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Working Paper Archives

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


Was Sarbanes-Oxley Costly? Evidence from Optimal Contracting on CEO Compensation

This paper develops measures of the costs and benefits of governance regulations within a dynamic principal agent model of hidden information and moral hazard following the passage of the Sarbanes-Oxley Act (SOX).

Student Loans and Repayment: Theory, Evidence and Policy

Rising costs of and returns to college have led to sizeable increases in the demand for student loans in many countries. In the U.S., student loan default rates have also risen for recent cohorts as labor market uncertainty and debt levels have increased.

The Role of Jumps in Volatility Spillovers in Foreign Exchange Markets: Meteor Shower and Heat Waves Revisited

We investigate the role of jumps in transmitting volatility between foreign exchange markets (Engle, Ito, and Lin, 1990; Melvin and Peiers Melvin, 2003; Cai, Howorka, and Wongswan, 2008).

Can Risk Explain the Profitability of Technical Trading in Currency Markets?

It is a robust finding that technical trading rules applied to foreign exchange markets have earned substantial excess returns over long periods of time. However, the approach to risk adjustment has typically been rather cursory, and has tended to focus on the CAPM.

Wage Dynamics and Labor Market Transitions: A Reassessment through Total Income and “Usual” Wages

We present a simple on-the-job search model in which workers can receive shocks to their employer-specific productivity match.

Sovereign Default and Maturity Choice

This paper presents a new quantitative model of endogenous sovereign default, maturity choice, and the term structure of bond yield spreads.

The Cost of Business Cycles with Heterogeneous Trading Technologies

This paper investigates the welfare cost of business cycles in an economy where households have heterogeneous trading technologies.

Implications of Heterogeneity in Preferences, Beliefs and Asset Trading Technologies in an Endowment Economy

This paper analyzes and computes the equilibria of economies with large numbers of heterogeneous agents who have different asset trading technologies, preferences and beliefs.

Risk Aversion at the Country Level

In this paper the authors estimate the coefficient of relative risk aversion for 75 countries using data on self-reports of personal well-being from the Gallup World Poll.

How Persistent Are Unconventional Monetary Policy Effects?

Event studies show that the Federal Reserve’s announcements of forward guidance and large Scale asset purchases had large and desired effects on asset prices but they do not tell us how long such effects last.

Labor Market Upheaval, Default Regulations, and Consumer Debt

In 2005, reforms made formal personal bankruptcy much more costly. Shortly after, the US began to experience its most severe recession in seventy years, and while personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment.

The Macroeconomics of Microfinance

We provide a quantitative evaluation of the aggregate and distributional impact of microfinance or credit programs targeted toward small businesses.

Understanding the Accumulation of Bank and Thrift Reserves during the U.S. Financial Crisis

The level of aggregate excess reserves held by U.S. depository institutions increased significantly at the peak of the 2007-09 financial crisis.

Which continuous-time model is most appropriate for exchange rates?

This paper evaluates the most appropriate ways to model diffusion and jump features of high-frequency exchange rates in the presence of intraday periodicity in volatility. We show that periodic volatility distorts the size and power of conventional tests of Brownian motion, jumps and (in)finite activity.

Does commonality in illiquidity matter to investors?

This paper investigates whether investors are compensated for taking on commonality risk in equity portfolios.

Can Self-Help Groups Really Be Self-Help?

This paper examines a cost-reducing innovation to the delivery of Self-Help Group” microfinance services.

How Did the Financial Crisis Alter the Correlations of U.S. Yield Spreads?

We investigate the pairwise correlations of 11 U.S. fixed income yield spreads over a sample that includes the Great Financial Crisis of 2007-2009.

Too Big to Cheat: Efficiency and Investment in Partnerships

We study the roles private information and capital accumulation play in the structure of partnerships. Partnerships are ventures formed with capital contributions from two members who initially share ownership of a business.

The Lender of Last Resort: Lessons from the Fed’s First 100 Years

We review the responses of the Federal Reserve to financial crises over the past 100 years. The authors of the Federal Reserve Act in 1913 created an institution that they hoped would prevent banking panics from occurring.

What Do We Know about the Relationship between Access to Finance and International Trade?

The recent financial crisis has focused attention on the relationship between access to finance and international trade, triggering a burgeoning segment of the literature evaluating this link empirically.

Asymptotic Inference for Performance Fees and the Predictability of Asset Returns

In this paper we provide analytical, simulation, and empirical evidence on a test of equal economic value from competing predictive models of asset returns.

Endogenous Credit Limits with Small Default Costs

We analyze an exchange economy of unsecured credit where borrowers have the option to declare bankruptcy in which case they are temporarily excluded from financial markets.

Self-Fulfilling Credit Cycles

This paper argues that self-fulfilling beliefs in credit conditions can generate endoge- nously persistent business cycle dynamics. We develop a tractable dynamic general equi- librium model in which heterogeneous firms face idiosyncratic productivity shocks.

Bankruptcy and Delinquency in a Model of Unsecured Debt

At an aggregate level, formal default via bankruptcy and informal default via delinquency are both quantitatively important in consumer credit markets. In this paper, we use a variety of microeconomic data sources to construct a salient set of facts on the use of unsecured debt and both formal and informal default.

Why Doesn’t Technology Flow from Rich to Poor Countries?

What is the role of a country’s financial system in determining technology adoption? To examine this, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation.

International Channels of the Fed’s Unconventional Monetary Policy

Previous research has established that the Federal Reserve’s large scale asset purchases (LSAPs) significantly influenced international bond yields.

Econometric Modeling of Exchange Rate Volatility and Jumps

This chapter reviews the rapid advances in foreign exchange volatility modeling made in the last three decades.

Federal Reserve Lending to Troubled Banks During the Financial Crisis, 2007-10

Numerous commentaries have questioned both the legality and appropriateness of Federal Reserve lending to banks during the recent financial crisis.

Did Affordable Housing Legislation Contribute to the Subprime Securities Boom?

We use a regression discontinuity approach and present new institutional evidence to investigate whether affordable housing policies influenced the market for securitized subprime mortgages.

Credit Scoring and Loan Default

This paper introduces a measure of credit score performance that abstracts from the influence of "situational factors." Using this measure, we study the role and effectiveness of credit scoring that underlied subprime securities during the mortgage boom of 2000-2006.

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