bluuebunny/crossref_metadata_2025 huggingface dataset:
International Policy Spillovers at the Zero Lower Bound
Authors: Haberis Alex , Lipinska Anna
Published: August 2019

In this paper, we consider how monetary policy in a large, foreign economy affects optimal monetary policy in a small open economy (`home') in response to a large global demand shock that pushes both economies to the zero lower bound (ZLB) on nominal interest rates. We show that the inability of foreign monetary policy to stabilise the foreign economy at the ZLB creates a spillover that affects how well the home policymaker is able to stabilise its own economy. We show that more stimulatory foreign policy worsens the home policymaker's trade-off between stabilising inflation and the output gap when home and foreign goods are close substitutes. This reflects the fact that looser foreign policy leads to a relatively more appreciated home real exchange rate, which induces large expenditure switching away from home goods when goods are highly substitutable--just at a time (at the ZLB) when home policy is trying to boost demand for home goods. When goods are not close substitutes, the home policymaker's ability to stabilise the economy benefits from more stimulatory foreign policy.
The Response of Capital Goods Shipments to Demand Over the Business Cycle
Authors: Nalewaik Jeremy J. , Pinto Eugénio P.
Published: August 2019

This paper studies the behavior of producers of capital goods, examining how they set shipments in response to fluctuations in new orders. The paper establishes a stylized fact: the response of shipments to orders is more pronounced when the level of new orders is low relative to the level of shipments, usually after orders plunge in recessions. This cyclical change in firm behavior is quantitatively important, accounting for a large portion of the steep decline in equipment investment in the 2001 and 2007-09 recessions. We examine economic interpretations of this stylized fact using a model where firms smooth production with a target delivery lag for new orders. Heightened persistence in orders growth may explain part of the greater responsiveness of shipments to orders, as may increases in firms' target buffer stocks of unfilled orders relative to shipments.
The Prolonged Resolution of Troubled Real Estate Lenders during the 1930s
Authors: Rose Jonathan Derek
Published: August 2019

This paper studies how building and loan associations (B&Ls) slowly unwound their obligations following a set of financial shocks during the Great Depression, with a special focus on a group of particularly troubled B&Ls in Newark, NJ. Investors in B&Ls disagreed over whether to realize losses on foreclosed real estate holdings, and those investors favoring liquidation were unable to force action after legal developments nullified statutory withdrawal privileges. In the medium run, a market-based resolution mechanism developed in the form of a secondary market for B&L liabilities. Liability holders barred from withdrawal incurred large losses while liquidating their investments on this market. At the same time, B&Ls used the market to avoid realizing some losses by exchanging foreclosed real estate for their second-hand share liabilities. More formal resolution ultimately took place from 1938 to 1943, first consisting heavily of closures, and then of reorganizations. Reorganizations were spurred by a large scale federal intervention arranging for the creation of bad banks, liquidity injections, and liability insurance.
The Influence of Fannie and Freddie on Mortgage Loan Terms
Authors: Kaufman Alex
Published: August 2019

This paper uses a novel instrumental variables approach to quantify the effect that GSE purchase eligibility had on equilibrium mortgage loan terms in the period from 2003 to 2007. The technique is designed to eliminate sources of bias that may have affected previous studies. GSE eligibility appears to have lowered interest rates by about 10 basis points, encouraged fixed-rate loans over ARMs, and discouraged low-documentation and brokered loans. There is no measurable effect on loan performance or on the prevalence of certain types of 'exotic' mortgages. The overall picture suggests that GSE purchases had only a modest impact on loan terms during this period.
Term Structure Modelling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs
Authors: Li Canlin
Published: August 2019

This paper proposes and estimates an arbitrage-free term structure model with both observable yield factors and Treasury and Agency MBS supply factors, and applies it to evaluate the term premium effects of Federal Reserve&#x27;s large scale asset purchase programs. Our estimates show that the first and the second large-scale asset purchase programs and the maturity extension program have a combined effect of about 100 basis points on the 10-year Treasury yield.
Fiscal Rules: What does the American Experience Tell Us?
Authors: Lutz Byron F. , Follette Glenn
Published: August 2019

We examine the effect of balanced budget rules on budget outcomes in the U.S. from the mid-1980s through the present. Rules at both the federal level and the state level are considered. Given the relatively short duration of the federal rules and corresponding lack of data points, we adopt a narrative approach. Our examination fails to uncover evidence that the statutory rules at the federal level have influenced the size of deficits. The laboratory of the states provides more fertile ground for econometric testing of the influence of balanced budget rules. We test the hypothesis that the strength of a state's balanced budget rule influences its response to unanticipated budget shocks. We conclude that rules at the state-level have had a significant influence on budget outcomes.
Learning from Experience in the Stock Market
Authors: Nakov Anton , Nuño Galo
Published: August 2019

We study the dynamics of a Lucas-tree model with finitely lived individuals who 'learn from experience.' Individuals update expectations by Bayesian learning based on observations from their own lifetimes. In this model, the stock price exhibits stochastic fluctuations around the rational expectations equilibrium. This heterogeneous-agents economy can be approximated by a representative-agent model with constant-gain learning, where the gain parameter is related to the survival rate.
Flow and Stock Effects of Large-Scale Asset Purchases: Evidence on the Importance of Local Supply
Authors: D'Amico Stefania , King Thomas B.
Published: August 2019

The Federal Reserve's 2009 program to purchase $300 billion of U.S. Treasury securities represented an unprecedented intervention in the Treasury market and provides a natural experiment with the potential to shed light on the price elasticities of Treasuries and theories of supply effects in the term structure. Using security-level data on Treasury prices and quantities during the course of this program, we document a 'local supply' effect in the yield curve—yields within a particular maturity sector responded more to changes in the amounts outstanding in that sector than to similar changes in other sectors. We find that this phenomenon was responsible for a persistent downward shift in yields averaging about 30 basis points over the course of the program (the 'stock effect'). In addition, except at very long maturities, purchase operations caused an average decline in yields in the sector purchased of 3.5 basis points on the days when those operations occurred (the 'flow effect'). The sensitivity of our results to security characteristics generally supports a view of segmentation or imperfect substitution within the Treasury market during this time.
Estimating Changes in Supervisory Standards and Their Economic Effects
Authors: Bassett William F. , Lee Seung Jung , Popeck Spiller Thomas
Published: August 2019

The disappointingly slow recovery in the U.S. from the recent recession and financial crisis has once again focused attention on the relationship between financial frictions and economic growth. With bank loans having only recently started growing and still sluggish, some bankers and borrowers have suggested that unnecessarily tight supervisory policies have been a constraint on new lending that is hindering recovery. This paper explores one specific aspect of supervisory policy: whether the standards used to assign commercial bank CAMELS ratings have changed materially over time (1991-2011). We show that models incorporating time-varying parameters or economy-wide variables suggest that standards used in the assignment of CAMELS ratings in recent years generally have been in line with historical experience. Indeed, each of the models used in this analysis suggests that the variation in those standards has been relatively small in absolute terms over most of the sample period. However, we show that when this particular aspect of supervisory stringency becomes elevated, it has a noticeable dampening effect on lending activity in subsequent quarters.
Expectations about the Federal Reserve's Balance Sheet and the Term Structure of Interest Rates
Authors: Li Canlin , Ihrig Jane , Klee Elizabeth , Schulte Brett , Wei Min
Published: August 2019

This paper provides a systematic assessment of the effect of the Federal Reserve&#x27;s asset purchase programs on Treasury yields, with particular emphasis on the role of market expectations about the evolution of the Federal Reserve&#x27;s balance sheet and of interest rates on the impact of the programs. We construct measures of such market expectations based on Blue Chip survey forecasts, Congressional Budget Office projections, and information from formal FOMC communications. Those measures are combined with a no-arbitrage term structure model, in which yields are driven by current and expected future private Treasury holdings, among other factors. This approach allows us to provide estimates of the term premium effects of the asset programs both at the time of the announcements and in the future as expectations about the economy and the Federal Reserve&#x27;s balance sheet evolve. Our results suggest that the program with the largest initial impact on the ten year Treasury yield was the first purchase program, which is estimated to have held down rates by about 40 basis points in early 2009, and the initial maturity extension program had the second largest estimated impact at its inception, pushing rates down by about 20 basis points in late 2011. Currently, we estimate all programs combined are holding down the 10-year yield by about 65 basis points, of which about one-third is attributable to the first purchase program.
Effective Tax Rates and Measures of Business Size
Authors: Moore Kevin B.
Published: August 2019

This paper uses data from the Survey of Consumer Finances (SCF) and the NBER TAXSIM model to estimate marginal and average tax rates for households that own businesses that are pass-thru entities. We examine how marginal and average tax rates vary by the size of business using four different measures of the size: net income, gross receipts, business value, and number of employees. The analysis also uses the long-time series of SCF cross-sections to examine how tax rates for business owners have evolved over the various changes in tax policy of the last two decades.
The Anatomy of a Credit Crisis: The Boom and Bust in Farm Land Prices in the United States in the 1920s
Authors: Rajan Raghuram , Ramcharan Rodney
Published: August 2019

Does credit availability exacerbate asset price inflation? What channels could it work through? What are the long run consequences? In this paper we address these questions by examining the farm land price boom (and bust) in the United States that preceded the Great Depression. We find that credit availability likely had a direct effect on inflating land prices. Credit availability may have also amplified the relationship between the perceived improvement in fundamentals and land prices. When the perceived fundamentals soured, however, areas with higher ex ante credit availability suffered a greater fall in land prices, and experienced higher bank failure rates. Land prices stayed low for a number of decades after the bust in areas that had higher credit availability, suggesting that the effects of booms and busts induced by credit availability might be persistent. We draw lessons for regulatory policy.
The Federal Reserve's Balance Sheet and Overnight Interest Rates
Authors: Marquez Jaime R. , Morse Ari , Schlusche Bernd
Published: August 2019

This paper provides a comprehensive study of the interplay between the Federal Reserve's balance sheet and overnight interest rates. We model both the supply of and the demand for excess reserves, treating assets of the Federal Reserve as policy tools, and estimate the effects of conventional and unconventional monetary policy on overnight funding rates. We find that, in the current environment with quite elevated levels of reserves, the effect of further monetary policy accommodation on overnight interest rates is limited. Further, assuming a path for removing monetary policy accommodation that is consistent with the FOMC's exit principles, we project that the federal funds rate increases to 70 basis points, settling in a corridor bracketed by the discount rate and the interest rate on excess reserves, as excess reserves of depository institutions decline to near zero.
The Properties of Income Risk in Privately Held Businesses
Authors: DeBacker Jason Matthew , Vidangos Ivan , Heim Bradley T. , Panousi Vasia , Ramnath Shanthi
Published: August 2019

Our paper represents the first attempt in the literature to estimate the properties of business income risk from privately held businesses in the US. Using a new, large, and confidential panel of US income tax returns for the period 1987-2009, we extensively document the empirical stylized facts about the evolution of various business income risk measures over time. We find that business income is much riskier than labor income, not only because of the probability of business exit, but also because of higher income fluctuations, conditional on no exit. We show that business income is less persistent, but is also characterized by higher probabilities of extreme upward transition, compared to labor income. Furthermore, the distribution of percent changes for business income is more dispersed than that for labor income, and it also indicates that business income faces substantially higher tail risks. Our results suggest that the high-income households are more likely to bear both the big positive and the big negative business income percent changes.
On the (In)effectiveness of Fiscal Devaluations in a Monetary Union
Authors: Lipinska Anna , Thadden Leopold von
Published: August 2019

This paper explores the fiscal devaluation hypothesis in a model of a monetary union characterised by national fiscal policies and supranational monetary policy. We show that a unilateral tax shift towards indirect taxes in one of the countries produces small but non-negligible long run effects on output and consumption within and between the two countries only when international financial markets are perfectly integrated. In contrast to the existing literature, we find that short-run effects are not always amplified by nominal wage rigidities. We document also how short-run effects of the tax shift depend on the choice of the inflation index stabilized by the central bank and on whether the tax shift is anticipated.
Do Rising Top Income Shares Affect the Incomes Or Earnings of Low and Middle-Income Families?
Authors: Thompson Jeffrey P. , Leight Elias
Published: August 2019

This paper uses US state panel data to explore the relationship between the share of income received by affluent households and the level of income and earnings received by low and middle-income families. A rising top share of income can potentially lead to increases in the incomes of low and middle-income families if economic growth is sufficiently responsive to increases in inequality. A substantial literature on the impacts of inequality on economic growth exists, but has failed to achieve consensus, with various studies finding positive impacts, negative impacts, and no impacts on growth from increased levels of income inequality. This paper departs from that literature by exploring the effect of inequality on the standard of living of middle-income and low-income families. In the context of rising inequality, increased overall growth is not necessarily a suitable proxy for overall standard of living, since growth patterns are not always uniform for the entire income distribution. The results of this study indicate that increases in the top share of income (particularly the top one percent) are associated with declines in the actual incomes (and earnings) of middle income families, but have no clear impact on families at the bottom of the income distribution.
Estimates of the Size and Source of Price Declines Due to Nearby Foreclosures
Authors: Anenberg Elliot , Kung Edward
Published: August 2019

Using a novel dataset which merges real estate listings with real estate transactions in San Francisco from 2007-2009, we present new evidence that foreclosures causally depress nearby home prices. We show that this decrease occurs only after the foreclosed home is listed for sale, which suggests that the effect is due to the additional housing supply created by foreclosure rather than from neglect of the foreclosed property. Consistent with a framework where a foreclosed home simply increases supply, we find that new listings of foreclosed homes and non-foreclosed homes each lower sales prices of homes within 0.1 miles of the listing by 1 percent.
Financing Constraints, Firm Dynamics, and International Trade
Authors: Gross Till , Verani Stéphane
Published: August 2019

There is growing empirical support for the conjecture that access to credit is an important determinant of firms' export decisions. We study a multi-country general equilibrium economy in which entrepreneurs and lenders engage in long-term credit relationships. Financial constraints arise as a consequence of financial contracts that are optimal under private information. Consistent with empirical regularities, the model implies that older and larger firms have lower average and more stable growth rates, and are more likely to survive. Exporters are larger, their survival in international markets increases with the time spent exporting, and the sales of older exporters are larger and more stable.
A Test for Selection in Matched Administrative Earnings Data
Authors: Bricker Jesse , Engelhardt Gary V.
Published: August 2019

We test whether individuals in the Health and Retirement Study who consented to have administrative earnings data matched to survey responses represent a non-random sample. For both men and women, there is a general pattern of negative selection across three measures of pre-entry labor-market behavior: labor-force participation, self-employment, and earnings. However, for some outcomes the estimates are not precise enough to draw firm conclusions. The strongest results are that men who consented were 4.7 percentage points less likely to be self-employed than those who did not, and women who consented earned 13 percent less than those who did not.
Uncertainty at the Zero Lower Bound
Authors: Nakata Taisuke
Published: August 2019

This paper examines how the presence of uncertainty alters allocations and prices when the nominal interest rate is constrained by the zero lower bound. I conduct the analysis using a standard New Keynesian model in which the nominal interest rate is determined according to a truncated Taylor rule. I find that an increase in the variance of shocks to the discount factor process reduces consumption, inflation, and output by a substantially larger amount when the zero lower bound is binding than when it is not. Due to the zero lower bound constraint, policy functions for the real interest rates and the marginal costs of production are highly convex and concave, respectively. As a result, a mean-preserving spread in the shock distribution increases the expectation of future real interest rates and decreases the expectation of future real marginal costs, which lead forward-looking households and firms to reduce consumption and set lower prices today. The more flexible prices are, the larger the effects of uncertainty are at the zero lower bound.
Analyzing Federal Reserve Asset Purchases: From Whom does the Fed Buy?
Authors: Carpenter Seth B. , Demiralp Selva , Ihrig Jane , Klee Elizabeth
Published: August 2019

Asset purchases have become an important monetary policy tool of the Federal Reserve in recent years. To date, most studies of the Federal Reserve's asset purchases have tried to measure the interest rate effects of the policies. Several papers provide evidence that these programs do have important effects on longer-term market interest rates. The theory of how asset purchases work, however, is less well developed. Some of the empirical studies point to 'preferred habitat' models in which investors do not have the same objectives, and therefore prefer to hold different types and maturities of securities. We exploit Flow of Funds data to assess the types of investors that are selling to the Federal Reserve and their portfolio adjustment after these sales, which could provide a view to the plausibility of preferred habitat models and the transmission of unconventional monetary policy across asset markets. We find that the Federal Reserve is ultimately buying from only a handful of investor types, primarily households, with a different reaction to changes in Federal Reserve holdings of longer-term versus shorter-term assets. Although not evident for all investors, the key participants are shown to rebalance their portfolios toward more risky assets during this period. These results can be interpreted as supporting, at least in part, the preferred habit theory and the view that the monetary policy transmission is working across asset markets.
The Effectiveness of the Non-Standard Policy Measures during the Financial Crises: The Experiences of the Federal Reserve and the European Central Bank
Authors: Carpenter Seth B. , Demiralp Selva , Eisenschmidt Jens
Published: August 2019

A growing number of studies have sought to measure the effects of non-standard policy on bank funding markets. The purpose of this paper is to carry those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending, using a simultaneous equation approach. By separately modeling loan supply and demand, we determine how non-standard central bank measures affected bank lending by reducing stress in bank funding markets. We focus on the Federal Reserve and the European Central Bank. Our results suggest that non-standard policy measures lowered bank funding volatility. Lower bank funding volatility in turn increased loan supply in both regions, contributing to sustain lending activity. We consider this as strong evidence for a 'bank liquidity risk channel,' operative in crisis environments, which complements the usual channels of transmission of monetary policy.
Is the Information Technology Revolution Over?
Authors: Byrne David M. , Oliner Stephen D. , Sichel Daniel E.
Published: August 2019

Given the slowdown in labor productivity growth in the mid-2000s, some have argued that the boost to labor productivity from IT may have run its course. This paper contributes three types of evidence to this debate. First, we show that since 2004, IT has continued to make a significant contribution to labor productivity growth in the United States, though it is no longer providing the boost it did during the productivity resurgence from 1995 to 2004. Second, we present evidence that semiconductor technology, a key ingredient of the IT revolution, has continued to advance at a rapid pace and that the BLS price index for microprocesssors may have substantially understated the rate of decline in prices in recent years. Finally, we develop projections of growth in trend labor productivity in the nonfarm business sector. The baseline projection of about 1 3/4 percent a year is better than recent history but is still below the long-run average of 2 1/4 percent. However, we see a reasonable prospect -- particularly given the ongoing advance in semiconductors -- that the pace of labor productivity growth could rise back up to or exceed the long-run average. While the evidence is far from conclusive, we judge that 'No, the IT revolution is not over.'
The Effects of the Federal Reserve's Date-Based Forward Guidance
Authors: Raskin Matthew D.
Published: August 2019

Between August 2011 and December 2012 the Federal Open Market Committee (FOMC) used date-based forward guidance to help stimulate the U.S. economy and promote its objectives of maximum employment and price stability. Some have argued that the formulation of the guidance that the FOMC used may have reduced interest rates primarily by signaling a weak economic outlook rather than by signaling a more accommodative stance of monetary policy. I examine the impact of the date-based guidance, with the principal goal of discerning the extent to which it altered investors' views of the FOMC's policy reaction function. I show that one seemingly straightforward way to address this question--using estimates of the sensitivity of money market futures rates to macroeconomic data surprises--is confounded by the zero lower bound on nominal interest rates, a point that has more general implications for the analysis of the effects of monetary policy at the zero bound. I demonstrate that the problem can be overcome using distributions of investors' short-term interest rate expectations constructed from interest rate options. Using PDFs constructed from these options, along with survey measures of macroeconomic surprises, I find the date-based guidance led to a statistically significant and economically meaningful change in investors' perceptions of the FOMC's reaction function. This finding is robust to various regression specifications and the use of alternative options contracts and PDF fitting methodologies.
Economic Volatility and Financial Markets: The Case of Mortgage-Backed Securities
Authors: Antinolfi Gaetano , Brunetti Celso
Published: August 2019

The volatility of aggregate economic activity in the United States decreased markedly in the mid eighties. The decrease involved several components of GDP and has been linked to a more stable economic environment, identified by smaller shocks and more effective policy, and a diverse set of innovations related to inventory management as well as financial markets. We document a negative relation between the volatility of GDP and some of its components and one such financial development: the emergence of mortgage-backed securities. We also document that this relationship changed sign, from negative to positive, in the early 2000's.
Importing, Exporting and Firm-Level Employment Volatility
Authors: Kurz Christopher Johann , Senses Mine Zeynep
Published: August 2019

In this paper, we use detailed trade and transactions data for the U.S. manufacturing sector to empirically analyze the direction and magnitude of the association between firm-level exposure to trade and the volatility of employment growth. We find that, relative to purely domestic firms, firms that only export and firms that both export and import are less volatile, whereas firms that only import are more volatile. The positive relationship between importing and volatility is driven mainly by firms that switch in and out of importing. We also document a significant degree of heterogeneity across trading firms in terms of the duration of time and intensity with which firms trade, the number and type of products they trade and the number and characteristics of their trading partners. We find these factors to play an important role in explaining the differential impact of trading on employment volatility experienced by these firms.
Stress-Testing U.S. Bank Holding Companies: A Dynamic Panel Quantile Regression Approach
Authors: Covas Francisco , Rump Bernard , Zakrajšek Egon
Published: August 2019

We propose an econometric framework for estimating capital shortfalls of bank holding companies (BHCs) under pre-specified macroeconomic scenarios. To capture the nonlinear dynamics of bank losses and revenues during periods of financial stress, we use a fixed effects quantile autoregressive (FE-QAR) model with exogenous macroeconomic covariates, an approach that delivers a superior out-of-sample forecasting performance compared with the standard linear framework. According to the out-of-sample forecasts, the realized net charge-offs during the 2007-09 crisis are within the multi-step-ahead density forecasts implied by the FE-QAR model, but they are frequently outside the density forecasts generated using the corresponding linear model. This difference reflects the fact that the linear specification substantially underestimates loan losses, especially for real estate loan portfolios. Employing the macroeconomic stress scenario used in CCAR 2012, we use the density forecasts generated by the FE-QAR model to simulate capital shortfalls for a panel of large BHCs. For almost all institutions in the sample, the FE-QAR model generates capital shortfalls that are considerably higher than those implied by its linear counterpart, which suggests that our approach has the potential for detecting emerging vulnerabilities in the financial system.
Going Public Abroad
Authors: Caglio Cecilia , Hanley Kathleen Weiss , Marietta-Westberg Jennifer
Published: August 2019

This paper examines the decision to go public abroad using a sample of 17,808 IPOs. Although only 6% of initial public offerings are offered abroad, these represent approximately 25% of total IPO proceeds. We find that alleviating informational frictions in order to obtain greater offering proceeds is an important determinant of the decision to go public abroad. Foreign and global IPOs originate from countries with significantly fewer recent IPOs in the same industry, less developed capital markets, and lower disclosure standards. Contrary to assumptions in prior research, we also show that the determinants of whether to go public abroad or to go public at home and cross-list later are not similar. In addition, we find that the preferences for going public in certain foreign markets have changed over time and the factors that impact the choice of listing market are not consistent across all countries.
Learning from the Test: Raising Selective College Enrollment by Providing Information
Authors: Goodman Sarena
Published: August 2019

In the last decade, five U.S. states adopted mandates requiring high school juniors to take a college entrance exam. In the two earliest-adopting states, nearly half of all students were induced into testing, and 40-45% of them earned scores high enough to qualify for selective schools. Selective college enrollment rose by 20% following implementation of the mandates, with no effect on overall attendance. I conclude that a large number of high-ability students appear to dramatically underestimate their candidacy for selective colleges. Policies aimed at reducing this information shortage are likely to increase human capital investment for a substantial number of students.
Sticky Deposit Rates
Authors: Driscoll John C. , Judson Ruth A.
Published: August 2019

We examine the dynamics of eleven different deposit rates for a panel of over 2,500 branches of about 900 depository institutions observed weekly over ten years. We replicate previous work showing that rates are downwards-flexible and upwards-sticky, and show that a simple menu cost model can generate this behavior. The degree of asymmetric rigidity varies substantially by deposit type, bank size, and across branches of the same bank. In the absence of such stickiness, depositors would have received as much as $100 billion more in interest per year during periods when market rates were rising. These results also suggest that deposit rates are likely to lag increases in policy and market rates in future tightening cycles.
Payday Loans and Consumer Financial Health
Authors: Bhutta Neil
Published: August 2019

The annualized interest rate for a payday loan often exceeds 10 times that of a typical credit card, yet this market grew immensely in the 1990s and 2000s, elevating concerns about the risk payday loans pose to consumers and whether payday lenders target minority neighborhoods. This paper employs individual credit record data, and Census data on payday lender store locations, to assess these concerns. Taking advantage of several state law changes since 2006 and, following previous work, within-state-year differences in access arising from proximity to states that allow payday loans, I find little to no effect of payday loans on credit scores, new delinquencies, or the likelihood of overdrawing credit lines. The analysis also indicates that neighborhood racial composition has little influence on payday lender store locations conditional on income, wealth and demographic characteristics.
The Surprisingly Swift Decline of U.S. Manufacturing Employment
Authors: Pierce Justin R. , Schott Peter K.
Published: August 2019

This paper finds a link between the sharp drop in U.S. manufacturing employment beginning in 2001 and a change in U.S. trade policy that eliminated potential tariff increases on Chinese imports. Industries where the threat of tariff hikes declines the most experience more severe employment losses along with larger increases in the value of imports from China and the number of firms engaged in China-U.S. trade. These results are robust to other potential explanations of the employment loss, and we show that the U.S. employment trends differ from those in the E.U., where there was no change in policy.
Tips from TIPS: The Informational Content of Treasury Inflation-Protected Security Prices
Authors: D'Amico Stefania , Kim Don H. , Wei Min
Published: August 2019

Treasury Inflation-Protected Securities (TIPS) are frequently thought of as risk-free real bonds. Using no-arbitrage term structure models, we show that TIPS yields exceeded risk-free real yields by as much as 100 basis points when TIPS were first issued and up to 300 basis points during the recent financial crisis. This spread reflects predominantly the poorer liquidity of TIPS relative to nominal Treasury securities. Other factors, including the indexation lag and the embedded deflation protection in TIPS, play a much smaller role. Ignoring this spread also significantly distorts the informational content of TIPS breakeven inflation, a widely-used proxy for expected inflation.
Monetary Policy and Real Borrowing Costs at the Zero Lower Bound
Authors: Gilchrist Simon , López-Salido J. David , Zakrajšek Egon
Published: August 2019

This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury yield around policy announcements and changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced movements in Treasury yields to comparable-maturity private yields.
Unspanned Macroeconomic Factors in the Yield Curve
Authors: Coroneo Laura , Giannone Domenico , Modugno Michele
Published: August 2019

In this paper, we extract common factors from a cross-section of U.S. macro-variables and Treasury zero-coupon yields. We find that two macroeconomic factors have an important predictive content for government bond yields and excess returns. These factors are not spanned by the cross-section of yields and are well proxied by economic growth and real interest rates.
Diffusion of Containerization
Authors: Rua Gisela
Published: August 2019

This paper uses a newly constructed, comprehensive dataset to investigate the diffusion of containerization. The data show that country adoption is exceptionally fast while firm usage increases more slowly. To guide my empirical investigation, I build a multi-country trade model with endogenous adoption of a new transportation technology that is consistent with these facts. I then test empirically the predictions of the model and find that: (1) usage of containerization increases with firms' fixed costs and the size and average income of the container network; and (2) adoption depends on expected future usage, adoption costs, and trade with the United States, the first and largest user of containerization.
Jumps in Bond Yields at Known Times
Authors: Kim Don H. , Wright Jonathan H.
Published: August 2019

We construct a no-arbitrage term structure model with jumps in the entire state vector at deterministic times but of random magnitudes. Jump risk premia are allowed for. We show that the model implies a closed-form representation of yields as a time-inhomogeneous affine function of the state vector, and derive other theoretical implications. We apply the model to the term structure of US Treasury rates, estimated at the daily frequency, allowing for jumps on days of employment report announcements. Our model can match the empirical fact that the term structure of interest rate volatility has a hump-shaped pattern on employment report days (but not on other days). The model also produces patterns in bond risk premia that are consistent with the empirical finding that much of the time-variation in excess bond returns accrues at times of important macroeconomic data releases.
Tax Policy Endogeneity: Evidence from R&D Tax Credits
Authors: Chang Andrew C.
Published: August 2019

Because policymakers may consider the state of the economy when setting taxes, endogeneity bias can arise in regression models that estimate relationships between economic variables and taxes. This paper quantifies the policy endogeneity bias and estimates the impact of R&D tax incentives on R&D expenditures at the U.S. state level. Identifying tax variation comes from changes in federal corporate tax laws that heterogeneously impact state-level R&D tax incentives due to the simultaneity of state and federal corporate taxes. With this exogenous variation, my preferred estimates indicate a 1% increase in R&D tax incentives leads to a 2.8- 3.8% increase in R&D. Alternatively, estimates that ignore endogenously determined policies indicate that a 1% increase in R&D tax incentives leads to a 0.4-0.7% increase in R&D. These results are consistent with tax policies that are implemented before an economic downturn.
The Interplay Between Student Loans and Credit Card Debt: Implications for Default in the Great Recession
Authors: Ionescu Felicia , Ionescu Marius
Published: August 2019

We theoretically and quantitatively analyze the interactions between two different forms of unsecured credit and their implications for default behavior of young U.S. households. One type of credit mimics credit cards in the United States and the default option resembles a bankruptcy filing under Chapter 7 the other type of credit mimics student loans in the United States and the default option resembles Chapter 13 of the U.S. Bankruptcy Code. In the credit card market a financial intermediary offers a menu of interest rates based on individual default risk, which account for borrowing and repayment behavior in both markets. In the student loan market, the government sets the interest rate and chooses a wage garnishment to pay for the cost associated with default. We prove the existence of a steady-state equilibrium and characterize the circumstances under which a household defaults on each of these loans. We demonstrate that the institutional differences between the two markets make borrowers prefer to default on student loans rather than on credit card debt. Our quantitative analysis shows that the increase in student loan debt together with the expansion of the credit card market fully explains the increase in the default rate for student loans in recent normal years (2004-2007). Worse labor outcomes for young borrowers during the Great Recession (2008-2009) significantly amplified student loan default, whereas credit card market contraction during this period helped reduce this effect. At the same time, the accumulation of student loan debt did not affect much the default risk in the credit card market during normal times, but significantly increased it during the Great Recession. An income contingent repayment plan for student loans completely eliminates the default risk in the credit card market and induces important redistribution effects. This policy is beneficial (in a welfare improving sense) during the Great Recession but not during normal times.
Finance and Productivity Growth: Firm-Level Evidence
Authors: Levine Oliver , Warusawitharana Missaka
Published: August 2019

Using data on a broad set of European firms, we find a strong positive relationship between the use of external financing and future productivity (TFP) growth within firms. This relationship is robust to various measures of financing and productivity, and strengthens as financing costs increase. We provide evidence against a reverse-causality explanation by showing that this relationship arises from the component of TFP that is outside the information set of the firm. These findings indicate that financial development supports productivity growth within firms, and helps explain why economic activity remains persistently depressed following financial crisis.
Demand for M2 at the Zero Lower Bound: The Recent U.S. Experience
Authors: Judson Ruth A. , Schlusche Bernd , Wong Vivian
Published: August 2019

In this paper, we re-examine the relationship between money and interest rates with a focus on the past few years, when the opportunity cost of M2 has dropped below zero. Until the late 1980s, a stable relationship between monetary aggregates and the opportunity cost of holding money--measured as the spread between the three-month Treasury bill yield and the deposit-weighted average return on M2 assets--existed, and played an integral role in the conduct of monetary policy (e.g., Moore et al. (1990)). This relationship broke down in the early 1990s, when M2 velocity increased beyond the range that could be explained by movements in M2 opportunity cost. As of the mid-2000s, a new relationship was emerging, but was still statistically unstable. In late 2008, the opportunity cost of holding money dropped precipitously and has remained at its zero lower bound. Standard money-demand theory indicates that in such cases the interest elasticity of money demand should rise sharply. Reviewing the evidence to date, we fail to find support for such a rise through 2011, but we observe a notable change in the relationship over the most recent quarters. We conjecture that the more recent shifts, however, could be due to the effects of regulatory and monetary policy changes rather than a fundamental shift in the relationship between money and opportunity cost. Further work is needed to determine the contribution of these regulatory and monetary policy factors.
Competition in Lending and Credit Ratings
Authors: Ahmed Javed I.
Published: August 2019

This article relates corporate credit rating quality to competition in lending between the public bond market and banks. In the model, the monopolistic rating agency's choice of price and quality leads to an endogenous threshold separating low-quality bank-dependent issuers from higher-quality issuers with access to public debt. In a baseline equilibrium with expensive bank lending, this separation across debt market segments provides information, but equilibrium ratings are uninformative. A positive shock to private (bank) relative to public lending supply allows banks to compete with public lenders for high-quality issuers, which threatens rating agency profits, and informative ratings result to prevent defection of high-quality borrowers to banks. This prediction is tested by analyzing two events that increased the relative supply of private vs. public lending sharply: legislation in 1994 that reduced barriers to interstate bank lending and the temporary shutdown of the high-yield bond market in 1989. After each event, the quality of ratings (based on their impact on bond yield spreads) increased for affected issuers. The analysis suggests that strategic behavior by the rating agency in an issuer-pays setting dampens the influence of macroeconomic shocks, and explains the use of informative unsolicited credit ratings to prevent unrated bond issues, particularly during good times. Additionally, the controversial issuer-pays model of ratings leads to more efficient outcomes than investor-pays alternatives.
The Scarcity Value of Treasury Collateral: Repo Market Effects of Security-Specific Supply and Demand Factors
Authors: D'Amico Stefania , Fan Roger , Kitsul Yuriy
Published: August 2019

In the special collateral repo market, forward agreements are security-specific, which may magnify demand and supply effects. We quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors on the repo rates of all outstanding U.S. Treasury securities. We find an economically and statistically significant scarcity premium. This scarcity effect is quite persistent, passes through to Treasury market prices, and explains a significant portion of the flow-effects of LSAP programs, providing additional evidence for the scarcity channel of QE. Through the same mechanism, the Fed's reverse repo operations could alleviate potential shortages of high-quality collateral.
Long-Term Vacant Housing in the United States
Authors: Molloy Raven Saks
Published: August 2019

Because housing is durable, the housing supply is slow to adapt to declines in demand. This paper uses long-term vacancy—defined as nonseasonal housing units that have been vacant for an unusually long period of time—to quantify the extent of excess supply in the housing market. I find that long-term vacancy is less than 2 percent of all nonseasonal housing units and accounts for only one quarter of the aggregate increase in nonseasonal vacancy from 2001 to 2011. Thus, at the national level, excess supply is considerably less extensive than indicated by traditional measures of vacancy. However, the stock of long-term vacant housing is concentrated in a small number of neighborhoods that do have appreciably high long-term vacancy rates. Some of these neighborhoods have characteristics suggesting that excess supply is related to overbuilding during the housing boom, while others have characteristics that are symptomatic of persistently weak housing demand.
An Industrial Organization Approach to International Portfolio Diversification: Evidence from the U.S. Mutual Fund Families
Authors: Shin Chae Hee
Published: August 2019

Although the lack of international portfolio diversification has long interested the financial economics literature, the role of financial intermediaries in the market for diversified portfolios has rarely been studied. In this paper, I introduce a microeconomic aspect of under-diversification by examining a new data on U.S.-based mutual fund families' global diversification. I document the fund families' investments in global equity markets and explore features of supply and demand in the mutual fund market to explain their limited global diversification. Demand estimation conforms that consumers are not only sensitive to the fund families' portfolio characteristics such as global diversification, but also to the non-portfolio characteristics such as fund family age and size. On the supply side, the model of fund families' global investment decisions uses a revealed preference approach and shows small cross-border investment frictions can justify the fund families' observed limited global diversification. Other factors such as destination country's investor protection level and fund family's investment experience significantly affect the degree of diversification as well.