Over the past decade, the implementaton of U.S. monetary policy has changed significantly. Rather than adjusting the quantity of reserves in the banking system, policymakers now primarily use the interest rate paid on reserve balances, the IOR rate, to bring the federal funds rate within the target range. However, the recent rise in the federal funds rate relative to the IOR rate has raised questions about the primary drivers of the spread between the federal funds rate and the IOR rate in the Federal Reserve?s new operating framework. {{p}} A. Lee Smith examines the role declining reserve balances have played in influencing the federal funds-IOR spread. He finds that declining reserve balances have placed upward pressure on the federal funds rate in recent years despite the payment of interest on reserve balances. His findings suggest that the funds rate may continue to move higher relative to the IOR rate as reserve balances decline, potentially motivating further adjustments to the implementation of U.S. monetary policy.
{"title":"Do Changes in Reserve Balances Still Influence the Federal Funds Rate?","authors":"A. Smith","doi":"10.18651/ER/1Q19SMITH","DOIUrl":"https://doi.org/10.18651/ER/1Q19SMITH","url":null,"abstract":"Over the past decade, the implementaton of U.S. monetary policy has changed significantly. Rather than adjusting the quantity of reserves in the banking system, policymakers now primarily use the interest rate paid on reserve balances, the IOR rate, to bring the federal funds rate within the target range. However, the recent rise in the federal funds rate relative to the IOR rate has raised questions about the primary drivers of the spread between the federal funds rate and the IOR rate in the Federal Reserve?s new operating framework. {{p}} A. Lee Smith examines the role declining reserve balances have played in influencing the federal funds-IOR spread. He finds that declining reserve balances have placed upward pressure on the federal funds rate in recent years despite the payment of interest on reserve balances. His findings suggest that the funds rate may continue to move higher relative to the IOR rate as reserve balances decline, potentially motivating further adjustments to the implementation of U.S. monetary policy.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"26 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2019-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75523508","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The college income premium is the extra income earned by a family whose head has a college degree over the income earned by an otherwise similar family whose head does not have a college degree. This premium remains positive but has declined for recent graduates. The college wealth premium (extra net worth) has declined more noticeably among all cohorts born after 1940. Among families whose head is White and born in the 1980s, the college wealth premium of a terminal four-year bachelor?s degree is at a historic low; among families whose head is any other race and ethnicity born in that decade, the premium is statistically indistinguishable from zero. Among families whose head is of any race or ethnicity born in the 1980s and holding a postgraduate degree, the wealth premium is also indistinguishable from zero. Our results suggest that college and postgraduate education may be failing some recent graduates as a financial investment.
{"title":"Is College Still Worth it? The New Calculus of Falling Returns","authors":"William. R. Emmons, A. Kent, Lowell R. Ricketts","doi":"10.20955/r.101.297-329","DOIUrl":"https://doi.org/10.20955/r.101.297-329","url":null,"abstract":"The college income premium is the extra income earned by a family whose head has a college degree over the income earned by an otherwise similar family whose head does not have a college degree. This premium remains positive but has declined for recent graduates. The college wealth premium (extra net worth) has declined more noticeably among all cohorts born after 1940. Among families whose head is White and born in the 1980s, the college wealth premium of a terminal four-year bachelor?s degree is at a historic low; among families whose head is any other race and ethnicity born in that decade, the premium is statistically indistinguishable from zero. Among families whose head is of any race or ethnicity born in the 1980s and holding a postgraduate degree, the wealth premium is also indistinguishable from zero. Our results suggest that college and postgraduate education may be failing some recent graduates as a financial investment.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"5 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2019-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91143731","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
People?s occupations have a significant amount of information about their wages. However, because people?especially young workers?go through multiple occupations and employment statuses during their working lives, we find that their occupations at a young age do not predict their lifetime earnings well. When educational attainment and gender are considered, we find that across education-gender groups the differences in lifetime earnings are even larger than the differences in average occupational wages: Workers in high-wage education-gender groups (men with college degrees, for example) work more (at the extensive margin) and are more likely to have higher-paying occupations.
{"title":"Occupational Mobility and Lifetime Earnings","authors":"Yongseok Shin, C. Yuen","doi":"10.20955/r.101.231-44","DOIUrl":"https://doi.org/10.20955/r.101.231-44","url":null,"abstract":"People?s occupations have a significant amount of information about their wages. However, because people?especially young workers?go through multiple occupations and employment statuses during their working lives, we find that their occupations at a young age do not predict their lifetime earnings well. When educational attainment and gender are considered, we find that across education-gender groups the differences in lifetime earnings are even larger than the differences in average occupational wages: Workers in high-wage education-gender groups (men with college degrees, for example) work more (at the extensive margin) and are more likely to have higher-paying occupations.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"9 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2019-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77464997","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
What determines the maturity structure of debt? In this article, I develop a simple model to explore how the optimal maturity of debt issued by a firm (or a country) depends both on the firm?s cyclical state and other features of the economic environment in which it operates. I find that firms with better current earnings and better growth prospects issue debt with longer maturity, while firms operating in more-volatile environments issue debt with shorter maturity. Yield to maturity is a poor indicator of the risk of debt issued by a firm. The reason is simple: Yield to maturity captures both default risk and a component that is a pseudo term premium. In the model, the market does require a term premium and one appears only because of the risk of default. It is not possible to separate the impact of maturity and risk.
{"title":"What Determines Debt Maturity?","authors":"R. Manuelli","doi":"10.20955/r.101.155-76","DOIUrl":"https://doi.org/10.20955/r.101.155-76","url":null,"abstract":"What determines the maturity structure of debt? In this article, I develop a simple model to explore how the optimal maturity of debt issued by a firm (or a country) depends both on the firm?s cyclical state and other features of the economic environment in which it operates. I find that firms with better current earnings and better growth prospects issue debt with longer maturity, while firms operating in more-volatile environments issue debt with shorter maturity. Yield to maturity is a poor indicator of the risk of debt issued by a firm. The reason is simple: Yield to maturity captures both default risk and a component that is a pseudo term premium. In the model, the market does require a term premium and one appears only because of the risk of default. It is not possible to separate the impact of maturity and risk.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"58 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2019-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86039763","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Understanding and forecasting inflation has always been a key focus of macroeconomics and monetary policymaking. Historically, many macroeconomists and central banks have relied on the ?Phillips curve? framework for this purpose. Recently, however, the Phillips curve framework has not been performing well. This article examines a number of possible explanations for the breakdown of the ?Phillips curve? relationship between slack and inflation. These explanations include the possibility that the curve may have flattened or shifted, that standard measures may not be capturing key aspects of the relationship, or that a series of ?unfortunate? and unprecedented events may have obscured the underlying relationship. Each of these explanations has some merit and support, but each seems unable to explain how inflation dynamics have evolved over the past decade. This article suggests that what is missing is a more comprehensive treatment of how globalization has affected domestic prices, through channels such as increased trade flows, the greater economic heft of emerging markets, and increased ease of using global supply chains to shift parts of production to cheaper locations. This greater role for globalization in explaining inflation, however, does not mean that the standard Phillips curve framework is ?dead.? Rather, macroeconomists and monetary policymakers should update their existing models in two key ways: to include global parameters more explicitly and allow these parameters to adjust over time with the world economy.
{"title":"How Have Shanghai, Saudi Arabia, and Supply Chains Affected U.S. Inflation Dynamics?","authors":"Kristin Forbes","doi":"10.20955/R.101.27-43","DOIUrl":"https://doi.org/10.20955/R.101.27-43","url":null,"abstract":"Understanding and forecasting inflation has always been a key focus of macroeconomics and monetary policymaking. Historically, many macroeconomists and central banks have relied on the ?Phillips curve? framework for this purpose. Recently, however, the Phillips curve framework has not been performing well. This article examines a number of possible explanations for the breakdown of the ?Phillips curve? relationship between slack and inflation. These explanations include the possibility that the curve may have flattened or shifted, that standard measures may not be capturing key aspects of the relationship, or that a series of ?unfortunate? and unprecedented events may have obscured the underlying relationship. Each of these explanations has some merit and support, but each seems unable to explain how inflation dynamics have evolved over the past decade. This article suggests that what is missing is a more comprehensive treatment of how globalization has affected domestic prices, through channels such as increased trade flows, the greater economic heft of emerging markets, and increased ease of using global supply chains to shift parts of production to cheaper locations. This greater role for globalization in explaining inflation, however, does not mean that the standard Phillips curve framework is ?dead.? Rather, macroeconomists and monetary policymakers should update their existing models in two key ways: to include global parameters more explicitly and allow these parameters to adjust over time with the world economy.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"16 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2019-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88866353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I study the effects of the US fiscal policy response to the Great Recession, accounting both for standard tools and financial sector interventions. A nonlinear model calibrated to the US allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been one-third larger in the absence of that response, for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages between household and bank balance sheets.
{"title":"Fiscal Multipliers and Financial Crises","authors":"Miguel Faria-e-Castro","doi":"10.20955/wp.2018.023","DOIUrl":"https://doi.org/10.20955/wp.2018.023","url":null,"abstract":"\u0000 I study the effects of the US fiscal policy response to the Great Recession, accounting both for standard tools and financial sector interventions. A nonlinear model calibrated to the US allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been one-third larger in the absence of that response, for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages between household and bank balance sheets.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"47 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2018-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79504672","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study optimal insurance contracts for an agent with Markovian private information. Our main results characterize the implications of constrained efficiency for long-run welfare and inequality. Under minimal technical conditions, there is Absolute Immiseration: in the long run, the agent?s consumption and utility converge to their lower bounds. When types are persistent and utility is unbounded below, there is Relative Immiseration: low-type agents are immiserated at a faster rate than high-type agents, and ?pathwise welfare inequality? grows without bound. These results extend and substantially generalize the hallmark findings from the classic literature with iid types, suggesting that the underlying forces are robust to a broad class of private information processes. The proofs rely on novel recursive techniques and martingale arguments. When the agent has CARA utility, we also analytically and numerically characterize the short-run properties of the optimal contract. Persistence gives rise to qualitatively novel short-run dynamics and allocative distortions (or ?wedges?) and, quantitatively, induces less efficient risk-sharing. We compare properties of the wedges to their counterparts in the dynamic taxation literature.
{"title":"Insurance and Inequality with Persistent Private Information","authors":"A. Bloedel, R. Krishna, Oksana Leukhina","doi":"10.20955/WP.2018.020","DOIUrl":"https://doi.org/10.20955/WP.2018.020","url":null,"abstract":"We study optimal insurance contracts for an agent with Markovian private information. Our main results characterize the implications of constrained efficiency for long-run welfare and inequality. Under minimal technical conditions, there is Absolute Immiseration: in the long run, the agent?s consumption and utility converge to their lower bounds. When types are persistent and utility is unbounded below, there is Relative Immiseration: low-type agents are immiserated at a faster rate than high-type agents, and ?pathwise welfare inequality? grows without bound. These results extend and substantially generalize the hallmark findings from the classic literature with iid types, suggesting that the underlying forces are robust to a broad class of private information processes. The proofs rely on novel recursive techniques and martingale arguments. When the agent has CARA utility, we also analytically and numerically characterize the short-run properties of the optimal contract. Persistence gives rise to qualitatively novel short-run dynamics and allocative distortions (or ?wedges?) and, quantitatively, induces less efficient risk-sharing. We compare properties of the wedges to their counterparts in the dynamic taxation literature.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"27 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2018-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76405040","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-09-01DOI: 10.1016/J.JMONECO.2019.12.002
N. Figueroa, Oksana Leukhina, C. Ramírez
{"title":"Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications","authors":"N. Figueroa, Oksana Leukhina, C. Ramírez","doi":"10.1016/J.JMONECO.2019.12.002","DOIUrl":"https://doi.org/10.1016/J.JMONECO.2019.12.002","url":null,"abstract":"","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"39 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2018-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81104754","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Business turnover?the rate at which new firms enter and old firms exit the economy?has been declining for at least 40 years in the United States. Declining business turnover is potentially problematic, as it may signal a drop in innovation and productivity growth as well as a lower share of economic activity at new businesses. As a result, the economic fortunes of metropolitan areas are likely to be intertwined with the rate of business turnover they experience. {{p}} As the U.S. economy continues to transition from producing goods to providing services, changes in business turnover are unfolding differently in small versus large metropolitan areas. Jason P. Brown documents recent trends in business turnover across metropolitan areas of various sizes and shows that business turnover has declined much more sharply in small than in large urban areas. In addition, he finds that this gap widened in the years following the Great Recession. His results may help explain the widening economic divide between urban and rural areas of the country.
业务营业额?新企业进入和老企业退出的速度?在美国已经下降了至少40年。企业营业额下降是一个潜在的问题，因为它可能预示着创新和生产率增长的下降，以及新企业在经济活动中所占份额的下降。因此，大都市地区的经济命运很可能与其经历的商业流动率交织在一起。{{p}}随着美国经济继续从生产商品向提供服务转变，商业营业额的变化在小城市和大城市地区呈现出不同的变化。Jason P. Brown记录了不同规模的大都市地区最近的营业额趋势，并表明小城市地区的营业额下降幅度比大城市地区大得多。此外，他还发现，这一差距在大衰退之后的几年里扩大了。他的研究结果可能有助于解释该国城乡之间日益扩大的经济差距。
{"title":"The Widening Divide in Business Turnover between Large and Small Urban Areas","authors":"Jason Brown","doi":"10.18651/ER/3Q18BROWN","DOIUrl":"https://doi.org/10.18651/ER/3Q18BROWN","url":null,"abstract":"Business turnover?the rate at which new firms enter and old firms exit the economy?has been declining for at least 40 years in the United States. Declining business turnover is potentially problematic, as it may signal a drop in innovation and productivity growth as well as a lower share of economic activity at new businesses. As a result, the economic fortunes of metropolitan areas are likely to be intertwined with the rate of business turnover they experience. {{p}} As the U.S. economy continues to transition from producing goods to providing services, changes in business turnover are unfolding differently in small versus large metropolitan areas. Jason P. Brown documents recent trends in business turnover across metropolitan areas of various sizes and shows that business turnover has declined much more sharply in small than in large urban areas. In addition, he finds that this gap widened in the years following the Great Recession. His results may help explain the widening economic divide between urban and rural areas of the country.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"121 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2018-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90270678","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-07-01DOI: 10.18651/ER/3Q18RODZIEWICZ
David Rodziewicz
Over the past 10 years, the U.S. energy sector has exerted substantial influence?both positive and negative?on overall U.S. business fixed investment. From 2010 to 2014, a time when energy production in the United States was expanding, investment in the energy sector was a boon to aggregate investment. However, following the sharp oil price decline in 2014, the energy sector was a drag on aggregate investment. {{p}} Assessing the energy sector?s contribution to aggregate investment requires an understanding of both the size of the sector as well as its individual segments. David Rodziewicz estimates how individual segments of the energy sector have contributed to U.S. aggregate investment activity over time. He finds that the share of energy investment in the United States increased during the last decade, and the concentration of investment shifted toward more volatile segments of the energy sector. Together, these changes contributed to higher aggregate investment variability.
{"title":"Energy investment variability within the macroeconomy","authors":"David Rodziewicz","doi":"10.18651/ER/3Q18RODZIEWICZ","DOIUrl":"https://doi.org/10.18651/ER/3Q18RODZIEWICZ","url":null,"abstract":"Over the past 10 years, the U.S. energy sector has exerted substantial influence?both positive and negative?on overall U.S. business fixed investment. From 2010 to 2014, a time when energy production in the United States was expanding, investment in the energy sector was a boon to aggregate investment. However, following the sharp oil price decline in 2014, the energy sector was a drag on aggregate investment. {{p}} Assessing the energy sector?s contribution to aggregate investment requires an understanding of both the size of the sector as well as its individual segments. David Rodziewicz estimates how individual segments of the energy sector have contributed to U.S. aggregate investment activity over time. He finds that the share of energy investment in the United States increased during the last decade, and the concentration of investment shifted toward more volatile segments of the energy sector. Together, these changes contributed to higher aggregate investment variability.","PeriodicalId":51713,"journal":{"name":"Federal Reserve Bank of St Louis Review","volume":"1 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2018-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79797831","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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