Board of Governors of the Federal Reserve System

Displaying 1-40 of 109 results

  • White Papers // Jul 2011

    U.S. Domestic And International Financial Reform Policy: Are G20 Commitments And The Dodd-Frank Act In Sync?

    The Dodd-Frank Act of 2010 is the keystone policy response directed at reforming U.S. financial system activities and oversight in the wake of the 2007-2009 financial crisis. The United States also has financial system reform policy commitments in the international arena, including in particular by virtue of its membership in...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Mar 2011

    Where Are Global And U.S. Trade Heading In The Aftermath Of The Trade Collapse: Issues And Alternative Scenarios

    Global and U.S. trade declined dramatically in the wake of the global financial crisis in late 2008 and early 2009. The subsequent recovery in trade, while vigorous at first, gradually lost momentum in 2010. Against this backdrop, this paper explores the prospects for global and U.S. trade in the medium...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Feb 2011

    U.S. International Equity Investment And Past Prospective Returns

    Counter to extant stylized facts, using newly available data on country allocations in U.S. investors' foreign equity portfolios the authors find that U.S. investors do not exhibit returns-chasing behavior, but, consistent with partial portfolio rebalancing, tend to sell past winners; and U.S. investors increase portfolio weights on a country's equity...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Feb 2011

    Explaining The Energy Consumption Portfolio In A Cross-section Of Countries: Are The BRICs Different?

    This paper uses disaggregated data from a broad cross-section of countries to empirically assess differences in energy consumption profiles across countries. The authors find empirical support for the energy ladder hypothesis, which contends that as an economy develops it transits away from a heavier reliance on traditional fuel sources towards...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Feb 2011

    International Capital Flows And The Returns To Safe Assets In The United States, 2003-2007

    A broad array of domestic institutional factors - including problems with the originate-to-distribute model for mortgage loans, deteriorating lending standards, deficiencies in risk management, conflicting incentives for the GSEs, and shortcomings of supervision and regulation - were the primary sources of the U.S. housing boom and bust and the associated...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jan 2011

    Nonlinearities In The Oil Price-output Relationship

    It is customary to suggest that the asymmetry in the transmission of oil price shocks to real output is well established. Much of the empirical work cited as being in support of asymmetries, however, has not directly tested the hypothesis of an asymmetric transmission of oil price innovations. Moreover, many...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Dec 2010

    Asymmetric Shocks In A Currency Union With Monetary And Fiscal Handcuffs?

    This paper investigates the impact of the asymmetric shocks within a currency union in a framework that takes account of the zero bound constraint on policy rates, and also allows for constraints on fiscal policy. In this environment, the authors document that the usual optimal currency argument showing that the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Dec 2010

    Fiscal Positions And Government Bond Yields In OECD Countries

    The authors examine the impact of fiscal positions, both the level of debt and the fiscal balance, on long-term government bond yields in the OECD. In order to control for the endogenity of fiscal positions to the business cycle they utilize forward projections of fiscal positions from the OECD's Economic...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Oct 2010

    Could Asymmetric Information Alone Have Caused The Collapse Of Private-label Securitization?

    A key feature of the 2007-2008 financial crisis is that for some classes of securities trade has ceased. And where trade does occur, it appears that market prices are well below what one might believe to be the intrinsic value for that class of security. This seems to be especially...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2010

    An Analysis Of Government Guarantees And The Functioning Of Asset-Backed Securities Markets

    Mortgage securitization has been tried several times in the United States and each time it has failed amid a credit bust. In what is now a familiar recurring history, during the credit boom, underwriting standards are violated and guarantees are inadequately funded; subsequently, defaults increase and investors in mortgage-backed securities...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2010

    Oil Shocks And The Zero Bound On Nominal Interest Rates

    Beginning in 2009, in many advanced economies, policy rates reached their Zero Lower Bound (ZLB). Almost at the same time, oil prices started rising again. The authors analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2010

    Entry Dynamics And The Decline In Exchange-rate Pass-through

    The degree of exchange-rate pass-through to import prices is low. An average pass-through estimate for the 1980s would be roughly 50 percent for the United States implying that, following a 10 percent depreciation of the dollar, a foreign exporter selling to the U.S. market would raise its price in the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2010

    Offshoring Bias In U.S. Manufacturing: Implications For Productivity And Value Added

    The rapid growth of offshoring has sparked a contentious debate over its impact on the U.S. manufacturing sector, which has recorded steep employment declines yet strong output growth - a fact reconciled by the notable gains in manufacturing productivity. The authors maintain, however, that the dramatic acceleration of imports from...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2010

    Has International Financial Co-movement Changed? Emerging Markets In The 2007-2009 Financial Crisis

    Emerging Market (EM) assets have historically been regarded as inherently risky and particularly vulnerable to international shocks that result in a general increase in investor risk perceptions. In this paper, the authors assess the ongoing relevance of this view by examining the linkages between EM and non-EM stock and bond...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Aug 2010

    Capturing The Evolution Of Dealer Credit Terms Related To Securities Financing And OTC Derivatives

    In the period prior to the financial crisis, leverage in the financial system increased substantially. This buildup was likely facilitated by, among other factors, a loosening of credit terms related to OTC derivatives and securities financing transactions. However, little or no systematic data on these trends were available at the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Aug 2010

    The Effects Of Bank Capital On Lending: What Do We Know, And What Does It Mean?

    The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received special attention in the recent financial crisis. The author uses panel-regression techniques-following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994)-to study the lending of large...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jul 2010

    Check In The Mail Or More In The Paycheck: Does The Effectiveness Of Fiscal Stimulus Depend On How It Is Delivered?

    Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jul 2010

    The Information Content Of High-Frequency Data For Estimating Equity Return Models And Forecasting Risk

    The author demonstrate that the parameters controlling skewness and kurtosis in popular equity return models estimated at daily frequency can be obtained almost as precisely as if volatility is observable by simply incorporating the strong information content of realized volatility measures extracted from high-frequency data. For this purpose, the author...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jul 2010

    A Semiparametric Characterization Of Income Uncertainty Over The Life Cycle

    Income uncertainty plays an important role in household decisions regarding consumption, saving, and investment. First, in the presence of incomplete financial markets, households facing uninsurable income risk have to save for precautionary reasons. How much they need to save crucially depends on their level of future income uncertainty. Second, people...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jul 2010

    Input And Output Inventories In General Equilibrium

    The authors build and estimate a two-sector (goods and services) dynamic stochastic general equilibrium model with two types of inventories: materials (input) inventories facilitate the production of finished goods, while finished goods (output) inventories yield utility services. The model is estimated using Bayesian methods. The estimated model replicates the volatility...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jul 2010

    Is There A Fiscal Free Lunch In A Liquidity Trap?

    This paper uses a DSGE model to examine the effects of an expansion in government spending in a liquidity trap. If the liquidity trap is very prolonged, the spending multiplier can be much larger than in normal circumstances, and the budgetary costs minimal. But given this "Fiscal free lunch," it...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Fiscal Policy In The United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, And The Economy

    This paper examines the effects of the economy on the government budget as well as the effects of the budget on the economy. First, the author provides measures of the effects of automatic stabilizers on budget outcomes at the federal and state and local levels. For the federal government, the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Granularity Adjustment For Mark-To-Market Credit Risk Models

    The impact of undiversified idiosyncratic risk on value-at-risk and expected shortfall can be approximated analytically via a methodology known as granularity adjustment (GA). In principle, the GA methodology can be applied to any risk-factor model of portfolio risk. Thus far, however, analytical results have been derived only for simple models...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Financial Globalization And Monetary Policy

    This paper reviews the available evidence and previous research on potential effects of financial globalization, that is, the international integration of financial markets. In particular, the author addressed the questions: Has financial globalization materially increased the influence of external developments on domestic monetary conditions? And, has it reduced the influence...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Imperfect Credibility And The Zero Lower Bound On The Nominal Interest Rate

    When the nominal interest rate reaches its zero lower bound, credibility is crucial for conducting forward guidance. The authors determine optimal policy in a New Keynesian model when the central bank has imperfect credibility and cannot set the nominal interest rate below zero. In their model, an announcement of a...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Interpreting Investment-Specific Technology Shocks

    Investment-specific technology (IST) shocks are often interpreted as multi-factor productivity (MFP) shocks in a separate investment-producing sector. However, this interpretation is strictly valid only when some stringent conditions are satisfied. Some of these conditions are at odds with the data. Using a two-sector model whose calibration is based on the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Monetary Policy And The Cyclicality Of Risk

    The author use a DSGE model that generates endogenous movements in risk premia to ex-amine the positive and normative implications of alternative monetary policy rules. As emphasized by the microfinance literature, variation in risk arises because households face fixed costs of transferring cash across financial accounts, implying that some households...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Immigration, Remittances And Business Cycles

    The authors use data on border enforcement and macroeconomic indicators from the U.S. and Mexico to estimate a two-country business cycle model of labor migration and remittances. The model matches the cyclical dynamics of labor migration to the U.S. and documents how remittances to Mexico serve an insurance role to...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    The Effect Of Gasoline Prices On Household Location

    Gasoline prices influence where households decide to locate by changing the cost of commuting. Consequently, the substantial increase in gas prices since 2003 may have reduced the demand for housing in areas far from employment centers, leading to a decrease in the price and/or quantity of housing in those locations...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    Interagency Statement On Meeting The Credit Needs Of Creditworthy Small Business Borrowers

    The federal financial institutions regulatory agencies and the state supervisors are issuing this Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers to restate and elaborate their supervisory views on prudent lending to creditworthy small business borrowers. This statement builds upon principles in existing guidance, including the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    Exports, Borders, Distance, And Plant Size

    The fact that large manufacturing plants export relatively more than small plants has been at the foundation of much work in the international trade literature. The author examines this fact using Census micro data on plant shipments from the Commodity Flow Survey, also show the fact is not entirely an...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    Oil Shocks And External Adjustment

    In reaction to the oil crises of the 1970s and early 1980s, as well as the more recent run-up in oil prices that started in 2003, the oil component of the U.S. trade balance consistently deteriorated. However, the link between oil prices and the overall goods trade balance appears more...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    News And Sovereign Default Risk In Small Open Economies

    This paper builds a model of sovereign debt in which default risk, interest rates, and debt depend not only on current fundamentals but also on news about future fundamentals. News shocks affect equilibrium outcomes because they contain information about the future ability of the government to repay its debt. First,...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    The Depth Of Negative Equity And Mortgage Default Decisions

    A central question in the literature on mortgage default is at what point underwater homeowners walk away from their homes even if they can afford to pay. The author studies borrowers from Arizona, California, Florida, and Nevada who purchased homes in 2006 using non-prime mortgages with 100 percent financing. Almost...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    Money, Reserves, And The Transmission Of Monetary Policy: Does The Money Multiplier Exist?

    With the use of nontraditional policy tools, the level of reserve balances has risen significantly in the United States since 2007. Before the financial crisis, reserve balances were roughly $20 billion whereas the level has risen well past $1 trillion. The effect of reserve balances in simple macroeconomic models often...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    The Bank Lending Channel Of Monetary Policy And Its Effect On Mortgage Lending

    The bank lending channel of monetary policy suggests that banks play a special role in the transmission of monetary policy. The author looks for this special role by examining the business strategies of banks as it relates to mortgage funding and mortgage lending. "Traditional banks" have a large supply of...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    How Has The Monetary Transmission Mechanism Evolved Over Time?

    The author discusses the evolution in macroeconomic thought on the monetary policy transmission mechanism and present related empirical evidence. The core channels of policy transmission - the neoclassical links between short-term policy interest rates, other asset prices such as long-term interest rates, equity prices, and the exchange rate, and the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    Effects Of The 2003 Dividend Tax Cut: Evidence From Real Estate Investment Trusts

    Recent literature has estimated that the 2003 dividend tax cut caused a large in-crease in aggregate dividend payouts, which would imply that dividend taxation creates large efficiency costs relative to the amount of revenue raised. The author documents that dividend payouts by real estate investment trusts also rose sharply following...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    Financial Statistics For The United States And The Crisis: What Did They Get Right, What Did They Miss, And How Should They Change?

    Although the instruments and transactions most closely associated with the financial crisis of 2008 and 2009 were novel, the underlying themes that played out in the crisis were familiar from previous episodes: Competitive dynamics resulted in excessive leverage and risk taking by large, interconnected firms, in heavy reliance on short-term...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    Consumption Responses To Permanent And Transitory Shocks To House Appreciation

    The author estimates the marginal propensity to consume (MPC) out of permanent and transitory shocks to house price appreciation. Besides borrowing constraints, the author considers two different models under which those shocks may affect consumption. In the first one, treats housing as a risky asset. In the second one, housing...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    Interagency Statement On Meeting The Credit Needs Of Creditworthy Small Business Borrowers

    The federal financial institutions regulatory agencies and the state supervisors are issuing this Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers to restate and elaborate their supervisory views on prudent lending to creditworthy small business borrowers. This statement builds upon principles in existing guidance, including the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    Oil Shocks And External Adjustment

    In reaction to the oil crises of the 1970s and early 1980s, as well as the more recent run-up in oil prices that started in 2003, the oil component of the U.S. trade balance consistently deteriorated. However, the link between oil prices and the overall goods trade balance appears more...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2009

    Closing Large Open Economy Models

    In open economy models with incomplete asset markets the deterministic steady state depends on the initial conditions of the economy and the steady state is compatible with any level of international bond holdings. In a stochastic environment the linearized model generates non-stationary variables as international bond holdings follow a unit...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Financial Globalization And Monetary Policy

    This paper reviews the available evidence and previous research on potential effects of financial globalization, that is, the international integration of financial markets. In particular, the author addressed the questions: Has financial globalization materially increased the influence of external developments on domestic monetary conditions? And, has it reduced the influence...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Imperfect Credibility And The Zero Lower Bound On The Nominal Interest Rate

    When the nominal interest rate reaches its zero lower bound, credibility is crucial for conducting forward guidance. The authors determine optimal policy in a New Keynesian model when the central bank has imperfect credibility and cannot set the nominal interest rate below zero. In their model, an announcement of a...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Interpreting Investment-Specific Technology Shocks

    Investment-specific technology (IST) shocks are often interpreted as multi-factor productivity (MFP) shocks in a separate investment-producing sector. However, this interpretation is strictly valid only when some stringent conditions are satisfied. Some of these conditions are at odds with the data. Using a two-sector model whose calibration is based on the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Monetary Policy And The Cyclicality Of Risk

    The author use a DSGE model that generates endogenous movements in risk premia to ex-amine the positive and normative implications of alternative monetary policy rules. As emphasized by the microfinance literature, variation in risk arises because households face fixed costs of transferring cash across financial accounts, implying that some households...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Immigration, Remittances And Business Cycles

    The authors use data on border enforcement and macroeconomic indicators from the U.S. and Mexico to estimate a two-country business cycle model of labor migration and remittances. The model matches the cyclical dynamics of labor migration to the U.S. and documents how remittances to Mexico serve an insurance role to...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    News And Sovereign Default Risk In Small Open Economies

    This paper builds a model of sovereign debt in which default risk, interest rates, and debt depend not only on current fundamentals but also on news about future fundamentals. News shocks affect equilibrium outcomes because they contain information about the future ability of the government to repay its debt. First,...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Feb 2010

    A Comparison Of Forecast Performance Between Federal Reserve Staff Forecasts, Simple Reduced-Form Models, And A DSGE Model

    This paper compares the forecasts of an estimated dynamic stochastic general equilibrium (DSGE) model with that of the Federal Reserve staff and reduced-form time-series models. The paper has three goals. First, much of the related literature has compared forecasts from DSGE models with simple reduced-form forecasting techniques: The comparison with...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2009

    Does Speculation Affect Spot Price Levels? The Case Of Metals With And Without Futures Markets

    This paper finds no evidence that speculative activity in futures markets for industrial metals caused higher spot prices in recent years. The empirical analysis focuses on industrial metals with and without futures contracts and is organized around two key themes. First, the author shows that the co-movement between metals with...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2009

    Reversing The Trend: The Recent Expansion Of The Reverse Mortgage Market

    Reverse mortgages allow elderly homeowners to tap into their housing wealth with-out having to sell or move out of their homes. However, very few eligible homeowners have used reverse mortgages to achieve consumption smoothing until recently when the reverse mortgage market in the United States witnessed substantial growth. This paper...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2009

    Education's Role In China's Structural Transformation

    This paper explores education's role in improving the allocation of labor between China's agricultural and nonagricultural sectors and measure the portion of China's recent growth attributable to this channel. Building from micro-level estimates, it's found that education's impact on labor reallocation between sectors accounts for about 9 percent of Chinese...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jul 2009

    Bayesian Analysis Of Stochastic Volatility Models With Levy Jumps: Application To Risk Analysis

    This paper analyzes a broad class of continuous-time jump diffusion models of asset returns. In the models, stochastic volatility can arise either from a diffusion part, or a jump part, or both. The jump component includes either compound Poisson or L??vy ??-stable jumps. To be able to estimate the models...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2009

    Credit Card Redlining Revisited

    Using a proprietary dataset of credit bureau records, Cohen-Cole (2008) finds that banks set credit limits on revolving accounts based in part on the racial composition of the neighborhood in which each borrower resides. This paper evaluates the evidence presented in that working paper using the same proprietary database of...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2009

    Intergenerational Aspects Of Health Care

    The physical process of aging means that the use of health services varies significantly by age. This association between age and health care consumption raises a number of issues related to intergenerational equity. In particular, how do society's resources get allocated across age groups, and how will increases in health...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    Exports, Borders, Distance, And Plant Size

    The fact that large manufacturing plants export relatively more than small plants has been at the foundation of much work in the international trade literature. The author examines this fact using Census micro data on plant shipments from the Commodity Flow Survey, also show the fact is not entirely an...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    Granularity Adjustment For Mark-To-Market Credit Risk Models

    The impact of undiversified idiosyncratic risk on value-at-risk and expected shortfall can be approximated analytically via a methodology known as granularity adjustment (GA). In principle, the GA methodology can be applied to any risk-factor model of portfolio risk. Thus far, however, analytical results have been derived only for simple models...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jun 2010

    The Effect Of Gasoline Prices On Household Location

    Gasoline prices influence where households decide to locate by changing the cost of commuting. Consequently, the substantial increase in gas prices since 2003 may have reduced the demand for housing in areas far from employment centers, leading to a decrease in the price and/or quantity of housing in those locations...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // May 2010

    The Depth Of Negative Equity And Mortgage Default Decisions

    A central question in the literature on mortgage default is at what point underwater homeowners walk away from their homes even if they can afford to pay. The author studies borrowers from Arizona, California, Florida, and Nevada who purchased homes in 2006 using non-prime mortgages with 100 percent financing. Almost...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    Effects Of The 2003 Dividend Tax Cut: Evidence From Real Estate Investment Trusts

    Recent literature has estimated that the 2003 dividend tax cut caused a large in-crease in aggregate dividend payouts, which would imply that dividend taxation creates large efficiency costs relative to the amount of revenue raised. The author documents that dividend payouts by real estate investment trusts also rose sharply following...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    Consumption Responses To Permanent And Transitory Shocks To House Appreciation

    The author estimates the marginal propensity to consume (MPC) out of permanent and transitory shocks to house price appreciation. Besides borrowing constraints, the author considers two different models under which those shocks may affect consumption. In the first one, treats housing as a risky asset. In the second one, housing...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    Financial Statistics For The United States And The Crisis: What Did They Get Right, What Did They Miss, And How Should They Change?

    Although the instruments and transactions most closely associated with the financial crisis of 2008 and 2009 were novel, the underlying themes that played out in the crisis were familiar from previous episodes: Competitive dynamics resulted in excessive leverage and risk taking by large, interconnected firms, in heavy reliance on short-term...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Dec 2009

    Tips From TIPS: The Informational Content Of Treasury Inflation-Protected Security Prices

    TIPS breakeven inflation rate, defined as the difference between nominal and TIPS yields of comparable maturities, is potentially useful as a real-time measure of market inflation expectations. In this paper, the author provides evidence that a fairly large TIPS liquidity premium existed until recently, using a multifactor no-arbitrage term structure...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Feb 2010

    Using A Projection Method To Analyze Inflation Bias In A Micro-Founded Model

    Since Kydland and Prescott (1977) and Barro and Gordon (1983), most studies of the problem of the inflation bias associated with discretionary monetary policy have assumed a quadratic loss function. The author departs from the conventional linear-quadratic approach to the problem in favor of a projection method approach. The author...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Feb 2010

    General-Equilibrium Effects Of Investment Tax Incentives

    The past two U.S. recessions have seen the enactment of sizeable fiscal stimulus packages. In each case, these packages have included significant provisions for temporary partial expensing allowances on business equipment investment.1 Specifically, the 2002 Job Creation and Worker Assistance Act, which went into effect after the 2001 recession, contained...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Nov 2009

    Real-Time Model Uncertainty In The United States: 'Robust' policies put to the test

    The author studies 46 vintages of FRB/US, the principal macro model used by Federal Re-serve Board staff for forecasting and policy analysis, as measures of real-time model uncertainty, also the implications of model uncertainty for the robustness of commonly applied, simple monetary policy rules and first document that model uncertainty...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Apr 2010

    How Has The Monetary Transmission Mechanism Evolved Over Time?

    The author discusses the evolution in macroeconomic thought on the monetary policy transmission mechanism and present related empirical evidence. The core channels of policy transmission - the neoclassical links between short-term policy interest rates, other asset prices such as long-term interest rates, equity prices, and the exchange rate, and the...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Mar 2010

    Implications Of Behavioral Research For The Use And Regulation Of Consumer Credit Products

    This paper reviews the behavioral literature on inter-temporal choice and decision making under uncertainty and assesses the evidence on behavioral influences affecting consumers' credit decisions. The evidence reviewed suggests that consumers often do not consider all information available in the market nor deliberately evaluate each alternative. Consumers simplify, take shortcuts,...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Mar 2010

    The Credit Market Consequences Of Job Displacement

    This paper demonstrates the important role of job displacement in the household bankruptcy decision. The author develops a dynamic, forward-looking model of unemployment and bankruptcy where persistent negative income shocks increase a household's likelihood of ling for bankruptcy both immediately and in the future. Consistent with the model's predictions, it's...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Mar 2010

    Credit Where None Is Due? Authorized User Account Status And "Piggybacking Credit"

    An "Authorized user" is a person who is permitted by a revolving account holder to use an account without being legally liable for any charges incurred. The Federal Reserve's Regulation B, which implements the 1974 Equal Credit Opportunity Act, requires that information on spousal authorized user accounts be reported to...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Oct 2009

    Financial Market Shocks During The Great Depression

    This paper examines the effect of shocks observed in financial markets on output and employment during the Great Depression. The author presents three main findings. First, an adverse financial shock leads to a decline in the manufacturing sector's output and employment that peaks about 11 months afterward. Next, this shock...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Feb 2010

    Structural Shocks And The Comovements Between Output And Interest Rates

    Stylized facts on U.S. output and interest rates have so far proved hard to match with DSGE models. But model predictions hinge on the joint specification of economic structure and a set of driving processes. In a model, different shocks often induce different co-movements, such that the overall pattern depends...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Dec 2009

    The Mechanics Of A Graceful Exit: Interest On Reserves And Segmentation In The Federal Funds Market

    To combat the financial crisis that intensified in the fall of 2008, the Federal Reserve injected a substantial amount of liquidity into the banking system. The resulting increase in reserve balances exerted downward price pressure in the federal funds market, and the effective federal funds rate began to deviate from...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Dec 2009

    The Finances Of American Households In The Past Three Recessions: Evidence From The Survey Of Consumer Finances

    The downturn in economic activity in the U.S. that began in December 2007 (as determined by researchers with the National Bureau of Economic Research) has been noticeably deeper and has already lasted considerably longer than the prior two recessions - those beginning in July 1990 and in March 2001. In...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Sep 2009

    Constant Proportion Debt Obligations: A Post-Mortem Analysis Of Rating Models

    In its complexity and its vulnerability to market volatility, the CPDO might be viewed as the poster child for the excesses of financial engineering in the credit market. This paper examines the CPDO as a case study in model risk in the rating of complex structured products. The author demonstrates...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jan 2010

    Income Taxes, Compensating Differentials, And Occupational Choice: How Taxes Distort The Wage-Amenity Decision

    The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they also distort the wage-amenity decision. Yet, there are no estimates of the full response on this margin. When tax rates increase, workers favor jobs with...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Dec 2009

    The Impact Of Low-Skilled Immigration On The Youth Labor Market

    The employment-to-population rate of high-school aged youth has fallen by about 20 percentage points since the late 1980s. The human capital implications of this decline depend on the reasons behind it. In this paper, the author demonstrates that growth in the number of less-educated immigrants may have considerably reduced youth...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Dec 2009

    Monetary Policy And The Housing Bubble

    Residential investment in the United States averaged about 4? percent of nominal gross domestic product (GDP) from 1974 to 2002. After 2002, activity in housing markets strengthened considerably, pushing the share of residential investment in GDP to 6? percent by late 2005 - 40 percent above the average level and...

    Provided By Board of Governors of the Federal Reserve System

  • White Papers // Jan 2010

    Variance Risk Premia, Asset Predictability Puzzles, And Macroeconomic Uncertainty

    This paper presents predictability evidence from the difference between implied and expected variances or variance risk premium that: (1) the variance difference measure predicts a significant positive risk premium across equity, bond, and credit markets; (2) the predictability is short-run, in that it peaks around one to four months and...

    Provided By Board of Governors of the Federal Reserve System