http://www.frbsf.org/publications/economics/papers/index.php FRBSF Working Paper Series http://www.frbsf.org/publications/economics/papers/2012/wp12-04bk.pdf Using a novel data set on highway spending measures, we construct a measure of government highway spending shocks that captures revisions in expectations about future government investment. We find that shocks to federal funding have a positive effect on local GDP both on impact and after 6 to 8 years. We show that an open-economy model of regions in a monetary and fiscal union, featuring productive public capital and time-to-build lags, can explain this qualitative pattern. 2012-04-01 00:00:00.0 FRBSF Working Paper Series Wed, 07 March 2012 07:00:00 GMT Leduc, Wilson http://www.frbsf.org/publications/economics/papers/2012/wp12-04bk.pdf http://www.frbsf.org/publications/economics/papers/2012/wp12-03bk.pdf We assess the effects of student and teacher characteristics on student achievement in a 2006 survey of California high school economics classes. We find students’ own and peer GPAs and their attitudes towards economics have the largest effects on value-added scores. We also find a substantial impact of specialized teacher experience and college-level coursework in economics. 2012-03-07 00:00:00.0 FRBSF Working Paper Series Wed, 07 March 2012 07:00:00 GMT Valletta, Hoff, Lopus http://www.frbsf.org/publications/economics/papers/2012/wp12-03bk.pdf http://www.frbsf.org/publications/economics/papers/2012/wp12-02bk.pdf The zero lower bound has constrained the Federal Reserve’s setting of the overnight federal funds rate for over three years running, but economic theory implies that the economy is more closely tied to the behavior of medium- and longer-term interest rates. In this paper, we develop a novel approach to measure when and to what extent the zero lower bound affects interest rates of any maturity. Our results have implications for both fiscal and monetary policy. 2012-02-09 00:00:00.0 FRBSF Working Paper Series Mon, 13 Feb 2012 07:00:00 GMT Swanson, Williams http://www.frbsf.org/publications/economics/papers/2012/wp12-02bk.pdf http://www.frbsf.org/publications/economics/papers/2012/wp12-01bk.pdf We combine questions from the Michigan Survey about the future path of prices, interest rates, and unemployment to investigate whether U.S. households are aware of the so-called Taylor (1993) rule. For comparison, we perform the same analysis using questions from the Survey of Professional Forecasters. Our findings support the view that some households form their expectations about the future path of interest rates, inflation, and unemployment in a way that is consistent with Taylor-type rules. 2012-02-09 00:00:00.0 FRBSF Working Paper Series Thurs, 09 Feb 2012 07:00:00 GMT Carvalho, Nechio http://www.frbsf.org/publications/economics/papers/2012/wp12-01bk.pdf http://www.frbsf.org/publications/economics/papers/2011/wp11-30bk.pdf 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 long-term 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. 2011-12-15 00:00:00.0 FRBSF Working Paper Series Thurs, 15 Dec 2011 07:00:00 GMT Glick, Nechio http://www.frbsf.org/publications/economics/papers/2011/wp11-30bk.pdf http://www.frbsf.org/publications/economics/papers/2011/wp11-29bk.pdf 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. 2011-12-15 00:00:00.0 FRBSF Working Paper Series Thurs, 15 Dec 2011 07:00:00 GMT Elsby, Hobijn, Sahin, Valletta http://www.frbsf.org/publications/economics/papers/2011/wp11-29bk.pdf http://www.frbsf.org/publications/economics/papers/2011/wp11-28bk.pdf 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. 2011-11-30 00:00:00.0 FRBSF Working Paper Series Wed, 30 Nov 2011 07:00:00 GMT Berge, Jorda http://www.frbsf.org/publications/economics/papers/2011/wp11-28bk.pdf http://www.frbsf.org/publications/economics/papers/2011/wp11-27bk.pdf This paper studies the role of leverage in the business cycle. Based on a study of nearly 200 recession episodes in 14 advanced countries between 1870 and 2008, we document a new stylized fact of the modern business cycle: more credit-intensive booms tend to be followed by deeper recessions and slower recoveries. We find a close relationship between the rate of credit growth relative to GDP in the expansion phase and the severity of the subsequent recession. We use local projection methods to study how leverage impacts the behavior of key macroeconomic variables such as investment, lending, interest rates, and inflation. The effects of leverage are particularly pronounced in recessions that coincide with financial crises, but are also distinctly present in normal cycles. The stylized facts we uncover lend support to the idea that financial factors play an important role in the modern business cycle. 2011-11-23 00:00:00.0 FRBSF Working Paper Series Wed, 23 Nov 2011 07:00:00 GMT Jorda, Schularick, Taylor http://www.frbsf.org/publications/economics/papers/2011/wp11-27bk.pdf http://www.frbsf.org/publications/economics/papers/2011/wp11-26bk.pdf 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. 2011-10-12 00:00:00.0 FRBSF Working Paper Series Wed, 12 Oct 2011 07:00:00 GMT Zheng Liu, Pengfei Wang, Tao Zha http://www.frbsf.org/publications/economics/papers/2011/wp11-26bk.pdf