Federal Reserve Bank of Cleveland

Displaying 1-40 of 59 results

  • White Papers // Sep 2011

    Assessing The Evidence On Neighborhood Effects From Moving To Opportunity

    This paper presents a new perspective on results from the Moving To Opportunity (MTO) housing mobility program. Building on recent developments in the program evaluation literature, this paper defines several treatment effect parameters and then estimates and interprets these parameters using data from MTO. The evaluation framework is used to...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2011

    Tests Of Equal Forecast Accuracy For Overlapping Models

    This paper examines the asymptotic and finite-sample properties of tests of equal forecast accuracy when the models being compared are overlapping in the sense of Vuong (1989). Two models are overlapping when the true model contains just a subset of variables common to the larger sets of variables included in...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2011

    Advances In Forecast Evaluation

    This paper surveys recent developments in the evaluation of point forecasts. Taking West's (2006) survey as a starting point, the authors briefly cover the state of the literature as of the time of West's writing. They then focus on recent developments, including advancements in the evaluation of forecasts at the...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2011

    Inter-Regional Home Price Dynamics Through The Foreclosure Crisis

    Overall regional conditions such as employment, geography, and amenities, favor the co-movement of housing prices in central cities and their suburbs. Simultaneously, over half a century of sprawl may induce a negative relation between suburban and central city home prices, with central city values falling relative to suburban home values....

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2011

    The Federal Reserve As An Informed Foreign-Exchange Trader: 1973-1995

    If official interventions convey private information useful for price discovery in foreign-exchange markets, then they should have value as a forecast of near-term exchange-rate movements. Using a set of standard criteria, the authors show that approximately 60 percent of all U.S. foreign-exchange interventions between 1973 and 1995 were successful in...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2011

    Indexed Debt Contracts And The Financial Accelerator

    This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). The principal conclusions are that the optimal degree of indexation is significant, and that the...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2011

    Public Policy In Support Of Small Business: The American Experience

    Information problems in small enterprise credit markets can result in a market equilibrium characterized by credit rationing. These information problems are potentially more severe during sharp economic downturns such as the recent Great Recession. Government interventions to alleviate credit constraints on small firms need to be designed to correct the...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2011

    Beyond The Transaction: Depository Institutions And Reduced Mortgage Default For Low-income Homebuyers

    The authors evaluate the effects of the lending institution and soft information on mortgage loan performance for low-income homebuyers. They find that even after controlling for bank selection, those who receive a loan from a local bank are significantly less likely to become delinquent or default than other bank or...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jun 2011

    On The Evolution Of U.S. Foreign-Exchange-Market Intervention: Thesis, Theory, And Institutions

    Attitudes about foreign-exchange-market intervention in the United States evolved in tandem with views about monetary policy as policy makers grappled with the perennial problem of having more economic objectives than independent instruments with which to achieve them. This paper - the introductory chapter to the history of U.S. foreign exchange...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jun 2011

    Banking Relationships And Sell-side Research

    This paper examines disclosures by sell-side analysts when their institution has a lending relationship with the firms being covered. Lending-affiliated analysts' earnings forecasts are found to be more accurate relative to forecasts by other analysts but this differential accuracy manifests itself only after the advent of the loan. Despite this...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // May 2011

    Do Commodity Prices Signal Inflation?

    Do the rising commodity prices we have seen in recent years reflect basic supply-and-demand developments in various commodity markets, or are they the first signs of inflation? In practice, it's not always easy to tell the difference - for the public or policymakers - but fundamentally different they are. Central...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // May 2011

    Demographic Differences In Inflation Expectations: What Do They Really Mean?

    It has often been reported that different demographic groups show persistent differences in their inflation expectations. Some reasonable explanations have been suggested, but most have failed to fully explain these apparent differences. The authors argue that the demographic differences have been overstated by using the mean to describe differences across...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // May 2011

    Bayesian VARs: Specification Choices And Forecast Accuracy

    In this paper, the authors examine how the forecasting performance of Bayesian VARs is affected by a number of specification choices. In the baseline case, they use a Normal-Inverted Wishart prior that, when combined with a (pseudo-) iterated approach, makes the analytical computation of multi-step forecasts feasible and simple, in...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2011

    Search Frictions And The Labor Wedge

    This paper assesses whether labor market frictions, in the form of searching and matching, can help explain movements in the labor wedge - the gap between the Marginal Rate of Substitution (MRS) and the marginal productivity of labor in a perfectly competitive business cycle model. Results suggest that those frictions...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2011

    Prioritization In Private-Activity-Bond Volume Cap Allocation

    This paper proposes and tests a structural model reflecting the process of authorizing private-activity municipal bond issuance. Private-activity municipal bonds offer tax-exempt financing for programs including industrial development, utilities, low-income housing, and student loans. The Federal tax code sets annual caps on the total tax-exempt issuance within each state, so...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2011

    False Security: How Securitization Failed To Protect Arrangers And Investors From Borrower Claims

    The future of housing finance is in a state of flux. In February 2011, the Obama Administration released a proposal outlining three plans for the future of housing finance. In all three plans, Freddie Mac and Fannie Mae will be phased out over a period of years and replaced with...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2011

    U.S. Intervention During The Bretton Wood Era:1962-1973

    By the early 1960s, outstanding U.S. dollar liabilities began to exceed the U.S. gold stock, suggesting that the United States could not completely maintain its pledge to convert dollars into gold at the official price. This raised uncertainty about the Bretton Woods parity grid, and speculation seemed to grow. In...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Mar 2011

    Inflation Expectations, Real Rates, And Risk Premia: Evidence From Inflation Swaps

    This paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short-term real interest rate, expected inflation, inflation's central tendency, and four volatility factors that follow GARCH processes. The authors derive analytical solutions for nominal bond yields, yields on inflation-indexed...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Feb 2011

    Homeownership For The Long Run: An Analysis Of Homeowner Subsidies

    There is clear evidence that many low-to-moderate-income homebuyers are wealth-constrained; therefore, a dollar spent in down-payment subsidies is more successful at creating new homebuyers than a dollar spent in interest-rate subsidies. However, the recent crisis raised the important questions of whether these new homebuyers can actually remain homeowners in the...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Feb 2011

    The Demand For Income Tax Progressivity In The Growth Model

    This paper examines the degree of income tax progressivity chosen through a simple majority vote in a model with savings. Households have permanent differences with respect to their labor productivity and their discount factors. The government has limited commitment to future policy, so voting is repeated every period. Because the...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jan 2011

    The Ins And Outs Of Unemployment In The Long Run: A New Estimate For The Natural Rate?

    In this paper, the authors present a simple, reduced-form model of comovements in real activity and worker flows and use it to uncover the trend changes in these flows, which determine the trend in the unemployment rate. They argue that this trend rate has several key features that are reminiscent...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jan 2011

    On The Coexistence Of Money And Higher-Return Assets And Its Social Role

    By applying mechanism design to an environment in which fiat money and capital compete as media of exchange, the author showed that rate-of-return dominance - the observation that capital goods yield a higher rate of return than fiat money - is not a puzzle: it is a property of good...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jan 2011

    Disadvantaged Business Enterprise Goals In Government Procurement Contracting: An Analysis Of Bidding Behavior And Costs

    Programs that encourage the participation of Disadvantaged Business Enterprises (DBE) as subcontractors have been a part of government procurement auctions for over three decades. In this paper, the authors examine the impact of a program that requires prime contractors to subcontract out a portion of a highway procurement project to...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    Simple Ways To Forecast Inflation: What Works Best?

    There are many ways to forecast the future rate of inflation, ranging from sophisticated statistical models involving hundreds of variables to hunches based on past experience. The authors generate a number of forecasts using a simple statistical model and an even simpler estimating rule, adding in various measures thought to...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    Debt Overhang In A Business Cycle Model

    The authors study the macroeconomic implications of the debt overhang distortion. In their model, the distortion arises because investment is non-contractible - when a firm borrows funds, the debt contract cannot specify or depend on the firm's future level of investment. After the debt contract is signed, the probability that...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    Caught Between Scylla And Charybdis? Regulating Bank Leverage When There Is Rent Seeking And Risk Shifting

    Banks face two moral hazard problems: asset substitution by shareholders (e.g., making risky, negative net present value loans) and managerial rent seeking (e.g., investing in inefficient "Pet" projects or simply being lazy and un-innovative). The privately-optimal level of bank leverage is neither too low nor too high: it balances efficiently...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    U.S. Intervention And The Early Dollar Float: 1973-1981

    The dollar's depreciation during the early floating rate period, 1973-1981, was a symptom of the Great Inflation. In that environment, sterilized foreign exchange interventions were ineffective in halting the dollar's decline, but they showed a limited ability to smooth dollar movements. Only after the Volcker FOMC changed its monetary-policy approach...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Nov 2010

    The Importance Of Financial Market Development On The Relationship Between Loan Guarantees For SMEs And Local Market Employment Rates

    The authors empirically examine whether a major government intervention in the small-firm credit market yields significantly better results in markets that are less financially developed. The government intervention that they investigate is SBA-guaranteed lending. The literature on financing Small and Medium size Enterprises (SMEs) suggests that small firms may be...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Oct 2010

    Liquidity And Asset Market Dynamics

    The authors study economies with an essential role for liquid assets in transactions. The model can generate multiple stationary equilibria, across which asset prices, market participation, capitalization, output and welfare are positively related. It can also generate a variety of nonstationary equilibria, even when fundamentals are deterministic and time invariant,...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Oct 2010

    Economic History: Too Interconnected To Fail?: The Rescue Of Long-term Capital Management

    When the Russian government defaulted on its debts to bondholders on Aug. 17, 1998, few could have predicted that the chain of events it sparked would culminate a little over a month later in an unprecedented meeting of the heads of the major Wall Street financing houses in the boardroom...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Oct 2010

    The Effects Of Capital Market Openness On Exchange Rate Pass-Through And Welfare In An Inflation-Targeting Small Open Economy

    This paper analyzes the impact of capital market openness on exchange rate pass-through and subsequently on the social loss function in an inflation-targeting small open economy under a pure commitment policy. Applying the intuition behind the macroeconomic trilemma, the author examines whether a more open capital market in an inflation-targeting...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2010

    Cleaning Up The Refuse From A Financial Crisis: The Case For A Resolution Management Corporation

    Systemic banking and financial crises invariably result in the transfer of a large volume of distressed financial assets into the hands of the government, which must later dispose of them. The fiscal and economic costs of the crisis and the speed of recovery depend on how effectively the government's salvage...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2010

    Private-Activity Municipal Bonds: The Political Economy Of Volume Cap Allocation

    State governments allocate authority, under a federally imposed cap, to issue tax-exempt bonds that fund "Private activities" such as industrial expansion, student loans, and low-income housing. This paper presents political economy models of the allocation process and an empirical analysis. Due to an idiosyncrasy of the tax code, the annual...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2010

    The Effect Of Foreclosures On Nearby Housing Prices: Supply Or Disamenity?

    Several studies have measured negative price effects of foreclosed residential properties on nearby property sales. However, these studies do not address which mechanism is responsible for these effects. The author measures separate effects for different types of foreclosed properties and use these estimates to decompose the effects of foreclosures on...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2010

    Is U.S. Federal Debt Too Large?

    U.S. federal debt has grown to levels that have not been seen since the aftermath of the Second World War. Many economists argue there is plenty to be worried about when it comes to what this implies for the U.S. economy. This paper explains that recent increases in debt are...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jul 2010

    Is Debt Overhang Causing Firms To Underinvest?

    Many economists have suggested that the weakness of corporate balance sheets is constraining business spending and investment, and that this in turn is impeding growth and the recovery. High levels of debt can depress spending and investment through several channels. This paper explains one of them - debt overhang can...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jul 2010

    Liquidity Creation Without A Lender Of Last Resort: Clearing House Loan Certificates In The Banking Panic Of 1907

    The authors employ a new data set comprised of disaggregate figures on clearing house loan certificate issues in New York City to document how the dominant national banks were crucial providers of temporary liquidity during the Panic of 1907. Clearing house loan certificates were essentially "Bridge loans" arranged between clearing...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jul 2010

    Endogenous Gentrification And Housing-Price Dynamics

    In this paper, the authors explore differential changes in house prices across neighborhoods within a city to better understand the nature of house-price dynamics across cities. First, they document in detail that there is substantial and systematic heterogeneity in house-price dynamics within a city during citywide housing-price booms and busts....

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jun 2010

    Lending Patterns In Poor Neighborhoods

    Concentrated poverty has been said to impose a double burden on those that confront it. In addition to an individual's own financial constraints, institutions and social networks of poor neighborhoods can further limit access to quality services and resources for those that live there. This paper contributes to the characterization...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2010

    A Structural Model Of Contingent Bank Capital

    This paper develops a structural credit risk model of a bank that issues deposits, shareholders' equity, and fixed or floating coupon bonds in the form of contingent capital or subordinated debt. The return on the bank's assets follows a jump-diffusion process, and default-free interest rates are stochastic. The equilibrium pricing...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2007

    On-The-Job Search And Labor Market Reallocation

    This paper studies implication of productivity shocks in labor markets through on-the-job-search. There is incomplete information about the quality of the employee-firm match which provides persistence in employment relationships and the rationale for on-the-job search. Amplification arises because productivity changes not only affect firms' probability of contacting unemployed workers but...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Mar 2010

    A Microeconometric Investigation Into Bank Interest Rate Rigidity

    In this paper the authors provide a first step in this direction by presenting a microeconometric analysis of the timing of retail interest rate changes and the determinants of that timing. First, they present descriptive evidence on the lumpiness of bank retail interest rate adjustments. Second, they apply duration analysis...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Mar 2010

    Measuring Systemic Risk

    The authors present a simple model of systemic risk and show how each financial institution's contribution to systemic risk can be measured and priced. An institution's contribution, denoted Systemic Expected Shortfall (SES), is its propensity to be undercapitalized when the system as a whole is undercapitalized, which increases in its...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2010

    A Structural Model Of Contingent Bank Capital

    This paper develops a structural credit risk model of a bank that issues deposits, shareholders' equity, and fixed or floating coupon bonds in the form of contingent capital or subordinated debt. The return on the bank's assets follows a jump-diffusion process, and default-free interest rates are stochastic. The equilibrium pricing...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Oct 2010

    Liquidity And Asset Market Dynamics

    The authors study economies with an essential role for liquid assets in transactions. The model can generate multiple stationary equilibria, across which asset prices, market participation, capitalization, output and welfare are positively related. It can also generate a variety of nonstationary equilibria, even when fundamentals are deterministic and time invariant,...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // May 2011

    Do Commodity Prices Signal Inflation?

    Do the rising commodity prices we have seen in recent years reflect basic supply-and-demand developments in various commodity markets, or are they the first signs of inflation? In practice, it's not always easy to tell the difference - for the public or policymakers - but fundamentally different they are. Central...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2009

    A New Approach To Gauging Inflation Expectations

    This Economic Commentary explains a relatively new method of uncovering inflation expectations, real interest rates, and an inflation-risk premium. It provides estimates of expected inflation from one month to 30 years, an estimate of the inflation-risk premium, and a measure of real interest rates, particularly a short (one-month) rate, which...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    Simple Ways To Forecast Inflation: What Works Best?

    There are many ways to forecast the future rate of inflation, ranging from sophisticated statistical models involving hundreds of variables to hunches based on past experience. The authors generate a number of forecasts using a simple statistical model and an even simpler estimating rule, adding in various measures thought to...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // May 2011

    Demographic Differences In Inflation Expectations: What Do They Really Mean?

    It has often been reported that different demographic groups show persistent differences in their inflation expectations. Some reasonable explanations have been suggested, but most have failed to fully explain these apparent differences. The authors argue that the demographic differences have been overstated by using the mean to describe differences across...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jun 2011

    On The Evolution Of U.S. Foreign-Exchange-Market Intervention: Thesis, Theory, And Institutions

    Attitudes about foreign-exchange-market intervention in the United States evolved in tandem with views about monetary policy as policy makers grappled with the perennial problem of having more economic objectives than independent instruments with which to achieve them. This paper - the introductory chapter to the history of U.S. foreign exchange...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jun 2011

    Banking Relationships And Sell-side Research

    This paper examines disclosures by sell-side analysts when their institution has a lending relationship with the firms being covered. Lending-affiliated analysts' earnings forecasts are found to be more accurate relative to forecasts by other analysts but this differential accuracy manifests itself only after the advent of the loan. Despite this...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Oct 2010

    Economic History: Too Interconnected To Fail?: The Rescue Of Long-term Capital Management

    When the Russian government defaulted on its debts to bondholders on Aug. 17, 1998, few could have predicted that the chain of events it sparked would culminate a little over a month later in an unprecedented meeting of the heads of the major Wall Street financing houses in the boardroom...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Nov 2009

    Workshop On Entrepreneurial Finance: A Summary

    In March of 2009, the Federal Reserve Bank of Cleveland and the Kauffman Foundation jointly hosted a workshop on entrepreneurial finance that brought together scholars in the field. The goal of the workshop was to present new empirical research that exploits data sets on entrepreneurial activity that are based on...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2011

    Indexed Debt Contracts And The Financial Accelerator

    This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). The principal conclusions are that the optimal degree of indexation is significant, and that the...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Nov 2010

    The Importance Of Financial Market Development On The Relationship Between Loan Guarantees For SMEs And Local Market Employment Rates

    The authors empirically examine whether a major government intervention in the small-firm credit market yields significantly better results in markets that are less financially developed. The government intervention that they investigate is SBA-guaranteed lending. The literature on financing Small and Medium size Enterprises (SMEs) suggests that small firms may be...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2010

    Cleaning Up The Refuse From A Financial Crisis: The Case For A Resolution Management Corporation

    Systemic banking and financial crises invariably result in the transfer of a large volume of distressed financial assets into the hands of the government, which must later dispose of them. The fiscal and economic costs of the crisis and the speed of recovery depend on how effectively the government's salvage...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    Debt Overhang In A Business Cycle Model

    The authors study the macroeconomic implications of the debt overhang distortion. In their model, the distortion arises because investment is non-contractible - when a firm borrows funds, the debt contract cannot specify or depend on the firm's future level of investment. After the debt contract is signed, the probability that...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2009

    Credit Crises, Money, And Contractions: A Historical View

    The relatively infrequent nature of major credit distress events makes a historical approach particularly useful. Using a combination of historical narrative and econometric techniques, the authors identify major periods of credit distress from 1875 to 2007, examine the extent to which credit distress arises as part of the transmission of...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Oct 2009

    Conducting Monetary Policy When Interest Rates Are Near Zero

    This paper explains the concerns that are associated with the combination of deflation, low economic activity, and zero nominal interest rates and describes how monetary policy might be conducted in such a situation. The authors argue that avoiding expectations of deflation is key and that the monetary authority needs to...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jul 2010

    Is Debt Overhang Causing Firms To Underinvest?

    Many economists have suggested that the weakness of corporate balance sheets is constraining business spending and investment, and that this in turn is impeding growth and the recovery. High levels of debt can depress spending and investment through several channels. This paper explains one of them - debt overhang can...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2010

    Is U.S. Federal Debt Too Large?

    U.S. federal debt has grown to levels that have not been seen since the aftermath of the Second World War. Many economists argue there is plenty to be worried about when it comes to what this implies for the U.S. economy. This paper explains that recent increases in debt are...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jan 2009

    Cross-Sectoral Variation In Firm-Level Idiosyncratic Risk

    In this paper, the authors use data from the U.S. Census Bureau's Longitudinal Research Database in order to assess the extent of the cross-sectoral variation in firm-level idiosyncratic risk and shed light on its determinants. They find that firms producing investment goods exhibit greater volatility in sales and TFP growth...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Feb 2009

    Bank Mergers And The Dynamics Of Deposit Interest Rates

    Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, the authors aim for a comprehensive...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2009

    The Long Run Effects Of Changes In Tax Progressivity

    This paper compares the steady state outcomes of revenue-neutral changes to the progressivity of the tax schedule. Our economy features heterogeneous households who differ in their preferences and permanent labor productivities, but it does not have idiosyncratic risk. The authors find that increases in the progressivity of the tax schedule...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2009

    A Multi-Sectoral Approach To The U.S. Great Depression

    The authors document sectoral differences in changes in output, hours worked, prices, and nominal wages in the United States during the Great Depression. They explore whether contractionary monetary shocks combined with different degrees of nominal wage frictions across sectors are consistent with both sectoral as well as aggregate facts. To...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2009

    Job Separations, Heterogeneity, And Earnings Inequality

    Changes in the fraction of workers experiencing job separations can account for most of the increase in earnings dispersion that occurred both between, as well as within educational groups in the United States from the mid-1970s to the mid- 1980s. This is not true of changes in average earnings losses...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2010

    Competition Or Collaboration? The Reciprocity Effect In Loan Syndication

    It is well recognized that loan syndication generates a moral hazard problem by diluting the lead arranger's incentive to monitor the borrower. This paper proposes and tests a novel view that reciprocal arrangements among lead arrangers serve as an effective mechanism to mitigate this agency problem. Lender arrangements in about...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Aug 2009

    Entry, Exit And The Determinants Of Market Structure

    Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by expectations of future profits which, in turn, depend on the nature of competition within the market. In this paper, the authors estimate a dynamic, structural model of entry and exit in an...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Apr 2010

    Deposit Market Competition, Costs Of Funding And Bank Risk

    In this paper, the authors revisit the long debate on the risk effects of bank competition and propose a new approach to the empirical estimation of the relation between deposit market competition and bank risk. Their approach accounts for the opportunity of banks to shift to wholesale funding when deposit...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // May 2009

    A Brief Empirical History Of U.S. Foreign-Exchange Intervention: 1973-1995

    This paper assesses U.S. foreign-exchange intervention since the inception of generalized floating. The authors find that intervention was by and large ineffectual. They first identify which interventions were successful according to three criteria. Then, they test whether the number of observed successes significantly exceeds the amount that would randomly occur...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jan 2009

    A Monetary Approach To Asset Liquidity

    This paper offers a monetary theory of asset liquidity - one that emphasizes the role of assets in payment arrangements - and it explores the implications of the theory for the relationship between assets' intrinsic characteristics and liquidity, and the effects of monetary policy on asset prices and welfare. The...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jan 2009

    Information And Liquidity: A Discussion

    The author extends and discusses the model of asset liquidity by Lester, Postlewaite, and Wright (2007, 2008). The author considers a model with decentralized trades in which claims on a real and divisible asset serve as means of payment. A recognizability problem is introduced by assuming that the claims on...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    Caught Between Scylla And Charybdis? Regulating Bank Leverage When There Is Rent Seeking And Risk Shifting

    Banks face two moral hazard problems: asset substitution by shareholders (e.g., making risky, negative net present value loans) and managerial rent seeking (e.g., investing in inefficient "Pet" projects or simply being lazy and un-innovative). The privately-optimal level of bank leverage is neither too low nor too high: it balances efficiently...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Dec 2010

    U.S. Intervention And The Early Dollar Float: 1973-1981

    The dollar's depreciation during the early floating rate period, 1973-1981, was a symptom of the Great Inflation. In that environment, sterilized foreign exchange interventions were ineffective in halting the dollar's decline, but they showed a limited ability to smooth dollar movements. Only after the Volcker FOMC changed its monetary-policy approach...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Feb 2011

    Homeownership For The Long Run: An Analysis Of Homeowner Subsidies

    There is clear evidence that many low-to-moderate-income homebuyers are wealth-constrained; therefore, a dollar spent in down-payment subsidies is more successful at creating new homebuyers than a dollar spent in interest-rate subsidies. However, the recent crisis raised the important questions of whether these new homebuyers can actually remain homeowners in the...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Oct 2010

    The Effects Of Capital Market Openness On Exchange Rate Pass-Through And Welfare In An Inflation-Targeting Small Open Economy

    This paper analyzes the impact of capital market openness on exchange rate pass-through and subsequently on the social loss function in an inflation-targeting small open economy under a pure commitment policy. Applying the intuition behind the macroeconomic trilemma, the author examines whether a more open capital market in an inflation-targeting...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jan 2011

    The Ins And Outs Of Unemployment In The Long Run: A New Estimate For The Natural Rate?

    In this paper, the authors present a simple, reduced-form model of comovements in real activity and worker flows and use it to uncover the trend changes in these flows, which determine the trend in the unemployment rate. They argue that this trend rate has several key features that are reminiscent...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2010

    Private-Activity Municipal Bonds: The Political Economy Of Volume Cap Allocation

    State governments allocate authority, under a federally imposed cap, to issue tax-exempt bonds that fund "Private activities" such as industrial expansion, student loans, and low-income housing. This paper presents political economy models of the allocation process and an empirical analysis. Due to an idiosyncrasy of the tax code, the annual...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Sep 2010

    The Effect Of Foreclosures On Nearby Housing Prices: Supply Or Disamenity?

    Several studies have measured negative price effects of foreclosed residential properties on nearby property sales. However, these studies do not address which mechanism is responsible for these effects. The author measures separate effects for different types of foreclosed properties and use these estimates to decompose the effects of foreclosures on...

    Provided By Federal Reserve Bank of Cleveland

  • White Papers // Jul 2010

    Liquidity Creation Without A Lender Of Last Resort: Clearing House Loan Certificates In The Banking Panic Of 1907

    The authors employ a new data set comprised of disaggregate figures on clearing house loan certificate issues in New York City to document how the dominant national banks were crucial providers of temporary liquidity during the Panic of 1907. Clearing house loan certificates were essentially "Bridge loans" arranged between clearing...

    Provided By Federal Reserve Bank of Cleveland