman Reuven Glick
07Currency boards, dollarized liabilities, and monetary policy credibility
 Diego Valderrama Mark M. Spiegel
06Institutional efficiency, monitoring costs, and the investment share of FDI
 Joshua Aizenman Mark M. Spiegel
05Inferring policy objectives from economic outcomes
 Richard Dennis
04Importing technology
 Francesco Caselli Daniel Wilson
03Mortgages as recursive contracts
 John Krainer Milton H. Marquis
2002-11A model of endogenous nontradability and its implications for the current account
 Reuven Glick Paul R. Bergin
2001-10Some implications of using prices to measure productivity in a two-sector growth model
 Milton Marquis Bharat Trehan
2001-03Forward-looking behavior and optimal discretionary monetary policy
 Kevin J. Lansing Bharat Trehan


2003-02Human capital and technology diffusion
 Jess Benhabib Mark M. Spiegel
2003-01Robust monetary policy rules with unknown natural rates
 Athanasios Orphanides John C. Williams
24Employment declines among people with disabilities: population movements, isolated experience, or broad policy concern?
 Mary C. Daly Andrew J. Houtenville
23Nonlinearities in international business cycles
 Diego Valderrama
22Self-reported work limitation data: what they can and cannot tell us
 Richard V. Burkhauser Mary C. Daly Andrew J. Houtenville Nigar Nargis
20The Supplemental Security Income program
 Mary C. Daly Richard V. Burkhauser
19Exploring the role of the real exchange rate in Australian monetary policy
 Richard Dennis
18Bayesian inference for hospital quality in a selection model
 John Geweke Gautam Gowrisankaran Robert J. Town
17Learning and the value of information: the case of health plan report cards
 Michael Chernew Gautam Gowrisankaran Dennis P. Scanlon
16Network externalities and technology adoption: lessons from electronic payments
 Gautam Gowrisankaran Joanna Stavins
15The impact of financial frictions on a small open economy: when current account borrowing hits a limit
 Diego Valderrama
13Statistical nonlinearities in the business cycle: a challenge for the canonical RBC model
 Diego Valderrama
12Estimating the Euler equation for output
 Glenn D. Rudebusch Jeffrey C. Fuhrer
10How important is precommitment for monetary policy?
 Richard Dennis Ulf Soderstrom
09A gravity model of sovereign lending: trade, default and credit
 Andrew K. Rose Mark M. Spiegel
05The empirical relationship between average asset correlation, firm probability of default and asset size
 Jose A. Lopez
04Imperfect knowledge, inflation expectations, and monetary policy
 Athanasios Orphanides John C. Williams
03Investment, capacity, and uncertainty: a putty-clay approach
 Simon Gilchrist John C. Williams
02Assessing the Lucas critique in monetary policy models
 Glenn D. Rudebusch
01Operating performance of banks among Asian economies: an international and time series comparison
 Simon H. Kwan
2000-16Learning about a shift in trend output: implications for monetary policy and inflation
 Kevin J. Lansing
2000-15Growth effects of shifting from a progressive tax system to a flat tax
 Stephen P. Cassou Kevin J. Lansing


2002-21United States disability policy in a changing environment
 Richard V. Burkhauser & Mary C. Daly
2002-14The X-efficiency of commercial banks in Hong Kong
 Simon H. Kwan
2002-08Stylized facts on nominal term structure and business cycles: an empirical VAR study
 Tao Wu
2002-07Monetary policy and the slope factor in empirical term structure estimations
 Tao Wu
2002-06Macro factors and the affine term structure of interest rates
 Tao Wu
20The employment of working-age people with disabilities in the 1980s and 1990s: what current data can and cannot tell us
 Richard V. Burkhauser & Mary C. Daly & Andrew J. Houtenville & Nigar Nargis
19Pre-commitment, the timeless perspective, and policymaking from behind a veil of uncertainty
 Richard Dennis
18Embodying embodiment in a structural, macroeconomic input-output model
 Daniel J. Wilson
17Is embodied technology the result of upstream R&D? industry-level evidence
 Daniel J. Wilson
16Quantifying embodied technological change
 Plutarchos Sakellaris & Daniel J. Wilson
15Small business and computers: adoption and performance
 Marianne P. Bitler
14Incorporating equity market information into supervisory monitoring models
 John Krainer & Jose A. Lopez
13Does a currency union affect trade? the time series evidence
 Reuven Glick & Andrew K. Rose
12The disposition of failed bank assets: put guarantees or loss-sharing arrangements?
 Mark M. Spiegel
11Impact of deposit rate deregulation in Hong Kong on the market value of commercial banks
 Simon H. Kwan
09Optimal policy in rational-expectations models: new solution algorithms
 Richard Dennis
08The policy preferences of the U.S. Federal Reserve
 Richard Dennis
07Economic outcomes of working-age people with disabilities over the business cycle: an examination of the 1980s and 1990s
 Richard V. Burkhauser & Mary C. Daly & Andrew J. Houtenville & Nigar Nargis
04Inflation taxes, financial intermediation, and home production
 Milton H. Marquis
02Term structure evidence on interest rate smoothing and monetary policy inertia
 Glenn D. Rudebusch
01The Federal Reserve banks’ imputed cost of equity capital
 Edward J. Green & Jose A. Lopez & Zhenyu Wang
2000-18Asymmetric cross-sectional dispersion in stock returns: evidence and implications
 Gregory R. Duffee


2001-06The Supplemental Security Income program
 by Mary C. Daly Richard V. Burkhauser
2001-05Solvency runs, sunspot runs, and international bailouts
 by Mark M. Spiegel
21Evaluating covariance matrix forecasts in a value-at-risk framework
 by Jose A. Lopez Christian A. Walter
20Optimal simple targeting rules for small open economies
 by Richard Dennis
19Term premia and interest rate forecasts in affine models
 by Gregory R. Duffee
14Solving for optimal simple rules in rational expectations models
 by Richard Dennis
13Steps toward identifying central bank policy preferences
 by Richard Dennis
12Testing present value models of the current account: a cautionary note
 by Kenneth Kasa
11A robust Hansen-Sargent prediction formula
 by Kenneth Kasa
10Learning, large deviations, and recurrent currency crises
 by Kenneth Kasa
09Instability under nominal GDP targeting: the role of expectations
 by Richard Dennis
08Bank intermediation and persistent liquidity effects in the presence of a frictionless bond market
 by Tor Einarsson Milton H. Marquis
07Black-white wage inequality in the 1990s: a decade of progress
 by Kenneth Couch Mary C. Daly
06Inequality and poverty in the United States: the effects of changing family behavior and rising wage dispersion
 by Mary C. Daly Robert G. Valletta
05Common shocks and currency crises
 by Ramon Moreno Bharat Trehan
04Union effects on health insurance provision and coverage in the United States
 by Thomas C. Buchmueller John DiNardo Robert G. Valletta
03Assessing nominal income rules for monetary policy with model and data uncertainty
 by Glenn D. Rudebusch
02Is implied correlation worth calculating? Evidence from foreign exchange options and historical data
 by Christian Walter Jose A. Lopez
01The potential diversification and failure reduction benefits of bank expansion into nonbanking activities
 by Elizabeth S. Laderman