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The Federal Reserve Bank of St. Louis Review
A bimonthly research journal intended for an economically informed but broad readership—from the undergraduate student to the PhD. In print and online.
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NOVEMBER/DECEMBER 2010 Vol. 92, No. 6
Quantitative Easing: Entrance and Exit Strategies
This article was originally presented as the Homer Jones Memorial Lecture, organized by the Federal Reserve Bank of St. Louis, St. Louis, Missouri, April 1, 2010.
Doubling Your Monetary Base and Surviving: Some International Experience
The authors examine the experience of selected central banks that have used large-scale balance-sheet expansion, frequently referred to as "quantitative easing," as a monetary policy instrument.
"When confidence is lost, liquidity dries up." The authors investigate the meaning of "confidence" and "liquidity" in the context of the recent financial crisis, which they maintain is a manifestation of an age-old problem with private money creation: banking panics.
Forecasting with Mixed Frequencies
A dilemma faced by forecasters is that data are not all sampled at the same frequency. Most macroeconomic data are sampled monthly (e.g., employment) or quarterly (e.g., GDP). Most financial variables (e.g., interest rates and asset prices), on the other hand, are sampled daily or even more frequently. The challenge is how to best use available data.
SEPTEMBER/OCTOBER 2010 Vol. 92, No. 5
In this paper the author discusses the possibility that the U.S. economy may become enmeshed in a Japanese-style deflationary outcome within the next several years. To frame the discussion, the author relies on an analysis that emphasizes two possible long-run steady states for the economy: one that is consistent with monetary policy as it has typically been implemented in the United States in recent years and one that is consistent with the low nominal interest rate, deflationary regime observed in Japan during the same period.
The Economic Progress of African Americans in Urban Areas: A Tale of 14 Cities
How significant was the economic progress of African Americans in the United States between 1970 and 2000? In this paper the authors examine this issue for black men 25 to 55 years of age who live in 14 large U.S. metropolitan areas.
Measuring International Trade Policy: A Primer on Trade Restrictiveness Indices
Measuring the overall restrictiveness of a country’s international trade policies is important and, in fact, essential for estimating the effects of trade policies and for negotiations to reduce trade barriers. A good measure is also difficult to produce: Trade restrictiveness indices are constructed by combining the actual structure of trade restrictions, which is generally quite different across goods, into a single number.
The financial crisis and recession that began in 2007 brought a sharp increase in the number of bank failures in the United States. This article investigates characteristics of banks that failed and regional patterns in bank failure rates during 2007-10. The article compares the recent experience with that of 1987-92, when the United States last experienced a high number of bank failures.
A Survey of Announcement Effects on Foreign Exchange Returns
Researchers have long studied the reaction of foreign exchange returns to macroeconomic announcements in order to infer changes in policy reaction functions and foreign exchange microstructure, including the speed of market reaction to news and how order flow helps impound public and private information into prices. Appendix.
JULY/AUGUST 2010 Vol. 92, No. 4
Debt, Financial Markets, and Monetary Policy
Selected Articles from the Thirty-Fourth Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis
Conventional and Unconventional Monetary Policy
The authors extend a standard New Keynesian model to incorporate heterogeneity in spending opportunities and two sources of (potentially time-varying) credit spreads and to allow a role for the central bank’s balance sheet in equilibrium determination.
New Monetarist Economics: Methods
This essay articulates the principles and practices of New Monetarism, the authors’ label for a recent body of work on money, banking, payments, and asset markets. They first discuss methodological issues distinguishing their approach from others: New Monetarism has something in common with Old Monetarism, but there are also important differences; it has little in common with Keynesianism.
Asset Prices, Liquidity, and Monetary Policy in the Search Theory of Money
The author presents a search-based model in which money coexists with equity shares on a risky aggregate endowment. Agents can use equity as a means of payment, so shocks to equity prices translate into aggregate liquidity shocks that disrupt the mechanism of exchange.
— A revised version of this article was concomitantly published in Federal Reserve Bank of Minneapolis Quarterly Review.
Reading the Recent Monetary History of the United States, 1959-2007
In this paper the authors report the results of the estimation of a rich dynamic stochastic general equilibrium (DSGE) model of the U.S. economy with both stochastic volatility and parameter drifting in the Taylor rule.
MAY/JUNE 2010 Vol. 92, No. 3
The following three papers were modified from a panel discussion given at the Federal Reserve Bank of Philadelphia's policy forum, "Policy Lessons from the Economic and Financial Crisis," December 4, 2009.
Three Lessons for Monetary Policy from the Panic of 2008
This article is a modified version of a presentation given at the Federal Reserve Bank of Philadelphia’s policy forum "Policy Lessons from the Economic and Financial Crisis," December 4, 2009. The presentation was made during a panel discussion that also included John Taylor and N. Gregory Mankiw.
Getting Back on Track: Macroeconomic Policy Lessons from the Financial Crisis
This article reviews the role of monetary and fiscal policy in the financial crisis and draws lessons for future macroeconomic policy. It shows that policy deviated from what had worked well in the previous two decades by becoming more interventionist, less rules-based, and less predictable.
Questions about Fiscal Policy: Implications from the Financial Crisis of 2008-2009
This article is an edited transcription of remarks given at the Federal Reserve Bank of Philadelphia’s policy forum "Policy Lessons from the Economic and Financial Crisis," December 4, 2009. The presentation was made during a panel discussion that also included James Bullard and John Taylor.
Nonlinear Effects of School Quality on House Prices
We reexamine the relationship between quality of public schools and house prices and find it to be nonlinear. Unlike most studies in the literature, we find that the price premium parents must pay to buy a house in an area associated with a better school increases as school quality increases.
Institutional Causes of Output Volatility
The authors investigate the relationship between the quality of institutions and output volatility. Using instrumental variable regressions, they address whether higher entry barriers and lower property rights protection lead to higher volatility.
MARCH/APRIL 2010 Vol. 92, No. 2
Lessons Learned? Comparing the Federal Reserve’s Responses to the Crises of 1929-1933 and 2007-2009
The financial crisis of 2007-09 is widely viewed as the worst financial disruption since the Great Depression of 1929-33. However, the accompanying economic recession was mild compared with the Great Depression, though severe by postwar standards.
Institutions and Government Growth: A Comparison of the 1890s and the 1930s
Statistics on the size and growth of the U.S. federal government, in addition to public statements by President Franklin Roosevelt, seem to indicate that the Great Depression was the primary event that caused the dramatic growth in government spending and intervention in the private sector that continues to the present day.
Fiscal Multipliers in War and in Peace
Proponents of fiscal stimulus argue that government spending is needed to replace the private spending normally lost during a recession. Estimates of the so-called fiscal multiplier based on wartime episodes are used to support the proposition that a peacetime intervention can “stimulate” the economy in a desirable manner. The author argues that a wartime crisis is fundamentally different from a peacetime economic crisis.
FOMC Learning and Productivity Growth (1985-2003): A Reading of the Record
The increasingly rapid productivity growth that began in the 1990s was the defining economic event of the decade and a major topic of debate among Federal Reserve policymakers. A key aspect of the debate was the contrast between information contained in aggregate data, which initially suggested little productivity gain, and anecdotal firm-level evidence, which hinted at the productivity acceleration.
JANUARY/FEBRUARY 2010 Vol. 92, No. 1
The Effects of Recessions Across Demographic Groups
The burdens of a recession are not spread evenly across demographic groups. As the public and media noticed, from the start of the current recession in December 2007 through June 2009 men accounted for more than three-quarters of net job losses.
Community Colleges and Economic Mobility
This paper examines the role of community colleges in the U.S. higher education system and their advantages and shortcomings. In particular, it discusses the population of community college students and economic returns to community college education for various demographic groups. It offers new evidence on the returns to an associate’s degree.
Alt-A: The Forgotten Segment of the Mortgage Market
This study presents a brief overview of the Alt-A mortgage market with the goal of outlining broad trends in the different borrower and mortgage characteristics of Alt-A market originations between 2000 and 2006.
The Relationship Between the Daily and Policy-Relevant Liquidity Effects
The phrase "liquidity effect" was introduced by Milton Friedman (1969) to describe the first of three effects on interest rates caused by an exogenous change in the money supply. The lack of empirical support for the liquidity effect using monthly and quarterly monetary and reserve aggregates data led Hamilton (1997) to suggest that more convincing evidence of the liquidity effect could be obtained with daily data—the daily liquidity effect.
