Federal Reserve Bank of St. Louis Review

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


NOVEMBER/DECEMBER 2013 Vol. 95, No. 6

A Special Issue of Review in Commemoration of the Federal Reserve System Centennial: December 23, 1913–December 23, 2013

Homer Jones: "Propensity, capacity, and opportunity"

The Credit Crisis and Cycle-Proof Regulation

Forces at Work: The Fed, Money, and Forward Guidance

Darryl Francis and the Making of Monetary Policy, 1966-1975

Darryl Francis was president of the Federal Reserve Bank of St. Louis from 1966 to 1975. Throughout those years he was a leading critic of U.S. monetary policy.

The Reform of October 1979: How It Happened and Why

This study offers a historical review of the monetary policy reform of October 6, 1979, and discusses the influences behind it and its significance. We lay out the record from the start of 1979 through the spring of 1980, relying almost exclusively on contemporaneous sources, including the recently released transcripts of Federal Open Market Committee (FOMC) meetings during 1979.

Inflation Targeting in a St. Louis Model of the 21st Century

Announcements and the Role of Policy Guidance

By providing guidance about future economic developments, central banks can affect private sector expectations and decisions. This can improve welfare by reducing private sector forecast errors, but it can also magnify the impact of noise in central bank forecasts.

Challenging Policy

GSEs: Where Do We Stand?

Seven Faces of "The Peril"

In this paper the author discusses the possibility that the U.S. economy may become enmeshed in a Japanese-style deflationary outcome within the next several years. To frame the discussion, the author relies on an analysis that emphasizes two possible long-run steady states for the economy: one that is consistent with monetary policy as it has typically been implemented in the United States in recent years and one that is consistent with the low nominal interest rate, deflationary regime observed in Japan dur- ing the same period.

 

SEPTEMBER/OCTOBER 2013 Vol. 95, No. 5

Restoring Household Financial Stability after the Great Recession: Why Household Balance Sheets Matter

Selected articles from a symposium sponsored by the Federal Reserve Bank of St. Louis and Washington University in St. Louis, February 5-7, 2013

Introduction

The Current State of U.S. Household Balance Sheets

The Board of Governors of the Federal Reserve System is responsible for two of the most widely used datasets containing information about U.S. household balance sheets: the quarterly macro-level Financial Accounts of the United States (FA, formerly known as the Flow of Funds Accounts) and the triennial microlevel Survey of Consumer Finances (SCF) ...

Economic Vulnerability and Financial Fragility

Unfortunately, many families with the greatest exposure to the economic dislocations of the recent recession also had very risky balance sheets beforehand that were characterized by low levels of liquid assets, high portfolio concentrations in housing, and relatively high balance-sheet leverage. The authors argue that economic vulnerability and risky balance sheets are correlated because they derive from common factors ...

The Effects of Health and Wealth Shocks on Retirement Decisions

Both health status and net worth can affect retirement decisions. In some cases, early retirement may be precipitated by a shock to an individual’s health and/or economic status. The authors examine how health and wealth shocks affect retirement decisions ...

Is Student Debt Jeopardizing the Short-Term Financial Health of U.S. Households?

In this study, the authors use the Survey of Consumer Finances to determine whether student loans are associated with household net worth. They find that median 2009 net worth ($117,700) for households with no outstanding student loan debt is nearly three times higher than for households with outstanding student loan debt ($42,800) ...

The Relationship Between Leverage and Household Spending Behavior: Evidence from the 2007-2009 Survey of Consumer Finances

Some recent studies suggest that high levels of household debt and leverage have contributed to the relatively sluggish growth of consumer spending in the past few years (Dynan, 2012; Mian, Rao, and Sufi, 2013). However, this conclusion has not been widely accepted because of the empirical challenges associated with identifying the relationship amid the dramatic and complicated changes in the household economic environment during the Great Recession and subsequent slow recovery.

 

JULY/AUGUST 2013 Vol. 95, No. 4

The New Risk Management: The Good, the Bad, and the Ugly

In a 1997 Review article, the authors described the good, the bad, and the ugly features of what they called the new risk management, which is the use of financial derivatives to hedge risk in firms.

Why Are U.S. Firms Holding So Much Cash? An Exploration of Cross-Sectional Variation

Currently U.S. firms hold record amounts of cash. The authors explore cross-sectional variation in cash holdings of U.S. publicly traded firms to shed light on the reasons for this recent trend.

Donor Motives for Foreign Aid

The literature on foreign aid has contributed to our understanding of the motives for developed nations to provide aid to developing nations. In this article, the authors primarily focus on donor motivation, but they also touch on the consequences of receiving aid for developing nations.

 

MAY/JUNE 2013 Vol. 95, No. 3

Financial Regulatory Reform: A Progress Report

The 2007-09 financial and economic crisis was the result of a lack of effective regulation. The author addresses the problems with regulations in effect at the time of the crisis and offers proposals for regulation reform to address future crises.

Big Banks in Small Places: Are Community Banks Being Driven Out of Rural Markets?

The shares of total U.S. banking assets and deposits held by the very largest banking organizations have increased markedly over the past 25 years, while the shares held by small “community” banks have declined. Advances in information technology may have reduced the advantages of small scale, close proximity, and local ties that traditionally have given small, community-focused banks a competitive advantage in lending to small businesses and other “informationally opaque” borrowers.

Foreign Currency Loans and Systemic Risk in Europe

Foreign currency loans to the unhedged non-banking sector are remarkably prevalent in Europe and create a significant exchange-rate-induced credit risk to European banking sectors. In particular, Swiss franc (CHF)-denominated loans, popular in Eastern European countries, could trigger simultaneous bank failures if depreciation of the domestic currencies prevents unhedged borrowers from servicing the loans.

Labor Mismatch in the Great Recession: A Review of Indexes Using Recent U.S. Data

Labor mismatch, also known as structural imbalance, can be defined as a poor match between the characteristics of unemployed workers and those required for vacant jobs. In the wake of the jobless recovery from the Great Recession, economists have sought to explain the coexistence of a high unemployment rate and increasing job openings as a mismatch phenomenon.

 

MARCH/APRIL 2013 Vol. 95, No. 2

The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis

The authors study the distinguishing features of community banks that maintained the highest supervisory ratings during the recent financial crisis (2006 to 2011). They identify balance sheet and income statement ratios that separate these thriving banks from other community banks and supplement that analysis with detailed interview evidence from a sample of thriving banks.

Price-Level Targeting and Stabilization Policy

The authors construct a dynamic stochastic general equilibrium model to study optimal monetary stabilization policy. Prices are fully flexible and money is essential for trade.

Intertemporal Discounting and Policy Selection

The choice of the intertemporal discount rate affects the measurement of the tax burden of different age cohorts. Small changes in the discount rate affect not only the magnitude of the measured changes, but also the ranking of policies using that metric.

 

JANUARY/FEBRUARY 2013 Vol. 95, No. 1

Why Did Young Families Lose So Much Wealth During the Crisis? The Role of Homeownership

The authors use the Federal Reserve’s Survey of Consumer Finances to document a boom in home ownership and mortgage borrowing among young families in the years leading up to the recent financial crisis. Many young families lost more of their wealth during the downturn than middle-aged and older families. The authors find ...

NOTE: The associated data/program with this paper is too large. Should you have any interest in the data/program, please contact Bryan via bryan.j.noeth@stls.frb.org.

U.S. Manufacturing and the Importance of International Trade: It’s Not What You Think

The public often gauges the strength of the U.S. economy by the performance of the manufacturing sector, especially by changes in manufacturing employment. When such employment declines, as has been the trend for many years, it is often assumed ...

Four Stories of Quantitative Easing

This article describes the circumstances of and motivations for the quantitative easing programs of the Federal Reserve, Bank of England, European Central Bank, and Bank of Japan during the recent financial crisis and recovery. The programs initially ...

International Trade, Female Labor, and Entrepreneurship in MENA Countries

Middle Eastern and North African (MENA) countries stand out in international comparisons of de jure obstacles to female employment and entrepreneurship. These obstacles manifest themselves in low rates of female labor participation, entrepreneurship, and ownership. Recent research suggests ...

 


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