Federal Reserve Bank of St. Louis Review

A quarterly research journal intended for an economically informed but broad readership—from the undergraduate student to the PhD. In print and online.

NOVEMBER/DECEMBER 2011 Vol. 93, No. 6

International Liquidity Provision During the Financial Crisis: A View from Switzerland

The authors document the provision of liquidity in Swiss francs (CHF) by the Swiss National Bank (SNB) to banks located outside Switzerland during the recent financial crisis. What makes the Swiss case special is the size of this liquidity provision—at times, 80 percent of all short-term CHF liquidity provided by the SNB—and the measures adopted to distribute this liquidity.

Banking Industry Consolidation and Market Structure: Impact of the Financial Crisis and Recession

The number of U.S. commercial banks and savings institutions declined by 12 percent between December 31, 2006, and December 31, 2010, continuing a consolidation trend begun in the mid- 1980s. Banking industry consolidation has been marked by sharply higher shares of deposits held by the largest banks—the 10 largest banks now hold nearly 50 percent of total U.S. deposits.

The Effectiveness of Unconventional Monetary Policy: The Term Auction Facility

This paper investigates the effectiveness of one of the Federal Reserve’s unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between the London interbank offered rate (LIBOR) rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates.

A Federal Reserve System Conference on Research in Applied Microeconomics

This article summarizes some of the papers presented at the System Applied Microeconomics Conference organized and hosted by the Federal Reserve Bank of St. Louis on May 5-6, 2011. This annual conference brings together economists from the Federal Reserve District Banks across the Federal Reserve System and the Federal Reserve Board to present their latest economic research.


SEPTEMBER/OCTOBER 2011 Vol. 93, No. 5

Independence + Accountability: Why the Fed Is a Well-Designed Central Bank

In 1913, Congress purposefully created the Federal Reserve as an independent central bank, which created a fundamental tension: how to ensure the Fed remains accountable to the electorate without losing its independence. Over the years, there have been changes in the Fed’s structure to improve its independence, credibility, accountability, and transparency.

A Foreign Exchange Intervention in an Era of Restraint

The Japanese yen appreciated strongly and rapidly against other major currencies in the wake of the massive March 11, 2011, Tohoku earthquake. High volatility and disorder in financial markets prompted the G-7 authorities to jointly intervene to weaken the yen.

A Comprehensive Revision of the U.S. Monetary Services (Divisia) Indexes

The authors introduce a comprehensive revision of the Divisia monetary aggregates for the United States published by the Federal Reserve Bank of St. Louis, referred to as the Monetary Services Indexes (MSI). These revised MSI are available at five levels of aggregation, including a new broad level of aggregation that includes all of the assets currently reported on the Federal Reserve’s H.6 statistical release.

A Survey of Announcement Effects on Foreign Exchange Volatility and Jumps

This article reviews, evaluates, and links research that studies foreign exchange volatility reaction to macro announcements. Scheduled and unscheduled news typically raises volatility for about an hour and often causes price discontinuities or jumps.

NOTE: The table on pp. 368-369 was revised after publication.



JULY/AUGUST 2011 Vol. 93, No. 4

Measuring Inflation: The Core is Rotten

An earlier version of this article was delivered as a speech to the Money Marketeers of New York University, New York, New York, May 18, 2011.

Challenges for Monetary Policy in the European Monetary Union

This article was originally presented as the Homer Jones Memorial Lecture, organized by the Federal Reserve Bank of St. Louis, St. Louis, Missouri, April 13, 2011.

Decomposing the Education Wage Gap: Everything but the Kitchen Sink

The authors use a multitude of data sources to provide a comprehensive, multidimensional decomposition of wages across both time and educational status. Their results confirm the importance of investments in and use of technology, which has been the focus of most of the previous literature. The authors also show that demand and supply factors played very different roles in the growing wage gaps of the 1980s and 1990s.

"Frictions in Financial and Labor Markets":A Summary of the 35th Annual Economic Policy Conference

This article contains synopses of the papers presented at the 35th Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis held October 21-22, 2010. The conference theme was “Frictions in Financial and Labor Markets.” Leading participants in this field presented their research and commentary.


MAY/JUNE 2011 Vol. 93, No. 3

Have Acquisitions of Failed Banks Increased the Concentration of U.S. Banking Markets?

During 2007-10, failures eliminated 318 U.S. commercial banks and savings institutions, about 4 percent of the total number of banks operating at the end of 2006. The assets and deposits of many failed banks were acquired by institutions that already had offices in markets served by the failed banks. This article investigates the impact of in-market acquisitions of failed banks on the concentration of local U.S. banking markets.

Patterns of Interstate Migration in the United States from the Survey of Income and Program Participation

The authors describe the Survey of Income and Program Participation (SIPP) as a data source for migration studies. The SIPP is a panel dataset that provides information on income, employment outcomes, and participation in government programs.

Dynamics of Externalities: A Second-Order Perspective

First-order approximation methods are a standard technique for analyzing the local dynamics of dynamic stochastic general equilibrium (DSGE) models. Although linear methods yield quite accurate solutions for a broad class of DSGE models, some important economic issues (e.g., portfolio choice and welfare) cannot be adequately addressed by first-order methods. This paper provides yet another case when first-order methods may be inadequate for capturing the business cycle properties of a DSGE model.

Regional Aggregation in Forecasting: An Application to the Federal Reserve’s Eighth District

Hernández-Murillo and Owyang (2006) showed that accounting for spatial correlations in regional data can improve forecasts of national employment. This paper considers whether the predictive advantage of disaggregate models remains when forecasting subnational data. The authors conduct horse races among several forecasting models in which the objective is to forecast regional- or state-level employment.


MARCH/APRIL 2011 Vol. 93, No. 2

Can Rising Housing Prices Explain China’s High Household Saving Rate?

China’s average household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast-rising housing prices and other living costs in China. This article uses simple economic logic to show that rising housing prices and living costs per se cannot explain China’s persistently high household saving rate.

Political Economy Determinants of Non-agricultural Trade Policy

The authors investigate several existing political economy hypotheses on trade policy using crosscountry trade-protection data for non-agricultural goods. The authors find that a left-leaning political regime leads to pro-labor trade policies only for a subset of trade policy measures.

TARP Beneficiaries and Their Lending Patterns During the Financial Crisis

This paper provides a systematic analysis of the lending performance of U.S. commercial banks and savings institutions that received financial support through the Capital Purchase Program (CPP) established in October 2008. The authors combine U.S. Treasury data on recipients of the CPP with quarterly financial data for the entire population of depository institutions to reconstruct aggregate lending and gross credit flows (expansion and contraction).

Corporate Response to Distress: Evidence from the Asian Financial Crisis

This paper provides a comprehensive examination of corporate responses to financial distress during an economy-wide crisis, specifically through the restructuring of assets (through asset sales, mergers, or liquidations) and/or liabilities. Using firm-level data from five countries hardest hit by the East Asian financial crisis of 1997-98, this study contrasts the effects that financial and corporate governance variables have on restructuring choices.


JANUARY/FEBRUARY 2011 Vol. 93, No. 1

Economic Freedom and Employment Growth in U.S. States

The authors extend earlier models of economic growth and development by exploring the effect of economic freedom on U.S. state employment growth. They find that states with greater economic freedom—defined as the protection of private property and private markets operating with minimal government interference—experienced greater rates of employment growth.

A Primer on Social Security Systems and Reforms

This article reviews the characteristics of different social security systems. Many configurations arise depending on the nature of a system’s funding and determination of benefits.

What Explains the Growth in Commodity Derivatives?

This article documents the massive increase in trading in commodity derivatives over the past decade—growth that far outstrips the growth in commodity production and the need for derivatives to hedge risk by commercial producers and users of commodities.

Real-Time Forecast Averaging with ALFRED

This paper presents empirical evidence on the efficacy of forecast averaging using the ALFRED (ArchivaL Federal Reserve Economic Data) real-time database. The authors consider averages over a variety of bivariate vector autoregressive models.


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