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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.

Applied Econometrics

Explaining Cross-Cohort Differences in Life Cycle Earnings

Earnings growth has been systematically decreasing from one cohort to the next, starting with the cohort that was 25-year-old in 1940. This cohort's labor earnings grew by a factor of 4 between the ages of 25 and 55.

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.

Tests of Equal Accuracy for Nested Models with Estimated Factors

In this paper we develop asymptotics for tests of equal predictive ability between nested models when factor-augmented regression models are used to forecast.

The Evolution of Scale Economies in U.S. Banking

Continued consolidation of the U.S. banking industry and general increase in the size of banks has prompted some policymakers to consider policies to discourage banks from getting larger, including explicit caps on bank size.

Estimation of Dynastic Life-Cycle Discrete Choice Models

This paper explores the estimation of a class of life-cycle discrete choice intergenerational models. It proposes a new semiparametric estimator.

What Accounts for the Racial Gap in Time Allocation and Intergenerational Transmission of Human Capital?

This paper analyzes the sources of the racial difference in the intergenerational transmission of human capital by developing and estimating a dynastic model of parental time and monetary inputs in early childhood with endogenous fertility, home hours, labor supply, marriage, and divorce.

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).

On the Need for a Replication Journal

There is very little replication of research in economics, particularly compared with other sciences.

FRED-MD: A Monthly Database for Macroeconomic Research

This paper describes a large, monthly frequency, macroeconomic database with the goal of establishing a convenient starting point for empirical analysis that requires "big data."

Metro Business Cycles

We construct monthly economic-activity indices for 51 U.S. metropolitan statistical areas beginning in 1990. Each index is based on a dynamic factor model for 14 variables measuring various aspects of economic activity in a metro area.

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.

Evaluating Conditional Forecasts from Vector Autoregressions

Many forecasts are conditional in nature. For example, a number of central banks routinely report forecasts conditional on particular paths of policy instruments.

Financial Stress Regimes and the Macroeconomy

We identify financial stress regimes using a model that explicitly links financial variables with the macroeconomy.

How Has Empirical Monetary Policy Analysis Changed After the Financial Crisis?

In the wake of the Great Recession, the Federal Reserve lowered the federal funds rate target essentially to zero and resorted to unconventional monetary policy.

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.

Parenthood and Productivity of Highly Skilled Labor: Evidence from the Groves of Academe

We examine the effect of pregnancy and parenthood on the research productivity of academic economists.

Countercyclical Policy and the Speed of Recovery After Recessions

The nature of the business cycle appears to have changed. Prior to the 1990s, recoveries from recessions were quick and steep; after the past three recessions, however, recoveries were weak and prolonged.

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.

Conflict, Evolution, Hegemony, and the Power of the State

In a model of evolution driven by conflict between societies more powerful states have an advantage. When the influence of outsiders is small we show that this results in a tendency to hegemony.

Frictionless Technology Diffusion: The Case of Tractors

Many new technologies display long adoption lags, and this is often interpreted as evidence of frictions inconsistent with the standard neoclassical model.

Clustered Housing Cycles

Using a panel of U.S. city-level building permits data, we estimate a Markov-switching model of housing cycles that allows for idiosyncratic departures from a national housing cycle.

Nonlinear Relationship between Permanent and Transitory Components of Monetary Aggregates and the Economy

This paper uses several methods to study the interrelationship among Divisia monetary aggregates, prices, and income, allowing for nonstationary, nonlinearities, asymmetries, and time-varying relationships among the series.

Evaluating the Accuracy of Forecasts from Vector Autoregressions

This paper surveys recent developments in the evaluation of point and density forecasts in the context of forecasts made by Vector Autoregressions.

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.

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