Macro-Finance Models of Interest Rates and the Economy • Rudebusch • 2010-01
During the past decade, much new research has combined elements of finance, monetary economics, and macroeconomics in order to study the relationship between the term structure of interest rates and the economy. In this survey, I describe three different strands of such interdisciplinary macro-finance term structure research. The first adds macroeconomic variables and structure to a canonical arbitrage-free finance representation of the yield curve. The second examines bond pricing and bond risk premiums in a canonical macroeconomic dynamic stochastic general equilibrium model. The third develops a new class of arbitrage-free term structure models that are empirically tractable and well suited to macro-finance investigations.
Can Lower Tax Rates Be Bought?
Business Rent-Seeking And Tax Competition Among U.S. States
• Chirinko • Wilson • 2009-29
The standard model of strategic tax competition—the non-cooperative tax-setting behavior of jurisdictions competing for a mobile capital tax base—assumes that government policymakers are perfectly benevolent, acting solely to maximize the utility of the representative resident in their jurisdiction. We depart from this assumption by allowing for the possibility that policymakers, given the political and electoral environments in which they operate, also may be influenced by the rent-seeking (lobbying) behavior of businesses. Firms recognize the factors affecting policymakers’ welfare and may make campaign contributions to influence tax policy. These changes to the standard strategic tax competition model imply that business contributions affect not only the levels of equilibrium tax rates but also the slope of the tax reaction function between jurisdictions. Thus, business campaign contributions may affect tax competition and enhance or retard the mobility of capital across jurisdictions.
Based on a panel of 48 U.S. states and unique data on business campaign contributions, our empirical work uncovers four key results. First, we document a significant direct effect of business contributions on tax policy. Second, the economic value of a $1 business campaign contribution in terms of lower state corporate taxes is nearly $4. Third, the slope of the reaction function between tax policy in a given state and the tax policies of its competitive states is negative. Fourth, we highlight the sensitivity of the empirical results to state effects.
Do Credit Constraints Amplify Macroeconomic Fluctuations? • Liu • Wang • Zha • 2009-28
Previous studies on financial frictions have been unable to establish the empirical significance of credit constraints in macroeconomic fluctuations. This paper argues that the muted impact of credit constraints stems from the absence of a
mechanism to explain the observed persistent comovements between housing prices and business investment. We develop such a mechanism by incorporating two key features into a DSGE model: we identify shocks that shift the demand for collateral assets and we allow productive agents to be credit-constrained. A combination of these two features enables our model to successfully generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through credit constraints.
[T]he degree of amplification provided by credit constraints seems to depend crucially on the parameters of the economy. This sets up a clear challenge for future work: to demonstrate, in a carefully calibrated model environment, that the amplification and propagation possible by credit constraints are quantitatively significant (Kocherlakota, 2000).
Financial Choice in a Non-Ricardian Model of Trade • Russ • Valderrama • 2009-27
Risk Aversion, the Labor Margin, and Asset Pricing in DSGE Models • Swanson • 2009-26
A Theory of Banks, Bonds, and the Distribution of Firm Size • Russ • Valderrama • 2009-25
The Role of Capital Service-Life in a Model with Heterogenous Labor and Vintage Capital • Marquis • Tantivong • Trehan • 2009-24
Heeding Daedalus: Optimal Inflation and the Zero Lower Bound • Williams • 2009-23
Mortgage Loan Securitization and Relative Loan Performance • Krainer • Laderman • 2009-22
A State Level Database for the Manufacturing Sector: Construction and Sources • Chirinko • Wilson • 2009-21
Mortgage Default and Mortgage Valuation • Krainer • LeRoy • 2009-20
Household Inflation Experiences in the U.S.: A Comprehensive Approach • Hobijn • Mayer • Stennis • Topa • 2009-19
Cross-Country Causes and Consequences of the 2008 Crisis: International Linkages and American Exposure • Rose • Spiegel • 2009-18
Cross-Country Causes and Consequences of the 2008 Crisis: Early Warning • Rose • Spiegel • 2009-17
Monetary Policy Response to Oil Price Shocks • Natal • 2009-16
Welfare-Based Optimal Monetary Policy with Unemployment and Sticky Prices: A Linear-Quadratic Framework • Ravenna • Walsh • 2009-15
Foreign Entry into Underwriting Services: Evidence from Japan's "Big Bang" Deregulation • Spiegel • Lopez • 2009-14
Do Central Bank Lending Facilities Affect Interbank Lending Rates? • Christensen • Lopez • Rudebusch • 2009-13
The Welfare Consequences of Monetary Policy • Ravenna • Walsh • 2009-12
The Paradox of Declining Female Happiness • Stevenson • Wolfers • 2009-11
Survey Measures of Expected Inflation and the Inflation Process • Trehan • 2009-10
The International Dimension of Productivity and Demand Shocks in the U.S. Economy • Corsetti • Dedola • Leduc • 2009-09
The Effect of an Employer Health Insurance Mandate on Health Insurance Coverage and the Demand for Labor: Evidence from Hawaii • Buchmueller • DiNardo • Valletta • 2009-08
Beyond Kuznets: Persistent Regional Inequality in China • Candelaria • Daly • Hale • 2009-07
The Olympic Effect • Rose • Spiegel • 2009-06
What Do We Know and Not Know about Potential Output? • Basu • Fernald • 2009-05
Unemployment Dynamics in the OECD • Elsby • Hobijn • Sahin • 2009-04
CONDI: A Cost-of-Nominal-Distortions Index • Eusepi • Hobijn • Tambalotti • 2009-03
EAD Calibration for Corporate Credit Lines • Jimenez • Lopez • Saurina • 2009-02
Sources of the Great Moderation: Shocks, Friction, or Monetary Policy? • Liu • Waggoner • Zha • 2009-01
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