Federal Reserve Bank of Kansas City

Displaying 1-40 of 48 results

  • White Papers // Jun 2011

    What Is The Optimal Inflation Rate?

    In the late 1970s and early 1980s, many countries, including the United States, experienced high inflation. A broad consensus emerged that this performance was unacceptable, and monetary policymakers around the world adopted policies designed to bring inflation down. With inflation undesirably high, policymakers knew what direction they needed to push...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2011

    Liquidity Risk Premia And Breakeven Inflation Rates

    In recent years, monetary policymakers have monitored several measures of market expectations of future inflation. One of these measures is based on the yield differential between nominal and inflation indexed Treasury securities. This yield spread is also called the "Breakeven inflation rate." An increase in the breakeven rate is sometimes...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2011

    Social Security And Medicare: The Impending Fiscal Challenge

    Social security - and the solvency of its trust fund - has increasingly become a focus of discussion in the media and policy circles. In President Bush's 2005 State of the union address, for example, more than a fifth of the address dealt with social security. The basic problem is...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2011

    Going Global: The Changing Pattern Of U.S. Investment Abroad

    Investors typically allocate only a small share of their portfolios to foreign assets. This pattern of investment behavior, known as "Home bias," is puzzling because it causes investors to miss opportunities to diversify risks. During downturns in the U.S. economy, many domestic assets perform poorly, precisely when asset returns are...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // May 2011

    Discretionary Monetary Policy In The Calvo Model

    The authors study discretionary equilibrium in the Calvo pricing model for a monetary authority that chooses the money supply. The steady-state inflation rate is above eight percent for a baseline calibration, but it varies substantially with alternative structural parameter values. If the initial condition involves inflation higher than steady state,...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Mar 2011

    What Does The Yield Curve Tell Us About The Federal Reserves Implicit Inflation Target?

    This paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to explore the additional information that can be extracted from the yield curve about the Federal Reserve's implicit inflation target. In the model, monetary policy follows a nominal interest rate rule with a drifting inflation target and agents have imperfect...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Mar 2011

    What Does The Yield Curve Tell Us About The Federal Reserve's Implicit Inflation Target?

    This paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to explore the additional information that can be extracted from the yield curve about the Federal Reserve's implicit inflation target. In the model, monetary policy follows a nominal interest rate rule with a drifting inflation target and agents have imperfect...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2011

    Yield Curve In An Estimated Nonlinear Macro Model

    This paper estimates a sticky price macro model with US macro and term structure data using Bayesian methods. The model is solved by a nonlinear method. The authors find that the degree of nominal rigidity is important for identifying macro shocks that affect the yield curve. When prices are more...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2011

    Product Innovation And Network Survival In The U.S. ATM And Debit Card Industry

    This paper provides a model to explain the shakeout of the U.S. ATM and debit card industry, which emphasizes the role that a major product innovation - introducing the debit function in the mid 1980s - played in driving the network consolidation. Consistent with the theory, the authors' empirical findings...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    The Roles Of Price Points And Menu Costs In Price Rigidity

    Macroeconomic models often generate nominal price rigidity via menu costs. This paper provides empirical evidence that treating menu costs as a structural explanation for sticky prices may be spurious. Using supermarket scanner data, the author notes two empirical facts: price points, embodied in nine-ending prices, account for more than 60...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Determinacy Under Inflation Targeting Interest Rate Policy In A Sticky Price Model With Investment (And Labor Bargaining)

    In a sticky price model with investment spending, recent research shows that inflation-forecast targeting interest rate policy makes determinacy of equilibrium essentially impossible. The authors examine a necessary and sufficient condition for determinacy under interest rate policy that responds to a weighted average of an inflation forecast and current inflation....

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Optimal Inflation For The U.S. Economy

    This paper studies the Optimal long-run Inflation Rate (OIR) in a small New-Keynesian model, where the only policy instrument is a short-term nominal interest rate that may occasionally run against a Zero Lower Bound (ZLB). The model allows for worst-case scenarios of misspecification. The analysis shows first, if the government...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Learning About Monetary Policy Rules When Labor Market Search And Matching Frictions Matter

    This paper examines implications of incorporating labor market search and matching frictions into a sticky price model for determinacy and E-stability of Rational Expectations Equilibrium (REE) under interest rate policy. When labor adjustment takes place solely at the extensive margin, forecast-based policy that meets the Taylor principle is likely to...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Robustness, Information-Processing Constraints, And The Current Account In Small Open Economies

    The authors examine the effects of two types of informational frictions, RoBustness (RB) and finite information-processing capacity (called Rational Inattention or RI) on the current account, in an otherwise standard Intertemporal Current Account (ICA) model. They show that the interaction of RB and RI has the potential to improve the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Robust Control, Informational Frictions, And International Consumption Correlations

    In this paper, the authors examine the effects of two types of information imperfections, RoBustness (RB) and finite information-processing capacity (called Rational Inattention or RI), on international consumption correlations in an otherwise standard small open economy model. They show that in the presence of capital mobility in financial markets, RB...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Determinacy Under Inflation Targeting Interest Rate Policy In A Sticky Price Model With Investment

    In a sticky price model with investment spending, recent research shows that inflation-forecast targeting interest rate policy makes determinacy of equilibrium essentially impossible. The authors examine a necessary and sufficient condition for determinacy under interest rate policy that responds to a weighted average of an inflation forecast and current inflation....

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Oct 2010

    Long Run Risks In The Term Structure Of Interest Rates: Estimation

    Using Bayesian methods, this paper estimates a model in which persistent fluctuations in expected consumption growth, expected inflation, and their time-varying volatility determine asset price variation. The analysis of the U.S. nominal term structure data from 1953 to 2006 shows that agents dislike high uncertainty and demand compensation for volatility...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Sep 2010

    Lender Exposure And Effort In The Syndicated Loan Market

    This paper tests for agency problems between the lead arranger and syndicate participants in the syndicated loan market. One problem comes from adverse selection, whereby the lead arranger has a private informational advantage over participants. A second problem comes from moral hazard, whereby the lead arranger puts less effort in...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jul 2010

    Entrepreneurial Risk Choice And Credit Market Equilibria

    The authors analyze under what conditions credit markets are efficient in providing loans to entrepreneurs who can start a new project after previous failure. An entrepreneur of uncertain talent chooses the riskiness of her project. If banks cannot perfectly observe the risk of previous projects, two equilibria may coexist: an...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // May 2010

    A Tale Of Two Rigidities: Sticky Prices In A Sticky-Information Environment

    Macroeconomic models with microeconomic foundations afford the opportunity to compare the model's behavior with empirical evidence at the macro and micro levels. This paper proposes a model that combines two strands of the literature on stickiness to match both sets of empirical facts. Firms acquire information infrequently, as in Mankiw...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Apr 2010

    The Creditworthiness Of The Poor: A Model Of The Grameen Bank

    This paper analyzes the role of expected income in entrepreneurial borrowing. The authors claim that poorer individuals are safer borrowers because they place more value on the relationship with the bank. They study the dynamics of a monopolistic bank granting loans and taking deposits from overlapping generations of entrepreneurs with...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Mar 2010

    Unfunded Liabilities And Uncertain Fiscal Financing

    A rational expectations framework is developed to study the consequences of alternative means to resolve the "Unfunded liabilities" problem - unsustainable exponential growth in federal Social Security, Medicare, and Medicaid spending with no plan to finance it. Resolution requires specifying a probability distribution for how and when monetary and fiscal...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2010

    Structural Macro-Econometric Modelling In A Policy Environment

    In this paper, the authors review the evolution of macroeconomic modelling in a policy environment that took place over the past sixty years. They identify and characterise four generations of macro models. Particular attention is paid to the fourth generation - dynamic stochastic general equilibrium models. They discuss some of...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2010

    Impulse Response Identification In DSGE Models

    Dynamic Stochastic General Equilibrium (DSGE) models have become a widely used tool for policymakers. This paper modifies the global identification theory used for structural vector autoregressions, and applies it to DSGE models. The authors use this theory to check whether a DSGE model structure allows for unique estimates of structural...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2010

    The Taylor Rule And The Practice Of Central Banking

    The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2010

    Training Or Search? Evidence And An Equilibrium Model

    Training programs are a major tool of labor market policies in OECD countries. The author uses a unique panel data set on the labor market experience of individual German workers between 2000 and 2002 to estimate a dynamic model of search and training, which allows the author to quantify the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2010

    Executive Compensation And Business Policy Choices At U.S. Commercial Banks

    This paper examines whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms. The authors find strong evidence that bank CEOs responded to contractual risk-taking incentives by taking more...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2010

    Why Do Card Issuers Charge Proportional Fees?

    This paper explains why payment card companies charge consumers and merchants fees which are proportional to the transaction values instead of charging a fixed per-transaction fee. The authors' theory shows that, even in the absence of any cost considerations, card companies earn much higher profit when they charge proportional fees....

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2010

    Convenient Prices And Price Rigidity: Cross-Sectional Evidence

    This paper provides cross-sectional evidence of convenient prices-prices that simplify and expedite transactions, reducing the time costs from physically making a transaction. Firms may wish to set convenient prices for items that are typically purchased with cash; are sold alone or with a few similar items; and are high-traffic transactions,...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2009

    Monetary Policy Regime Shifts And Inflation Persistence

    Using Bayesian methods, the authors estimate a Markov-Switching New Keynesian (MSNK) model that allows shifts in the monetary policy reaction coefficients and shock volatilities. Using U.S. data, they find that a more-aggressive monetary policy regime was in place after the Volcker disinflation and before 1970 than during the Great Inflation...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jul 2009

    Spin-Offs: Theory And Evidence From The Early U.S. Automobile Industry

    The authors develop a "Passive learning" model of firm entry by spin-off: firm employees leave their employer and create a new firm when they learn they are good entrepreneurs (type I spin-offs) or they learn their employer's prospects are bad (type II spin-offs). The theory predicts a high correlation between...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jul 2009

    Nested Forecast Model Comparisons: A New Approach To Testing Equal Accuracy

    This paper develops bootstrap methods for testing whether, in a finite sample, competing out-of-sample forecasts from nested models are equally accurate. Most prior work on forecast tests for nested models has focused on a null hypothesis of equal accuracy in population ? basically, whether coefficients on the extra variables in...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jul 2009

    In-Sample Tests Of Predictive Ability: A New Approach

    This paper presents analytical, Monte Carlo, and empirical evidence linking in-sample tests of predictive content and out-of-sample forecast accuracy. The authors' approach focuses on the negative effect that finite-sample estimation error has on forecast accuracy despite the presence of significant population-level predictive content. Specifically, they derive simple-to-use in-sample tests that...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2009

    Targeting Inflation And The Fiscal Balance: What Is The Optimal Policy Mix?

    This paper identifies optimal policy rules in the presence of explicit targets for both the inflation rate and public debt. This issue is investigated in the context of a dynamic stochastic general equilibrium model that describes a small open economy with capital accumulation, distortionary taxation and nominal price rigidities. The...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2009

    Real-Time Density Forecasts From VARs With Stochastic Volatility

    Central banks and other forecasters are increasingly interested in various aspects of density forecasts. However, recent sharp changes in macroeconomic volatility - such as the Great Moderation and the more recent sharp rise in volatility associated with greater variation in energy prices and the deep global recession - pose significant...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2009

    Reply To Generalizing The Taylor Principle: A Comment

    By Troy Davig and Eric M. Leeper (RWP09-09 June 2009) Farmer, Waggoner, and Zha (2009) show that a new Keynesian model with a regime-switching monetary policy rule can support multiple solutions that depend only on the fundamental shocks in the model. Their note appears to find solutions in regions of...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Mar 2009

    The Economics Of Payment Card Fee Structure: What Drives Payment Card Rewards?

    This paper investigates potential market forces that cause payment card rewards even when providing payment card rewards is not the most efficient. Three factors-oligopolistic merchants, output-maximizing card networks, and the merchant's inability to set different prices across payment methods-may potentially explain the prevalence of payment card rewards programs in the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2009

    Decomposing The Declining Volatility Of Long-Term Inflation Expectations

    The level and volatility of survey-based measures of long-term inflation expectations have come down dramatically over the past several decades. To capture these changes in inflation dynamics, the authors embed both short- and long-term expectations into a medium scale VAR with stochastic volatility. The model documents a marked decline in...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2009

    Payday Loan Pricing

    The authors estimate the pricing determinants for 35,098 payday loans originated in Colorado between 2000 and 2006, and generate a number of results with implications for public policy. They find evidence consistent with classical price competition early in the sample, but as time passed these competitive effects faded and the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2009

    Time Variation In The Inflation Passthrough Of Energy Prices

    From Bayesian estimates of a Vector AutoRegression (VAR) which allows for both coefficient drift and stochastic volatility, the authors obtain the following three results. First, beginning in approximately 1975, the responsiveness of core inflation to changes in energy prices in the United States fell rapidly and remains muted. Second, this...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Oct 2001

    Supporting Rural Entrepreneurship

    Rather than attempting an overview of every public program that may have an impact, directly or indirectly, on entrepreneurship, this paper focuses on three main themes. The first is that entrepreneurship needs to be given greater recognition as a means to revitalize rural America. The second theme is that the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2008

    Price-Level Targeting And Risk Management In A Low-Inflation Economy

    With inflation and policy interest rates at historically low levels, policymakers show great concern about "Downside tail risks" due to a zero lower bound on nominal interest rates. Low probability or tail events, such as sustained deflation or recession, are disruptive for the economy and can be difficult to resolve....

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    The Roles Of Price Points And Menu Costs In Price Rigidity

    Macroeconomic models often generate nominal price rigidity via menu costs. This paper provides empirical evidence that treating menu costs as a structural explanation for sticky prices may be spurious. Using supermarket scanner data, the author notes two empirical facts: price points, embodied in nine-ending prices, account for more than 60...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Determinacy Under Inflation Targeting Interest Rate Policy In A Sticky Price Model With Investment (And Labor Bargaining)

    In a sticky price model with investment spending, recent research shows that inflation-forecast targeting interest rate policy makes determinacy of equilibrium essentially impossible. The authors examine a necessary and sufficient condition for determinacy under interest rate policy that responds to a weighted average of an inflation forecast and current inflation....

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jul 2010

    Entrepreneurial Risk Choice And Credit Market Equilibria

    The authors analyze under what conditions credit markets are efficient in providing loans to entrepreneurs who can start a new project after previous failure. An entrepreneur of uncertain talent chooses the riskiness of her project. If banks cannot perfectly observe the risk of previous projects, two equilibria may coexist: an...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Optimal Inflation For The U.S. Economy

    This paper studies the Optimal long-run Inflation Rate (OIR) in a small New-Keynesian model, where the only policy instrument is a short-term nominal interest rate that may occasionally run against a Zero Lower Bound (ZLB). The model allows for worst-case scenarios of misspecification. The analysis shows first, if the government...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Learning About Monetary Policy Rules When Labor Market Search And Matching Frictions Matter

    This paper examines implications of incorporating labor market search and matching frictions into a sticky price model for determinacy and E-stability of Rational Expectations Equilibrium (REE) under interest rate policy. When labor adjustment takes place solely at the extensive margin, forecast-based policy that meets the Taylor principle is likely to...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2009

    Decomposing The Declining Volatility Of Long-Term Inflation Expectations

    The level and volatility of survey-based measures of long-term inflation expectations have come down dramatically over the past several decades. To capture these changes in inflation dynamics, the authors embed both short- and long-term expectations into a medium scale VAR with stochastic volatility. The model documents a marked decline in...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Nov 2008

    New Exporter Dynamics

    Models of heterogeneous firms making decisions about entering foreign markets in the face of sunk entry costs have become standard tools for understanding the firm exporting decision. These models induce a discrete choice between exporting and only serving the domestic market. In this paper the authors study how well these...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // May 2010

    A Tale Of Two Rigidities: Sticky Prices In A Sticky-Information Environment

    Macroeconomic models with microeconomic foundations afford the opportunity to compare the model's behavior with empirical evidence at the macro and micro levels. This paper proposes a model that combines two strands of the literature on stickiness to match both sets of empirical facts. Firms acquire information infrequently, as in Mankiw...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2009

    Targeting Inflation And The Fiscal Balance: What Is The Optimal Policy Mix?

    This paper identifies optimal policy rules in the presence of explicit targets for both the inflation rate and public debt. This issue is investigated in the context of a dynamic stochastic general equilibrium model that describes a small open economy with capital accumulation, distortionary taxation and nominal price rigidities. The...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Mar 2011

    What Does The Yield Curve Tell Us About The Federal Reserves Implicit Inflation Target?

    This paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to explore the additional information that can be extracted from the yield curve about the Federal Reserve's implicit inflation target. In the model, monetary policy follows a nominal interest rate rule with a drifting inflation target and agents have imperfect...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2009

    Monetary Policy Regime Shifts And Inflation Persistence

    Using Bayesian methods, the authors estimate a Markov-Switching New Keynesian (MSNK) model that allows shifts in the monetary policy reaction coefficients and shock volatilities. Using U.S. data, they find that a more-aggressive monetary policy regime was in place after the Volcker disinflation and before 1970 than during the Great Inflation...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jul 2009

    Spin-Offs: Theory And Evidence From The Early U.S. Automobile Industry

    The authors develop a "Passive learning" model of firm entry by spin-off: firm employees leave their employer and create a new firm when they learn they are good entrepreneurs (type I spin-offs) or they learn their employer's prospects are bad (type II spin-offs). The theory predicts a high correlation between...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2011

    Product Innovation And Network Survival In The U.S. ATM And Debit Card Industry

    This paper provides a model to explain the shakeout of the U.S. ATM and debit card industry, which emphasizes the role that a major product innovation - introducing the debit function in the mid 1980s - played in driving the network consolidation. Consistent with the theory, the authors' empirical findings...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Apr 2010

    The Creditworthiness Of The Poor: A Model Of The Grameen Bank

    This paper analyzes the role of expected income in entrepreneurial borrowing. The authors claim that poorer individuals are safer borrowers because they place more value on the relationship with the bank. They study the dynamics of a monopolistic bank granting loans and taking deposits from overlapping generations of entrepreneurs with...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Mar 2010

    Unfunded Liabilities And Uncertain Fiscal Financing

    A rational expectations framework is developed to study the consequences of alternative means to resolve the "Unfunded liabilities" problem - unsustainable exponential growth in federal Social Security, Medicare, and Medicaid spending with no plan to finance it. Resolution requires specifying a probability distribution for how and when monetary and fiscal...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2010

    Structural Macro-Econometric Modelling In A Policy Environment

    In this paper, the authors review the evolution of macroeconomic modelling in a policy environment that took place over the past sixty years. They identify and characterise four generations of macro models. Particular attention is paid to the fourth generation - dynamic stochastic general equilibrium models. They discuss some of...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2010

    Impulse Response Identification In DSGE Models

    Dynamic Stochastic General Equilibrium (DSGE) models have become a widely used tool for policymakers. This paper modifies the global identification theory used for structural vector autoregressions, and applies it to DSGE models. The authors use this theory to check whether a DSGE model structure allows for unique estimates of structural...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // May 2011

    Discretionary Monetary Policy In The Calvo Model

    The authors study discretionary equilibrium in the Calvo pricing model for a monetary authority that chooses the money supply. The steady-state inflation rate is above eight percent for a baseline calibration, but it varies substantially with alternative structural parameter values. If the initial condition involves inflation higher than steady state,...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2010

    The Taylor Rule And The Practice Of Central Banking

    The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2010

    Training Or Search? Evidence And An Equilibrium Model

    Training programs are a major tool of labor market policies in OECD countries. The author uses a unique panel data set on the labor market experience of individual German workers between 2000 and 2002 to estimate a dynamic model of search and training, which allows the author to quantify the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2010

    Executive Compensation And Business Policy Choices At U.S. Commercial Banks

    This paper examines whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms. The authors find strong evidence that bank CEOs responded to contractual risk-taking incentives by taking more...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2011

    What Is The Optimal Inflation Rate?

    In the late 1970s and early 1980s, many countries, including the United States, experienced high inflation. A broad consensus emerged that this performance was unacceptable, and monetary policymakers around the world adopted policies designed to bring inflation down. With inflation undesirably high, policymakers knew what direction they needed to push...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2011

    Liquidity Risk Premia And Breakeven Inflation Rates

    In recent years, monetary policymakers have monitored several measures of market expectations of future inflation. One of these measures is based on the yield differential between nominal and inflation indexed Treasury securities. This yield spread is also called the "Breakeven inflation rate." An increase in the breakeven rate is sometimes...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Mar 2011

    What Does The Yield Curve Tell Us About The Federal Reserve's Implicit Inflation Target?

    This paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to explore the additional information that can be extracted from the yield curve about the Federal Reserve's implicit inflation target. In the model, monetary policy follows a nominal interest rate rule with a drifting inflation target and agents have imperfect...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2011

    Social Security And Medicare: The Impending Fiscal Challenge

    Social security - and the solvency of its trust fund - has increasingly become a focus of discussion in the media and policy circles. In President Bush's 2005 State of the union address, for example, more than a fifth of the address dealt with social security. The basic problem is...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Oct 2008

    Market Structure And Credit Card Pricing: What Drives The Interchange?

    This paper provides a new theory to explain empirical puzzles regarding credit card interchange fees. The authors' model departs from the existing two-sided market theories by arguing card adoption externalities are less important in a mature card market. Instead, they focus on card issuer entry, elastic consumer demand and the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2011

    Going Global: The Changing Pattern Of U.S. Investment Abroad

    Investors typically allocate only a small share of their portfolios to foreign assets. This pattern of investment behavior, known as "Home bias," is puzzling because it causes investors to miss opportunities to diversify risks. During downturns in the U.S. economy, many domestic assets perform poorly, precisely when asset returns are...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jun 2009

    Real-Time Density Forecasts From VARs With Stochastic Volatility

    Central banks and other forecasters are increasingly interested in various aspects of density forecasts. However, recent sharp changes in macroeconomic volatility - such as the Great Moderation and the more recent sharp rise in volatility associated with greater variation in energy prices and the deep global recession - pose significant...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2009

    Payday Loan Pricing

    The authors estimate the pricing determinants for 35,098 payday loans originated in Colorado between 2000 and 2006, and generate a number of results with implications for public policy. They find evidence consistent with classical price competition early in the sample, but as time passed these competitive effects faded and the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2009

    Time Variation In The Inflation Passthrough Of Energy Prices

    From Bayesian estimates of a Vector AutoRegression (VAR) which allows for both coefficient drift and stochastic volatility, the authors obtain the following three results. First, beginning in approximately 1975, the responsiveness of core inflation to changes in energy prices in the United States fell rapidly and remains muted. Second, this...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Feb 2011

    Yield Curve In An Estimated Nonlinear Macro Model

    This paper estimates a sticky price macro model with US macro and term structure data using Bayesian methods. The model is solved by a nonlinear method. The authors find that the degree of nominal rigidity is important for identifying macro shocks that affect the yield curve. When prices are more...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2009

    Mind The (Approximation) Gap: A Robustness Analysis

    This paper continues the discussion of the results reported by Ricardo Caballero and Eduardo Engel (1993), hereafter CE, and Ricardo Caballero, Eduardo Engel, and John Haltiwanger (1997), hereafter CEH, by responding to the results reported in Christian Bayer (2008). Russell Cooper and Jonathan Willis (2004), hereafter CW, find that the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2009

    Global Inflation Dynamics

    This paper examines the dynamics of various measures of national, regional, and global inflation. The paper calculates the first two common factors for four measures of industrial country inflation rates: total CPI, core CPI, cyclical total CPI, and cyclical core CPI. The paper then demonstrates that the first common factor...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Robustness, Information-Processing Constraints, And The Current Account In Small Open Economies

    The authors examine the effects of two types of informational frictions, RoBustness (RB) and finite information-processing capacity (called Rational Inattention or RI) on the current account, in an otherwise standard Intertemporal Current Account (ICA) model. They show that the interaction of RB and RI has the potential to improve the...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Robust Control, Informational Frictions, And International Consumption Correlations

    In this paper, the authors examine the effects of two types of information imperfections, RoBustness (RB) and finite information-processing capacity (called Rational Inattention or RI), on international consumption correlations in an otherwise standard small open economy model. They show that in the presence of capital mobility in financial markets, RB...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Dec 2010

    Determinacy Under Inflation Targeting Interest Rate Policy In A Sticky Price Model With Investment

    In a sticky price model with investment spending, recent research shows that inflation-forecast targeting interest rate policy makes determinacy of equilibrium essentially impossible. The authors examine a necessary and sufficient condition for determinacy under interest rate policy that responds to a weighted average of an inflation forecast and current inflation....

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Sep 2010

    Lender Exposure And Effort In The Syndicated Loan Market

    This paper tests for agency problems between the lead arranger and syndicate participants in the syndicated loan market. One problem comes from adverse selection, whereby the lead arranger has a private informational advantage over participants. A second problem comes from moral hazard, whereby the lead arranger puts less effort in...

    Provided By Federal Reserve Bank of Kansas City

  • White Papers // Jan 2010

    Why Do Card Issuers Charge Proportional Fees?

    This paper explains why payment card companies charge consumers and merchants fees which are proportional to the transaction values instead of charging a fixed per-transaction fee. The authors' theory shows that, even in the absence of any cost considerations, card companies earn much higher profit when they charge proportional fees....

    Provided By Federal Reserve Bank of Kansas City