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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

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.

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.

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.

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?

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.

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.

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.

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.

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.

Effects of Credit Supply on Unemployment and Inequality

The Great Recession, which was preceded by the financial crisis, resulted in higher unemployment and inequality.

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.

Local and Aggregate Fiscal Policy Multipliers

In this paper, we estimate the effect of defense spending on the U.S. macroeconomy since World War II. First, we construct a new panel dataset of state-level federal defense contracts.


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