Working Paper Archives
Federal Reserve Bank of St. Louis working papers are preliminary materials circulated to stimulate discussion and critial comment.
Monetary Policy/Macroeconomics
The Low-Frequency Impact of Daily Monetary Policy Shocks
With rare exception, studies of monetary policy tend to neglect the timing of innovations to monetary policy instruments. Models which take timing seriously are often difficult to compare to standard monetary VARs because each uses different frequencies.
Input and Output Inventory Dynamics
This paper develops an analytically tractable general-equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive.
This paper examines the inflation "pass-through" problem in American monetary policy, defined as the relationship between changes in the growth rates of individual goods and the subsequent economy-wide rate of growth of consumer prices.
Making Sense of China’s Excessive Foreign Reserves
Large uninsured risk, severe borrowing constraints, and rapid income growth can create excessively high household saving rates and large current account surpluses for emerging economies.
Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach
In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy.
Channel Systems: Why Is There a Positive Spread?
An increasing number of central banks implement monetary policy via two standing facilities: a lending facility and a deposit facility. In this paper we show that it is socially optimal to implement a non-zero interest rate spread.
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 costs of living in China. This article uses simple economic logic to show that rising housing prices and living costs per se cannot explain China’s high household saving rate.
Understanding Permanent Black-White Earnings Inequality
For more than 30 years, the ratio of average black earnings to average white earnings has remained close to 0.6. Additionally, US cities have remained dramatically segregated by race.
Interpreting Life-Cycle Inequality Patterns as an Efficient Allocation: Mission Impossible?
The life-cycle patterns of consumption, wage and hours inequality observed in U.S. cross-section data are commonly viewed as incompatible with a Pareto efficient allocation.
The Effectiveness of Unconventional Monetary Policy: The Term Auction Facility
This paper investigates the effectiveness of one of the Fed’s unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between LIBOR rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates.
Hayashi Meets Kiyotaki and Moore: A Theory of Capital Adjustment Costs
Firm-level investment is lumpy and volatile but aggregate investment is much smoother and highly serially correlated. These different patterns of investment behavior have been viewed as indicating convex adjustment costs at the aggregate level but non-convex adjustment costs at the firm level.
The Promise and Performance of the Federal Reserve as Lender of Last Resort 1914-1933
This paper examines the origins and early performance of the Federal Reserve as lender of last resort. The Fed was established to overcome the problems of the National Banking era, in particular an “inelastic” currency and the absence of an effective lender of last resort.
A Time-Varying Threshold STAR Model of Unemployment and the Natural Rate
Smooth-transition autoregressive (STAR) models have proven to be worthy competitors of Markov-switching models of regime shifts, but the assumption of a time-invariant threshold level does not seem realistic and it holds back this class of models from reaching their potential usefulness.
Leveraged Borrowing and Boom-Bust Cycles
Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand.
A Yield Spread Perspective on the Great Financial Crisis: Break-Point Test Evidence
We use a simple partial adjustment econometric framework to investigate the effects of the crisis on the dynamic properties of a number of yield spreads. We find that the crisis has caused substantial disruptions revealed by changes in the persistence of the shocks to spreads as much as by in their unconditional mean levels.
Identifying Technology Shocks in the Frequency Domain
Since Galí [1999], long-run restricted VARs have become the standard for identifying the effects of technology shocks. In a recent paper, Francis et al. [2008] proposed an alternative to identify technology as the shock that maximizes the forecast-error variance share of labor productivity at long horizons.
Financing Development: The Role of Information Costs
To address how technological progress in financial intermediation affects the economy, a costly state verification framework is embedded into the standard growth model. The framework has two novel ingredients.
Quantifying the Impact of Financial Development on Economic Development
How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question.
The IT Revolution and the Unsecured Credit Market
The information technology (IT) revolution coincided with the transformation of the U.S. unsecured credit market.
Cross-country Income Convergence Revisited
We reassess convergence of income and its determinants across countries using the dataset constructed by Klenow and Rodriguez-Clare (2005) and our updated version of the same data.
Discordant City Employment Cycles
This paper estimates city-level employment cycles for 58 large U.S. cities and documents the substantial cross-city variation in the timing, lengths, and frequencies of their employment contractions.
The Large-Scale Asset Purchases Had Large International Effects
This paper evaluates the effect of the Federal Reserve’s large scale asset purchases (LSAP) on international long bond yields and exchange rates and then considers whether the observed behavior is consistent with a simple portfolio balance model and previous estimates of the impact of equivalent federal funds stimulus on exchange rates.
The Phillips Curve and US Monetary Policy: What the FOMC Transcripts Tell Us
The Phillips curve framework, which includes the output gap and natural rate hypothesis, plays a central role in the canonical macroeconomic model used in analyses of monetary policy. It is now well understood that real-time data must be used to evaluate historical monetary policy.
Many issues that were traditionally analyzed using the Baumol-Tobin model can also be analyzed, perhaps more easily, using the Lucas (1980) cash-in-advance model where money serves both as a medium of exchange and as a store of value.
This paper estimates the dynamics of the personal-bankruptcy rate over the business cycle by exploiting large cross-state variation in recessions and bankruptcies. We find that bankruptcy rates are significantly higher than normal during a recession and rise as a recession persists.
Liquidity Demand and Welfare in a Heterogeneous-Agent Economy
This paper provides an analytically tractable general-equilibrium model of money demand with micro-foundations. The model is based on the incomplete-market model of Bewley (1980) where money serves as a store of value and provides liquidity to smooth consumption.
Forecasting the Equity Risk Premium: The Role of Technical Indicators
Academic research relies extensively on macroeconomic variables to forecast the U.S. equity risk premium, with relatively little attention paid to the technical indicators widely employed by practitioners.
Do Oil Shocks Drive Business Cycles? Some U.S. and International Evidence
Oil prices rose sharply prior to the onset of the 2007-2009 recession. Hamilton (2005) noted that nine of the last ten recessions in the United States were preceded by a substantial increase in the price of oil.
Dissecting Taylor Rules in a Structural VAR
This paper uncovers Taylor rules from estimated monetary policy reactions using a structural VAR on U.S. data from 1959 to 2009.
On the Social Cost of Transparency in Monetary Economies
I study a class of models commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to exogenous news events, but whose expected long-run return is independent of this information.
