FRB Working Papers

Staff working papers in the Finance and Economics Discussion Series (FEDS) and International Finance Discussion Papers (IFDPS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth a

Latest articles

FEDS 2020-088: The Dynamics of Adverse Selection in Privately-Produced Safe Debt Markets

Nathan Foley-Fisher, Gary Gorton, and Stéphane Verani | Privately-produced safe debt is designed so that there is no adverse selection in trade. This is because no agent finds it profitable to produce private information about the debt’s backing and all agents know this (i.e., it is information-insensitive). But in some macro states, it becomes profitable...

IFDP 2020-1304: Technology, Geography, and Trade over Time: The Dynamic Effects of Changing Trade Policy

Carter Mix | I study the dynamic effects of changes in trade policy in a multi-country model with firms that make durable and destination-specific investments in exporting capacity. Using Mexican exporter-level data, I show that incumbent exporters to minor trade partners account for a smaller share of bilateral exports than do incumbent exporters to...

FEDS 2020-087: Central Bank Communication with a Financial Stability Objective

David M. Arseneau | An endogenous financial crisis is introduced into the canonical model used to study central bank transparency. The central bank is endowed with private information about the real economy and credit conditions which jointly determine financial vulnerabilities. An optimal choice is made regarding whether to communicate this information...

FEDS 2020-086: Banks, Non Banks, and Lending Standards

R. Matthew Darst, Ehraz Refayet, Alexandros Vardoulakis | We study how competition between banks and non-banks affects lending standards. Banks have private information about some borrowers and are subject to capital requirements to mitigate risk-taking incentives from deposit insurance. Non-banks are uninformed and market forces determine their capital...

FEDS 2020-085: Estimates of r* Consistent with a Supply-Side Structure and a Monetary Policy Rule for the U.S. Economy

Manuel González-Astudillo, Jean-Philippe Laforte | We estimate the natural rate of interest (r*) using a semi-structural model of the U.S. economy that jointly characterizes the trend and cyclical factors of key macroeconomic variables such as output, the unemployment rate, in ation, and short- and long-term interest rates. We specify a monetary policy...

FEDS 2020-084: Income in the Off-Season: Household Adaptation to Yearly Work Interruptions

John Coglianese, Brendan M. Price | Joblessness is highly seasonal. To analyze how households adapt to seasonal joblessness, we introduce a measure of seasonal work interruptions premised on the idea that a seasonal worker will tend to exit employment around the same time each year. We show that an excess share of prime-age US workers experience recurrent...

FEDS 2020-083: Pandemic Recession Dynamics: The Role of Monetary Policy in Shifting a U-Shaped Recession to a V-Shaped Rebound

Michael T. Kiley | COVID-19 has depressed economic activity around the world. The initial contraction may be amplified by the limited space for conventional monetary policy actions to support recovery implied by the low level of nominal interest rates recently. Model simulations assuming an initial contraction in output of 10 percent suggest several...

FEDS 2020-082: Revealing Cluster Structures Based on Mixed Sampling Frequencies

Yeonwoo Rho, Yun Liu, and Hie Joo Ahn | This paper proposes a new nonparametric mixed data sampling (MIDAS) model and develops a framework to infer clusters in a panel regression with mixed frequency data. The nonparametric MIDAS estimation method is more flexible and substantially simpler to implement than competing approaches. We show that the proposed...

FEDS 2020-081: Boom Town Business Dynamics

Ryan A. Decker, Meagan McCollum, and Gregory B. Upton Jr. | The shale oil and gas boom in the U.S. provides a unique opportunity to study economic growth in a "boom town" environment, to derive insights about economic expansions more generally, and to obtain clean identification of the causal effects of economic growth on specific margins of business...

FEDS 2020-080: Correcting for Endogeneity in Models with Bunching

Carolina Caetano, Gregorio Caetano, and Eric Nielsen | We show that in models with endogeneity, bunching at the lower or upper boundary of the distribution of the treatment variable may be used to build a correction for endogeneity. We derive the asymptotic distribution of the parameters of the corrected model, provide an estimator of the standard errors,...

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