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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

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.

Evaluating Unconventional Monetary Policies ─Why Aren’t They More Effective?

We use a general equilibrium finance model that features explicit government purchases of private debts to shed light on some of the principal working mechanisms of the Federal Reserve’s large-scale asset purchases (LSAP) and their macroeconomic effects.

Talent, Labor Quality, and Economic Development

We develop a theory of labor quality based on (i) the division of the labor force between unskilled and skilled workers and (ii) investments in skilled workers.

The Expected Inflation Channel of Government Spending in the Postwar U.S.

There exist sticky price models in which the output response to a government spending change can be large if the central bank is nonresponsive to inflation.

The Quantitative Importance of Openness in Development

This paper deals with a classic development question: how can the process of economic development – transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology – be accelerated?

Monetary Policy, the Tax Code, and the Real Effects of Energy Shocks

This paper develops a monetary model with taxes to account for the time-varying effects of energy shocks on output and hours worked in post-World War II U.S. data.

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.

Debt, Inflation and Central Bank Independence

Increasing the independence of a central bank from political influence, although ex-ante socially beneficial and initially successful in reducing inflation, would ultimately fail to lower inflation permanently.

Intergenerational Policy and the Measurement of Tax Incidence

We evaluate the ability of generational accounting to assess the potential welfare implications of policy reforms. In an intergenerational context policy reforms usually have redistributive, efficiency, and general equilibrium implications.

Is Government Spending a Free Lunch? -- Evidence from China

Most empirical studies based on U.S. data suggest that the fiscal multiplier is less than 1 (e.g., Barro and Redlick, 2011). However, Keynes argued that the multiplier would be the largest when markets have failed to the greatest extent in coordinating economic activities (such as during the Great Depression with rampant unemployment and low capacity utilization).

Uncertainty and Sentiment-Driven Equilibria

We construct a model to capture the Keynesian idea that production and employment decisions are based on expectations of aggregate demand driven by sentiments and that realized demand follows from the production and employment decisions of firms.

Two Monetary Models with Alternating Markets

We present a thought-provoking study of two monetary models: the cash-in-advance and the Lagos and Wright (2005) models.

The Effect of Underreporting on LIBOR Rates

On May 29, 2008, the Wall Street Journal reported that several large international banks were reporting unjustifiably low LIBOR rates. Since then two large banks, Barclays and UBS, have paid significant fines for manipulating their LIBOR rates, and additional banks are expected to be fined.

The Zero Lower Bound, the Dual Mandate, and Unconventional Dynamics

This article examines monetary policy when it is constrained by the zero lower bound (ZLB) on the nominal interest rate.

Reconstructing the Great Recession

This paper evaluates the role of the construction sector in accounting for the performance of the U.S. economy in the last decade.

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.

Are Government Spending Multipliers Greater During Periods of Slack? Evidence from 20th Century Historical Data

A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle.

Financial Development and Long-Run Volatility Trends

Countries with more developed financial markets (as measured by the private debt- to-GDP ratio) tend to have significantly lower aggregate volatility.

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.

How Effective Is Central Bank Forward Guidance?

This paper investigates the effectiveness of forward guidance for the central banks of four countries: New Zealand, Norway, Sweden, and the United States.

What Inventories Tell Us about Aggregate Fluctuations -- A Tractable Approach to (S,s) Policies

We estimate a DSGE model with (S,s) inventory policies. We find that (i) taking inventories into account can significantly improve the empirical fit of DSGE models in matching the standard business-cycle moments (in addition to explaining inventory fluctuations); (ii) (S,s) inventory policies can significantly amplify aggregate output fluctuations, in contrast to the findings of the recent general-equilibrium inventory literature; and (iii) aggregate demand shocks become more important than technology shocks in explaining the business cycle once inventories are incorporated into the model.

Understanding the Distributional Impact of Long-Run Inflation

The impact of fully anticipated inflation is systematically studied in heterogeneous agent economies with an endogenous labor supply and portfolio choices.

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.

Foreign Firms and the Diffusion of Knowledge

This paper constructs a model to examine the impact of foreign firms on a developing Country’s own accumulation of entrepreneurial knowledge.

The Federal Reserve's response to the financial crisis: what it did and what it should have done

This paper analyzes the Federal Reserve’s major policy actions in response to the financial crisis. The analysis is divided into the pre-Lehman and post-Lehman monetary policies.

Capital Misallocation and Aggregate Factor Productivity

We propose a sectoral–shift theory of aggregate factor productivity for a class of economies with AK technologies, limited loan enforcement, and a constant production possibilities frontier.

A Two-sector Model of Endogenous Growth with Leisure Externalities

This paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a Lucas [12] type model, as in Gómez [7], with a separable non‐homothetic utility and the assumption that physical and human capital are both necessary inputs in both the goods and the education sectors.

The Optimal Inflation Target in an Economy with Limited Enforcement

We formulate the central bank’s problem of selecting an optimal long-run inflation rate as the choice of a distorting tax by a planner who wishes to maximize discounted stationary utility for a heterogeneous population of infinitely-lived households in an economy with constant aggregate income and public information.

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.

Optimal Policy for Macro-Financial Stability

In this paper we study whether policy makers should wait to intervene until a … financial crisis strikes or rather act in a preemptive manner.

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