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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

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 steady state? Departing from the endogenous setting in Aiyagari (1995), this paper answers the question by assuming 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.

Markets, Externalities, and the Dynamic Gains of Openness

Infl‡ows of foreign knowledge are the key for developing countries to catch up with the world technology frontier.

Of Cities and Slums

The emergence of slums is a common feature in a country's path towards urbanization, structural transformation and development.

A Survey of the Empirical Literature on U.S. Unconventional Monetary Policy

This paper reviews and critically evaluates the empirical literature on the effects of U.S. unconventional monetary policy on both financial markets and the real economy. In order to understand how such policies could work, we also briefly review the literature on the theory of such policies.

Openness and the Optimal Taxation of Foreign Know-How

Developing countries frequently offer tax incentives and even subsidize the entry and operation of foreign firms. I examine the optimality of such policies in an economy where growth is driven by entrepreneurial know-how, a skill that is continuously updated on the basis of the productive ideas implemented in the country.

The Value of Constraints on Discretionary Government Policy

This paper investigates how institutional constraints discipline the behavior of discretionary governments subject to an expenditure bias.

Vocational Considerations and Trends in Social Security Disability

Along with health, Social Security Disability Insurance (SSDI) evaluates work-limiting disability by considering vocational factors including age, education, and past work experience. As the number of SSDI applicants and awards has increased, these vocational criteria are increasingly important to acceptances and denials.

Nominal rigidities in debt and product markets

Standard models used for monetary policy analysis rely on sticky prices. Recently, the literature started to explore also nominal debt contracts.

The Visible Hand: The Role of Government in China’s Long-Awaited Industrial Revolution

China is undergoing its long-awaited industrial revolution. There is no shortage of commentary and opinion on this dramatic period, but few have attempted to provide a coherent, in-depth, political economic framework that explains the fundamental mechanisms behind China’s rapid industrialization.

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.

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 the Behavior of Small and Large Firms during the 2008 Financial Crisis

Gertler and Gilchrist (1994) provide seminal evidence for the prevailing view that adverse shocks are propagated via credit constraints: small firms are affected more during tight credit periods than large 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.

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