Working Papers
Federal Reserve Bank of St. Louis working papers are preliminary materials circulated to stimulate discussion and critical comment.
Recent Working Papers
An Endogenously Clustered Factor Approach to International Business Cycles
Factor models have become useful tools for studying international business cycles. Block factor models [e.g., Kose, Otrok, and Whiteman (2003)] can be especially useful as the zero restrictions on the loadings of some factors may provide some economic interpretation of the factors.
Forecasting National Recessions Using State Level Data
A large literature studies the information contained in national-level economic indicators, such as financial and aggregate economic activity variables, for forecasting U.S. business cycle phases (expansions and recessions.)
Information Disclosure and Exchange Media
When commitment is lacking, intertemporal trade is facilitated with the use of exchange media—interpreted broadly to include monetary and collateral assets.
News Shocks and the Slope of the Term Structure of Interest Rates
We adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the term structure of interest rates. We find that one single shock can explain the majority of all unpredictable movements in the slope over a 10-year forecast horizon.
Price Equalization Does Not Imply Free Trade
In this paper we show that price equalization alone is not sufficient to establish that there are no barriers to international trade.
The Risk Premium and Long-Run Global Imbalances
Our paper investigates whether the valuation effect caused by a large risk premium and a low risk-free rate can help to explain the enormous US current account and trade deficit observed in the past decade.
Econometric Modeling of Exchange Rate Volatility and Jumps
This chapter reviews the rapid advances in foreign exchange volatility modeling made in the last three decades.
Foreign Aid, Illegal Immigration, and Host Country Welfare
This paper analyzes the effect of foreign aid on illegal immigration and host country welfare using a general equilibrium model.
Federal Reserve Lending to Troubled Banks During the Financial Crisis, 2007-10
Numerous commentaries have questioned both the legality and appropriateness of Federal Reserve lending to banks during the recent financial crisis.
Did Affordable Housing Legislation Contribute to the Subprime Securities Boom?
No. In this paper we use a regression discontinuity approach to investigate whether affordable housing policies influenced origination or affected prices of subprime mortgages.
Lifetime Labor Supply and Human Capital Investment
We develop a model of retirement and human capital investment to study the effects of tax and retirement policies.
Capital, Finance, and Trade Collapse
This paper proposes a model of international trade with capital accumulation and financial intermediation. This is achieved by embedding the Melitz (2003) model into an incomplete-markets neoclassical framework with an endogenous credit market.
Extensive and Intensive Trade Margins: A State-by-State View
This paper examines a topic of increasing interest, the potential determinants of extensive (i.e., number of firms) and intensive (i.e., average exports per firm) trade margins, using state-level trade to 190 countries. In addition to distance and country size, other factors affecting trade costs and export demand are explored.
Optimal Disclosure Policy and Undue Diligence
While both public and private financial agencies supply asset markets with large amounts of information, they do not generally disclose all asset-related information to the general public.
Basel Accord and Financial Intermediation: The Impact of Policy
This paper studies loan activity in a context where banks must follow Basel Accord-type rules and acquire financing from households. Loan activity typically decreases when entrepreneurs’ investment returns decline, and we study which type of policy could revigorate an economy in a trough.
How Does the FOMC Learn About Economic Revolutions? Evidence from the New Economy Era, 1994-2001
Forecasting is a daunting challenge for business economists and policymakers, often made more difficult by pervasive uncertainty. No such uncertainty is more difficult than projecting the reaction of policymakers to major shifts in the economy.
Credit Scoring and Loan Default
This paper introduces a measure of credit score performance that abstracts from the influence of "situational factors." Using this measure, we study the role and effectiveness of credit scoring that underlied subprime securities during the mortgage boom of 2000-2006.
What do happiness and health satisfaction data tell us about relative risk aversion?
In this paper we provide estimates of the coefficient of relative risk aversion using information on self-reports of subjective personal well-being from three datasets: the Gallup World Poll, the European Social Survey, and the World Values Survey.
The Simple Analytics of Money and Credit in a Quasi-linear Environment
Lagos and Wright (2005) demonstrate how the essential properties of a money-search model are preserved in an environment that is rendered highly tractable with the use of quasi-linear preferences.
We study the contraction of foreign direct investment (FDI) flows in the United States during the recent financial crisis and show their unusual non-resiliency, which depends in part on the global nature of the economic recession, but also on the increases in the cost of financing FDI in the economies in which the flows originate.
The Effect of Neighborhood Contagion on Mortgage Selection
In this paper we conduct an empirical investigation of how neighborhood mortgage adoption contagion affects mortgage product choice, with an emphasis on Hispanic borrowers.
The Effects of Female Labor Force Participation on Obesity
This paper assesses whether a causal relationship exists between recent increases in female labor force participation and the increased prevalence of obesity amongst women.
Capital Flows and Japanese Asset Volatility
Characterizing asset price volatility is an important goal for financial economists. The literature has shown that variables that proxy for the information arrival process can help explain and/or forecast volatility.
Race, Redlining, and Subprime Loan Pricing
We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual- and neighborhood-level data on racial and ethnic characteristics for metropolitan areas in California and Florida.
Why Do Education Vouchers Fail at the Ballot Box?
We compare a uniform voucher regime against the status quo mix of public and private education, focusing on the distribution of welfare gains and losses across house- holds by income.
Policy and Welfare Effects of Within-Period Commitment
Public expenditure is inefficiently low when a benevolent government can only commit to policies within a period.
Moral Hazard and Lack of Commitment in Dynamic Economies
We revisit the role of limited commitment in a dynamic risk-sharing setting with private information. We show that a Markov-perfect equilibrium, in which agent and insurer cannot commit beyond the current period, and an infinitely-long contract to which only the insurer can commit, implement identical consumption, effort and welfare outcomes.
Dynamic Optimal Insurance and Lack of Commitment
This paper analyzes dynamic risk-sharing contracts between profit-maximizing insurers and risk-averse agents who face idiosyncratic income uncertainty and may self-insure through savings.
Government Policy Response to War-Expenditure Shocks
A theory of government policy determination, based on intertemporal distortion-smoothing and limited commitment, matches the set of stylized facts of U.S. wartime policy.
The run-up in oil prices since 2004 coincided with growing investment in commodity markets and increased price comovement among different commodities.