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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

Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors

We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee's Summary of Economic Projections.

Flight to What? — Dissecting Liquidity Shortage in Financial Crisis

We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the business cycle.

Optimal Ramsey Capital Income Taxation —A Reappraisal

This paper addresses a long-standing problem in the optimal Ramsey capital taxation literature. The tractability of our model enables us to solve the Ramsey problem analytically along the entire transitional path. We show that the conventional wisdom on Ramsey tax policy and its underlying intuition and rationales do not hold in our model and may thus be misrepresented in the literature.

Money, Banking and Financial Markets

The fact that money, banking, and financial markets interact in important ways seems self-evident. The theoretical nature of this interaction, however, has not been fully explored.

Debt and Stabilization Policy: Evidence from a Euro Area FAVAR

The Euro-area poses a unique problem in evaluating policy: a currency union with a shared monetary policy and country-specific fiscal policy. Analysis can be further complicated if high levels of public debt affect the performance of stabilization policy.

Corporate Income Tax, Legal Form of Organization, and Employment

A dynamic stochastic occupational choice model with heterogeneous agents is developed to evaluate the impact of a corporate income tax reduction on employment. In this framework, the key margin is the endogenous entrepreneurial choice of the legal form of organization (LFO).

The response of multinationals’ foreign exchange rate exposure to macroeconomic news

We use intraday data to estimate the daily foreign exchange exposure of U.S. multinationals and show that macroeconomic news affects these firms’ foreign exchange exposure. News creates a substantial shift in the joint distribution of stock and exchange rate returns that has both a transitory and a persistent component.

Optimal Monetary Policy under Negative Interest Rate

In responding to the extremely weak global economy after the financial crisis in 2008, many industrial nations have been considering or have already implemented negative nominal interest rate policy.

Truncated Firm Productivity Distributions and Trade Margins

A standard theoretical prediction is that average exports are independent of tariff rates when the underlying distribution of firm productivities is assumed to be the widely-used Pareto distribution. Assuming that the underlying distribution has no upper bound is undoubtedly inaccurate and produces theoretical results at odds with empirical results.

Terms-of-Trade and Counterterrorism Externalities

This paper investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation’s defensive counterterrorism efforts, while transferring some of its attacks abroad.

Nominal GDP Targeting With Heterogeneous Labor Supply

We study nominal GDP targeting as optimal monetary policy in a model with a credit market friction following Azariadis, Bullard, Singh and Suda (2016), henceforth ABSS.

Airport Noise in Atlanta: The Inequality of Sound

We examine how changes in the geographic concentrations of Hispanic and African-American populations are correlated with changes in probabilities of airport noise, in Atlanta, during 2003 and 2012.

Optimal Taxes Under Private Information: The Role of the Inflation Tax

We consider an overlapping generation framework with search and private information to study optimal taxation. Agents sequentially trade in markets that are characterized by different frictions and trading protocols.

Financial Frictions and Export Dynamics in Large Devaluations

We study the role of financial frictions and balance-sheet effects in accounting for the dynamics of aggregate exports in large devaluations. We investigate a small open economy with heterogeneous firms, where firms face financing constraints and debt can be denominated in foreign units.

Estimation of the discontinuous leverage effect: Evidence from the NASDAQ order book

An extensive empirical literature documents a generally negative correlation, named the “leverage effect,” between asset returns and changes of volatility.

Systematic Cojumps, Market Component Portfolios and Scheduled Macroeconomic Announcements

This study provides evidence of common bivariate jumps (i.e., systematic cojumps) between the market index and style-sorted portfolios.

Low Real Interest Rates and the Zero Lower Bound

How do low real interest rates constrain monetary policy? Is the zero lower bound optimal if the real interest rate is sufficiently low? What is the role of forward guidance?

Bank Panics and Scale Economies

A bank panic is an expectation-driven redemption event that results in a self-fulfilling prophecy of losses on demand deposits.

Liquidity Premiums on Government Debt and the Fiscal Theory of the Price Level

We construct a dynamic general equilibrium model where agents use nominal government bonds as collateral in secured lending arrangements.

Sticky Wages, Monetary Policy and Fiscal Policy Multipliers

This paper demonstrates how adding nominal wage rigidity to a standard sticky price model can create a mechanism by which increases in government spending cause increases in consumption. The increase in output arising from government purchases puts upward pressure on the price level.

Capital Goods Trade, Relative Prices, and Economic Development

International trade in capital goods has quantitatively important effects on economic development through capital formation and aggregate TFP.

Capital Accumulation and Dynamic Gains from Trade

We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation. We examine transition paths for 93 countries following a permanent, uniform, unanticipated trade liberalization.

International Trade and Intertemporal Substitution

This paper studies the role of international trade delivery lags and variation in the intertemporal marginal rate of substitution in accounting for puzzling features of cyclical fluctuations of international trade volumes.

Aiyagari Meets Ramsey: Optimal Capital Taxation with Incomplete Markets

What is the prescription of Ramsey capital taxes for Aiyagari’s (1994) incomplete-markets economy in the steady state? Departing from the endogenous setting in Aiyagari (1995), this paper answers the question by considering an exogenous stream of government purchases as in the canonical Ramsey problem.

The Effects of Terror on International Air Passenger Transport: An Empirical Investigation

This paper presents a theoretical model (adapted from the structural gravity model by Anderson and van Wincoop, 2003) to capture the effects of terrorism on air passenger traffic between nations affected by terrorism.

Chinese Foreign Exchange Reserves, Policy Choices and the U.S. Economy

China is both a major trading partner of the United States and the largest official holder of U.S. assets in the world.

The Inverted Leading Indicator Property and Redistribution Effect of the Interest Rate

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 today forecast future booms in GDP, consumption, investment, and employment.

Family Economics Writ Large

Powerful currents have reshaped the structure of families over the last century.

Training and Search on the Job

The paper studies human capital accumulation over workers’ careers in an on the job search setting with heterogenous firms.

The Aggregate Implications of Size Dependent Distortions

This paper examines the aggregate implications of size-dependent distortions. These regulations misallocate labor across firms and hence reduce aggregate productivity.


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