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Working Papers

Federal Reserve Bank of St. Louis working papers are preliminary materials circulated to stimulate discussion and critical comment.

Recent Working Papers

Near-Money Premiums, Monetary Policy, and the Integration of Money Markets:Lessons from Deregulation

The 1960s and 1970s witnessed rapid growth in the markets for new money market instruments, such as negotiable certificates of deposit (CDs) and Eurodollar deposits, as banks and investors sought ways around various regulations affecting funding markets. In this paper, we investigate the impacts of the deregulation and integration of the money markets.

Persistence of Shocks and the Reallocation of Labor

This paper proposes a theoretical and quantitative analysis of the reallocation of labor across firms in response to idiosyncratic shocks of different persistence. Creating and destroying jobs is costly and workers are paid a share of the value of the marginal worker.

Effects of Credit Supply on Unemployment and Inequality

The Great Recession, which was preceded by the financial crisis, resulted in higher unemployment and inequality.

Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Systemic Risk?

As a result of legal restrictions on branch banking, an extensive interbank system developed in the United States during the 19th century to facilitate interregional payments and flows of liquidity and credit. Vast sums moved through the interbank system to meet seasonal and other demands, but the system also transmitted shocks during banking panics.

Disentangling the Wage Impacts of Offshoring On a Developing Country: Theory and Policy

The various channels through which a reduction in the cost of offshoring can improve wages in a developed country are by now well understood.

Optimal Taxation, Marriage, Home Production, and Family Labor Supply

An empirical approach to optimal income taxation design is developed within an equilibrium collective marriage market model with imperfectly transferable utility.

Network Search: Climbing the Job Ladder Faster

We introduce an irregular network structure into a model of frictional, on-the-job search in which workers find jobs through their network connections or directly from firms.

Nonlinearities, Smoothing and Countercyclical Monetary Policy

Empirical analysis of the Fed’s monetary policy behavior suggests that the Fed smooths interest rates— that is, the Fed moves the federal funds rate target in several small steps instead of one large step with the same magnitude.

The Postwar Conquest of the Home Ownership Dream

Post-World War II witnessed the largest housing boom in recent history. This paper develops a quantitative equilibrium model of tenure choice to analyze the key determinants in the co-movement between home-ownership and house prices over the period 1940-1960.

Estimating Border Effects: The Impact of Spatial Aggregation

Trade data are typically reported at the level of regions or countries and are therefore aggregates across space. In this paper, we investigate the sensitivity of standard gravity estimation to spatial aggregation.

Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms

Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms.

Local and Aggregate Fiscal Policy Multipliers

In this paper, I estimate the effect of defense spending on the U.S. macroeconomy since World War II.

Measuring Openness to Trade

In this paper we derive a new measure of openness—trade potential index—that quantifies the potential gains from trade as a simple function of data.

Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum

We present a standard trade model and show that terrorism can be trade inducing, starting from autarky.

Trade and Terrorism: A Disaggregated Approach

This paper constructs a model of trade consequences of terrorism, where firms in trading nations face different costs arising from two distinct types of terrorist risks – domestic and transnational.

Individual and Aggregate Constrained Efficient Intertemporal Wedges in Dynamic Mirrleesian Economies

Assuming a neoclassical production technology, this paper characterizes constrained efficient intertemporal wedges for the macro aggregate as well as the micro individual allocation of dynamic Mirrleesian economies. We frst construct "Pareto-Negishi weights" from the multipliers on a sequence of temporary incentive constraints.

Long-Term Unemployment: Attached and Mismatched?

In this paper, I quantify the contribution of occupation-specific shocks and skills to unemployment duration and its cyclical dynamics.

International R&D Spillovers and Asset Prices

We provide new empirical evidence of a relationship between asset prices and trade- Induced international R&D spillovers; in particular, we find that pairs of countries that share more research and development exhibit more highly correlated stock market returns and less volatile exchange rates.

Interlocked Executives and Insider Board Members: An Empirical Analysis

This paper asked the question of whether the behavior and compensation of interlocked executives and non-independent board of directors are consistent with the hypothesis of governance problem or whether this problem is mitigated by implicit and market incentives.

Why Are Exchange Rates So Smooth? A Segmented Asset Markets Explanation

Empirical work on asset prices suggests that pricing kernels have to be almost perfectly correlated across countries. If they are not, real exchange rates are too smooth to be consistent with high Sharpe ratios in asset markets.

The Sufficient Statistic Approach: Predicting the Top of the Laffer Curve

We provide a formula for the tax rate at the top of the Laffer curve as a function of three elasticities. Our formula applies to static models and to steady states of dynamic models.

Interbank Markets and Banking Crises: New Evidence on the Establishment and Impact of the Federal Reserve

This paper examines the impact of the Federal Reserve’s founding on seasonal pressures and contagion risk in the interbank system.

Natural Resources and Global Misallocation

Are production factors allocated efficiently across countries? To differentiate misallocation from factor intensity differences, we construct a new dataset of estimates for the output shares of natural resources for a large panel of countries.

Explaining Cross-Cohort Differences in Life Cycle Earnings

College-educated workers entering the labor market in 1940 experienced a 4-fold increase in their labor earnings between the ages of 25 and 55; in contrast, the increase was 2.6-fold for those entering the market in 1980. For workers without a college education these figures are 3.6-fold and 1.5-fold, respectively.

A Racial Inequality Trap

Why has the U.S. black/white earnings gap remained around 40 percent for nearly 40 years? This paper's answer consists of a model of skill accumulation and neighborhood formation featuring a trap: Initial racial inequality and racial preferences induce racial segregation and asymmetric skill accumulation choices that perpetuate racial inequality.

Mortgages and Monetary Policy

Mortgages are long-term loans with nominal payments. Consequently, under incomplete asset markets, monetary policy can affect housing investment and the economy through the cost of new mortgage borrowing and real payments on outstanding debt.

Interest Rate Dynamics, Variable-Rate Loan Contracts, and the Business Cycle

The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates forecast booms in GDP, consumption, investment, and employment.

Specification and Estimation of Bayesian Dynamic Factor Models: A Monte Carlo Analysis with an Application to Global House Price Comovement

We compare methods to measure comovement in business cycle data using multi-level dynamic factor models. To do so, we employ a Monte Carlo procedure to evaluate model performance for different specifications of factor models across three different estimation procedures.

Real-Time Forecasting with a Large, Mixed Frequency, Bayesian VAR

We assess point and density forecasts from a mixed-frequency vector autoregression (VAR) to obtain intra-quarter forecasts of output growth as new information becomes available.

A State-Level Analysis of Okun's Law

Okun's law is an empirical relationship that measures the correlation between the deviation of the unemployment rate from its natural rate and the deviation of output growth from its potential.


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