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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.

Monetary Policy/Macroeconomics

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.

Breaking the Curse of Kareken and Wallace with Private Information

We study the endogenous choice to accept fiat objects as media of exchange and their implications for nominal exchange rate determination. We consider a two-country environment with two currencies which can be used to settle any transactions.

On the Theoretical Efficacy of Quantitative Easing at the Zero Lower Bound

We construct a monetary economy in which agents face aggregate demand shocks and hetero- generous idiosyncratic preference shocks.

Local Fiscal Multipliers, Negative Spillovers and the Macroeconomy

This paper analyzes the impact of within-state military spending and national military spending on a state's employment.

Interest on Reserves, Interbank Lending, and Monetary Policy

A two-sector general equilibrium banking model is constructed to study the functioning of a floor system of central bank intervention.

Credit Search and Credit Cycles

The supply and demand of credit are not always well aligned and matched, as is reflected in the countercyclical excess reserve-to-deposit ratio and interest spread between the lending rate and the deposit rate.

Multidimensional Skill Mismatch

What determines the earnings of a worker relative to his peers in the same occupation? What makes a worker fail in one occupation but succeed in another? More broadly, what are the factors that determine the productivity of a worker-occupation match? In this paper, we propose an empirical measure of skill mismatch for a worker-occupation match, which sheds light on these questions.

Current Federal Reserve Policy Under the Lens of Economic History: A Review Essay

This review essay is intended as a critical review of Humpage (2015), and it expands on the issues raised in that volume.

Banker Preferences, Interbank Connections, and the Enduring Structure of the Federal Reserve System

Established by a three person Reserve Bank Organization Committee (RBOC) in 1914, the structure of the Federal Reserve System has remained essentially unchanged ever since, despite criticism at the time and over ensuing decades.

Optimal Monetary Policy at the Zero Lower Bound

We study optimal monetary policy at the zero lower bound. The macroeconomy we study has considerable income inequality which gives rise to a large private sector credit market.

Fertility Shocks and Equilibrium Marriage-Rate Dynamics

Low sex ratios are often equated with unfavorable marriage prospects for women, but in France after World War I, the marriage probability of single females rose 50%, despite a massive drop in the male/female ratio.

The Making of an Economic Superpower―Unlocking China’s Secret of Rapid Industrialization

The rise of China is no doubt one of the most important events in world economic history since the Industrial Revolution. Mainstream economics, especially the institutional theory of development based on a dichotomy of extractive vs. inclusive political institutions, is highly inadequate in explaining China’s rise.

Self-Fulfilling Credit Cycles

In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit.

Schools and Stimulus

This paper analyzes the impact of the education funding component of the 2009 American Recovery and Reinvestment Act (the Recovery Act) on public school districts.

Rehypothecation and Liquidity

Rehypothecation refers to the practice of spending a borrowed security that is ostensibly assigned as collateral in a lending arrangement. We develop a dynamic general equilibrium monetary model where an “asset shortage” and incomplete markets motivates the formation of credit relationships and the rehypothecation of assets.

Scarcity of Safe Assets, Inflation, and the Policy Trap

We construct a model in which all consolidated government debt is used in transactions, with money being more widely acceptable.

Institutions Do Not Rule: Reassessing the Driving Forces of Economic Development

We use cross-country data and instrumental variables widely used in the literature to show that (i) institutions (such as property rights and the rule of law) do not explain industrialization and (ii) agrarian countries and industrial countries have entirely different determinants for income levels.

Equilibrium Sovereign Default with Exchange Rate Depreciation

This study proposes and quantitatively assesses a terms-of-trade penalty for defaulting: defaulters must exchange more of their own goods for imports, which causes an adjustment to the equilibrium exchange rate.

Explaining Educational Attainment across Countries and over Time

Consider the following facts. In 1950, the richest countries attained an average of 8 years of schooling whereas the poorest countries 1.3 years, a large 6-fold difference. By 2005, the difference in schooling declined to 2-fold because schooling increased faster in poor than in rich countries.

Universal Basic Income versus Unemployment Insurance

In this paper we compare the welfare effects of unemployment insurance (UI) with an universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks.

Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations

We develop a model in which innovations in an economy's growth potential are an important driving force of the business cycle.

Reaction Functions in a Small Open Economy: What Role for Non-traded Inflation?

I develop a structural general equilibrium model and estimate it for New Zealand using Bayesian techniques.

A Theory of Targeted Search

We present a theory of targeted search, where people with a finite information processing capacity search for a 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.

A Cup Runneth Over: Fiscal Policy Spillovers from the 2009 Recovery Act

This paper studies the effects of interregional spillovers from the government spending component of the American Recovery and Reinvestment Act of 2009 (the Recovery Act). Using cross-county Census Journey to Work commuting data, we cluster U.S. counties into local labor markets, each of which we further partition into two subregions.

Rural-Urban Migration, Structural Transformation, and Housing Markets in China

This paper explores the role played by structural transformation and the resulting relocation of workers from rural to urban areas in the recent housing boom in China. This development process has fostered an ongoing increase in urban housing demand, which, combined with a relatively inelastic supply due to land and entry restrictions, has raised housing and land prices.

Three Scenarios for Interest Rates in the Transition to Normalcy

This article develops time-series models to represent three alternative, potential monetary policy regimes as monetary policy returns to normal. The first regime is a return to the high and volatile inflation rate of the 1970s.

Central Bank Purchases of Private Assets

A model is constructed in which consumers and banks have incentives to fake the quality of collateral. Conventional monetary easing can exacerbate these problems, in that the mispresentation of collateral becomes more profitable, thus increasing haircuts and interest rate differentials.

Occupational Hazards and Social Disability Insurance

Lifetime occupational exposure accounts for 42% of differences in disability risk across individuals.

The 2009 Recovery Act: Stimulus at the Extensive and Intensive Labor Margins

This paper (i) estimates the local effects of government stimulus spending on labor market outcomes and (ii) shows how these effects can be obtained from a firm's optimal policy in the presence of costs to hiring workers.

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