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Federal Reserve Bank of St. Louis working papers are preliminary materials circulated to stimulate discussion and critial comment.

International

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.

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.

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 multiple datasets.

The (Non-)Resiliency of Foreign Direct Investment in the United States during the 2007-2009 Financial Crisis

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.

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.

Speculation in the Oil Market

The run-up in oil prices since 2004 coincided with growing investment in commodity markets and increased price comovement among different commodities.

Should Easier Access to International Credit Replace Foreign Aid?

We examine the interaction between foreign aid and binding borrowing constraint for a recipient country. We also analyze how these two instruments affect economic growth via non-linear relationships. First of all, we develop a two-country, two-period trade-theoretic model to develop testable hypotheses and then we use dynamic panel analysis to test those hypotheses empirically. Our main findings are that: (i) better access to international credit for a recipient country reduces the amount of foreign aid it receives, and (ii) there is a critical level of international financial transfer, and the marginal effect of foreign aid is larger than that of loans if and only if the transfer (loans or foreign aid) is below this critical level.

Lessons from the Evolution of Foreign Exchange Trading Strategies

The adaptive markets hypothesis posits that trading strategies evolve as traders adapt their behavior to changing circumstances.

Explaining China's Trade Imbalance Puzzle

The current global-imbalance literature (which explains why capital flows from poor to rich countries) is unable to explain China’s foreign asset positions because capital cannot flow out of China under capital controls. Hence, this literature has not succeeded in explaining China’s large and persistent trade imbalances with the United States.

OPEC’s Oil Exporting Strategy and Macroeconomic (In)Stability

Aguiar-Conraria and Wen (2008) argued that dependence on foreign oil raises the likelihood of equilibrium indeterminacy (economic instability) for oil importing countries. We argue that this relation is more subtle.

Immigration Policy and Counterterrorism

A terrorist group, based in a developing (host) country, draws unskilled and skilled labor from the productive sector to conduct attacks in that nation and abroad.

Foreign Direct Investment, Aid, and Terrorism: An Analysis of Developing Countries

Using a dynamic panel data framework, we investigate the relationship between the two major forms of terrorism and foreign direct investment (FDI). We then analyze how these relationships are affected by foreign aid flows.

Technical Analysis in the Foreign Exchange Market

This article introduces the subject of technical analysis in the foreign exchange market, with emphasis on its importance for questions of market efficiency. “Technicians” view their craft, the study of price patterns, as exploiting traders’ psychological regularities.

Multinational Firms' Entry, Productivity, and Inefficiency

Despite the microeconomic evidence supporting the superior idiosyncratic productivity of multinational firms (MNFs) and their affiliates, cross-country studies fail to find robust evidence of a positive relationship between foreign direct investment and growth.

How Does Multinational Production Change International Comovement?

I study the aggregate implications of the entry of Multinational Firms (MNFs) in a two country Dynamic Stochastic General Equilibrium model in which firms have heterogeneous productivity in the sense of Ghironi and Melitz (2005).

Trade and Synchronization in a Multi-Country Economy

Substantial evidence suggests that countries with stronger trade linkages have more synchro- nized business cycles. The standard international business cycle framework cannot replicate this finding, uncovering the trade-comovement puzzle.

An Evaluation of the Employment Effects of Barriers to Outsourcing

Barriers to outsourcing that are being currently implemented in the US effectively tax its companies who “export” jobs through outsourcing. The objective is to raise domestic employment.

Changes in the Second-Moment Properties of Disaggregated Capital Flows

Using formal statistical tests, we detect (i) significant volatility increases for various types of capital flows for a period of changes in business cycle comovement among the G7 countries, and (ii) mixed evidence of changes in covariances and correlations with a set of macroeconomic variables.

Unconventional Monetary Policy Had Large International Effects

The Federal Reserve’s unconventional monetary policy announcements in 2008-2009 substantially reduced international long-term bond yields and the spot value of the dollar.

Ethnic Networks and Trade: Intensive vs. Extensive Margins

Ethnic networks—as proxies for information networks—have been associated with higher levels of international trade. Previous research has not differentiated between the roles of these networks on the extensive and intensive margins.

Financial Integration, Globalization, Growth and Systemic Real Risk

Using data for a large number of advanced and emerging market economies during 1985-2009, this paper documents the dynamics of financial integration and assesses whether advances in financial integration and globalization yield the beneficial real effects resulting from a more efficient resource allocation predicted by theory.

Common Fluctuations in OECD Budget Balances

We use a dynamic latent factor model to analyze comovements in OECD budget surpluses. The world factor underlying common fluctuations in budget surpluses across countries explains an average of 28 to 44 percent of the variation in individual country surpluses.

Biofuel Subsidies and International Trade

This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food.

Cross-Border Lobbying in Preferential Trading Agreements: Implications for External Tariffs

This paper examines the effect of cross-border lobbying on domestic lobbying and on external tariffs in both Customs Union (CU) and Free Trade Area (FTA).

Sources of Exchange Rate Fluctuations: Are They Real or Nominal?

I analyze the role of real and monetary shocks on the exchange rate behavior using a structural vector autoregressive model of the US vis-à-vis the rest of the world.

Incidence of an Outsourcing Tax on Intermediate Inputs

The paper uses a Hecksher-Ohlin-Samuelson type general equilibrium framework to consider the incidence of an outsourcing tax on an economy in which the production of a specific intermediate input has been fragmented and outsourced.

Poverty, Political Freedom, and the Roots of Terrorism in Developing Countries: An Empirical Assessment

This paper finds that political freedom has a significant and non-linear effect on domestic terrorism, but this effect is not significant in the case of transnational terrorism.

Foreign Aid as Counterterrorism Policy

This paper presents a model where foreign aid bolsters a developing country’s proactive counterterrorism efforts against a resident transnational terrorist group.

Resolving the Unbiasedness Puzzle in the Foreign Exchange Market

An unresolved puzzle in the empirical foreign exchange literature is that tests of forward rate unbiasedness using the forward rate and forward premium equations yield markedly different conclusions about the unbiasedness of the forward exchange rate.

Mexico’s Integration into NAFTA Markets: A View from Sectoral Real Exchange Rates

Using a self-exciting threshold autoregressive model, we confirm the presence of nonlinearities in sectoral real exchange rate (SRER) dynamics across Mexico, Canada and the US in the pre-NAFTA and post-NAFTA periods.


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