Showing papers by "Federal Reserve Bank of St. Louis published in 2021"
TL;DR: It is found that a one per thousand increase in infections caused a 2 to 3 percent drop in local employment in the early spring, consistent with the lifting of lockdowns having led to only modest employment recoveries in the US and UK, absent larger drops in infection rates.
97 citations
TL;DR: The authors construct a quantitative model of an economy hit by a pandemic and find that low-skill workers and self-employed always lose the most from both the pandemic itself and containment policies.
54 citations
TL;DR: The authors developed an overlapping-generations framework of education-based migration that takes place prior to labor-market participation and explore its role for economic development, urbanization and workforce composition.
Abstract: We develop an overlapping-generations framework of education-based migration that takes place prior to labor-market participation and explore its role for economic development, urbanization and workforce composition. We show that education-based and work-based migration are substitutes and the equilibrium outcome depends crucially on children’s talent distribution, college costs and selectiveness, urban job opportunities, and migration barriers. We establish conflicting partial- and general-equilibrium effects at work for comparative statics, and examine their locational as well as macroeconomic implications for assessing education and migration policies. Applying our model to fit the data from China over 1980–2007, we find that, although education-based migration only amounts to one-fifth of that of work-based migration, it contributes more to per capita output growth than work-based migration owing to its high-skilled nature. Moreover, the abolishment of education-based migration policy and the relaxation of the work-based migration are found to have limited effects on per capita output and urbanization.
20 citations
TL;DR: In this paper, the causal linkages between COVID-19 spread, government health containment and economic support policies, and economic activity during 2020 in the U.S. were investigated.
Abstract: This paper empirically investigates the causal linkages between COVID-19 spread, government health containment and economic support policies, and economic activity during 2020 in the U.S. We model their joint dynamics as generated by a structural vector autoregression and estimate it using U.S. state-level data. We identify structural shocks to the variables by making assumptions on their short-run relation consistent with salient epidemiological and economic features of COVID-19. We isolate the direct impact of COVID-19 spread and policy responses on economic activity by controlling for demand fluctuations using disaggregate exports data. We find that health containment and economic support policies are highly effective at curbing the spread of COVID-19 without leading to a long-term contraction of economic activity.
16 citations
TL;DR: As of August 2021, during the COVID-19 pandemic, slightly more than 3 million people likely retired earlier than they would have otherwise as discussed by the authors, which is the largest number of early retirements in history.
Abstract: As of August 2021, during the COVID-19 pandemic, slightly more than 3 million people likely retired earlier than they would have otherwise.
15 citations
TL;DR: This paper found that following the closure of a US bank regulator's field offices, the banks they previously supervised actively increased their risk of failure by distributing cash, increasing leverage, and lending more than similar banks at the same time and place.
Abstract: Regulators often delegate monitoring to local supervisors, which can improve information collection, but can also lead to agency problems and capture. We document that following the closure of a US bank regulator’s field offices, the banks they previously supervised actively increased their risk of failure by distributing cash, increasing leverage, and lending more than similar banks at the same time and place. Supervisor proximity is a channel through which these effects operate. Our findings suggest that local supervision is an important part of regulation, as it facilitates collection of information imperfectly reflected in reported measures, and that switching from onsite to offsite supervision can increase bank risk.
10 citations
TL;DR: The authors describes the contributions of the Federal Reserve System to the production and distribution of economic data and presents a chronological account of those contributions, including the role of monetary institutions in economic data collection.
Abstract: This article describes the contributions of the Federal Reserve System to the production and distribution of economic data. First, we present a chronological account of those contributions. Next, w...
7 citations
TL;DR: In this paper, the authors examine how banks change their risk management practices in response to the private disclosure of regulatory ratings that summarize bank risk-taking and find that deficient banks decrease commercial lending while shifting assets into cash.
6 citations
TL;DR: In this article, the authors argue that production or firms emerge in response to market demand, yet the so-called "market" is itself a fundamental public good that must be created by a development state instead of the invisible hand.
4 citations
TL;DR: In this article, the authors adopt an analytically tractable Aiyagari-type model to study the distinctive roles of unconditional lump-sum transfers and public debt in reducing consumption inequality due to uninsurable income risk.
Abstract: We adopt an analytically tractable Aiyagari-type model to study the distinctive roles of unconditional lump-sum transfers and public debt in reducing consumption inequality due to uninsurable income risk. We show that in the absence of wealth inequality, using lump-sum transfers is not an optimal policy for reducing consumption inequality---because the Ramsey planner opts to rely solely on public debt to mitigate income risk without the need for lump-sum transfers. This result is surprising in light of the popularity of universal basic income advocated by many politicians and scholars.
3 citations
01 Jan 2021
TL;DR: The authors revisited the diagram developed by Krugman and Macedo (The economic consequences of the April 25th revolution, Krugman and Braga de Macedo, Economia III:435-483, 1979) to study the adjustment path of output and real wage gaps in a small open economy.
Abstract: We revisit the diagram developed by Krugman and Macedo (The economic consequences of the April 25th revolution, Krugman and Braga de Macedo, Economia III:435–483, 1979) to study the adjustment path of output and real wage gaps in a small open economy. Using time series data, we estimate sequences of real exchange rates that are consistent with internal and external balance for the Portuguese economy and use these estimates to plot its evolution during 1971–2017. Following a period of prolonged appreciation, we find that the real exchange rate fell below its equilibrium level during the 2011–2015 adjustment phase, which was driven by both declining nominal wages and improvements in terms of trade.
TL;DR: In this article, the life-cycle gender differences in labor market outcomes using longitudinal data of a cohort of individuals from the National Longitudinal Survey of Youth 1979 were investigated. And they found that hours worked and labor market experience are the most substantial observable variables in explaining the gender pay gap.
Abstract: This article documents life-cycle gender differences in labor market outcomes using longitudinal data of a cohort of individuals from the National Longitudinal Survey of Youth 1979. As in other datasets, the gender earnings gap increases with age. We find that hours worked and labor market experience are the most substantial observable variables in explaining the gender pay gap. We also focus on patterns in occupational changes over the life cycle, as a large part of pay growth occurs when workers change jobs. We find that college-educated men, on average, move into occupations with higher task complexity. We further show that women are less likely to change occupations. Moreover, on average, pay grows when workers change occupations, but the growth is smaller for women. Finally, we discuss theories that are consistent with the patterns we document.
TL;DR: The authors decompose the causal effect of government defense spending into a local and a spillover effect, which is measured as a multiplier, i.e., the unit change in output of a one unit increase in government spending.
Abstract: This paper presents a method to decompose the causal effect of government defense spending into: (i) a local (or direct) effect, and (ii) a spillover (or indirect) effect. Each effect is measured as a multiplier: the unit change in output of a one unit change in government spending. We apply this method to study the effect of U.S. defense spending on output using regional panel data. We estimate a positive local multiplier and a negative spillover multiplier. By construction, the sum of the local and spillover multipliers provides an estimate of the aggregate multiplier. The aggregate multiplier is close to zero and precisely estimated. We show that enlisting disaggregate data improves the precision of aggregate effect estimates, relative to using aggregate time series alone. Our paper provides a template for researchers to conduct inference about local, spillover and aggregate causal effects in a unified framework.
TL;DR: In many countries, expected inflation rates have risen in many countries after fiscal and monetary stimulus helped economies recover from the COVID-19 lockdown as discussed by the authors, and the expected inflation rate has increased in most countries.
Abstract: Expected inflation rates have risen in many countries after fiscal and monetary stimulus helped economies recover from the COVID-19 lockdown.
TL;DR: In this article, the authors adopt an analytically tractable Aiyagari-type model to study the distinctive role of unconditional lump-sum transfers in reducing consumption inequality due to expost uninsurable income risk under borrowing constraints.
TL;DR: The relationship between countries' lockdown responses to the COVID-19 pandemic and those countries' political rights and civil liberties, macroeconomic variables, and vulnerability to the virus is described.
Abstract: This article describes the relationship between countries' lockdown responses to the COVID-19 pandemic and those countries' political rights and civil liberties, macroeconomic variables, and vulnerability to the virus. Political rights and civil liberties cannot explain the differences in lockdown timing across countries. Countries with high contagion exposure due to weak water sanitation and weak health systems locked down their economies as fast as possible to reduce contagion. However, countries more vulnerable to COVID-19 due to large fractions of elderly and smokers in the population did not respond differently from less-vulnerable countries. Interestingly, macroeconomic variables that did affect the timing of lockdowns were the sizes of a country's financial and trading sectors, even when differences in income and population density are taken into account.
01 Oct 2021
TL;DR: In this paper, the authors extend the work of cognitive psychologists by introducing font disfluency, or the use of difficult-to-read font or typeface, to the exam-taking phase of economics principles courses.
Abstract: Although individuals generally do not wish to be expected to do good work with bad tools, there are some activities for which there are advantages to having to face certain types of obstacles. One of these is mental processing, an important facet of cognitive psychology. This study extends the work of cognitive psychologists by introducing font disfluency, or the use of difficult-to-read font or typeface, to the exam-taking phase of economics principles courses. Difference-in-means tests indicate that students completing exams that were formatted in the difficult-to-read font scored as many as 9.6 points higher than their counterparts who completed exams formatted in the traditional font. On the other hand, regression analysis controlling for student demographics and human capital failed to produce a statistically significant result. The authors believe, however, that this result is likely due to the omission of student effort in the regression specification. As such, further research on the impact of font disfluency on exam performance is clearly warranted.
TL;DR: More income from government transfers and less consumer spending fueled the recent spike in saving in the US as discussed by the authors, which is the case in many other developed countries, such as Germany and Italy.
Abstract: More income from government transfers and less consumer spending fueled the recent spike in saving.
TL;DR: In this article, the impact of government-financed health care (GFHC) expenditures on prime-age employment was investigated using an instrumental variables strategy that exploits exogenous variation in Medicare spending, showing that an increase in GFHC spending equal to 1 percent of income over a two year horizon causes the employment-population ratio to increase by 58 basis points.
Abstract: Government-financed health care (GFHC) expenditures, through Medicare and Medicaid, have grown from roughly zero to over 7.6 percent of national personal income over the past 50 years. Recently, some analysts (e.g., the Council of Economics Advisers (2014)) have argued that an expansion of GFHC (in particular Medicaid) has large positive employment effects. Using quarterly data for 1978:Q2-2016:Q4, this paper estimates the impact of GFHC spending on prime-age employment using an instrumental variables strategy that exploits exogenous variation in Medicare spending. Our IV estimate of the multiplier suggests that an increase in GFHC spending equal to 1 percent of income over a two year horizon causes the employment-population ratio to increase by 58 basis points. This implies a job-creation cost of $84,900 per job year. Medicare spending changes by themselves yield a similar estimate of the employment multiplier (0.65). We then explore the dynamic employment response accumulated up to a four-year horizon and estimate a job-creation cost in the range of $406,000 to $467,000 per job-year. In other words, we find that an exogenous GFHC expansion has a moderate positive employment response in the short run and a muted cumulative response in the long run. We also show that the so-called relative (or local) multiplier approach based on the state-level panel provides similar estimates to those based on aggregate data. Although the employment effects using aggregate data are estimated imprecisely, they are considerably sharper when estimated using state-level data.
TL;DR: The authors investigated the role of global value chains in the declines of manufacturing employment and output in the U.S. during COVID-19 and found that global value chain played a significant role in the decline of output and employment.
Abstract: We investigate the role of global value chains in the declines of manufacturing employment and output in the U.S. during COVID-19. Specifically, we identify the role of global value chains by exploiting heterogeneity across industries in cross-country sourcing patterns and its interaction with exogenous cross-country variation in the containment policies introduced to combat the virus. We find that global value chains played a significant role in the decline of output and employment across U.S. manufactures. Moreover, we find a modest impact of diversifying or renationalizing global value chains in mitigating the economy's exposure to foreign shocks.
TL;DR: In this paper, the authors use a difference-in-differences approach to quantify the effects of hurricanes on residential property values for non-flooded NYC properties after Sandy and found that the short-run negative "surprise" effect was lower NYC housing prices by about 6-7% for each mile (or about 2% per standard deviation) difference between the property distance from the flood zone and the distance to the actual locations of flooding.
Abstract: The impacts of a major hurricane on residential real estate can be devastating Hurricane Sandy in New York City (NYC) is among the examples of how flooding can unexpectedly extend beyond FEMA flood zones Such surprises or negative shocks can provide property owners—especially those not flooded—with new information about future flood risks, based on the difference of the property distance from the flood zone and the distance to the actual locations of flooding We use a difference-in-differences approach to quantify the effects of these shocks on residential property values for non-flooded NYC properties after Sandy The short-run negative “surprise” effect was lower NYC housing prices by about 6%-7% for each mile (or about 2% per standard deviation) difference between the property distance from the flood zone and the distance to the actual locations of flooding The corresponding positive “surprise” effect is insignificant The long-term “surprise” effects of flood risk on housing prices tend to disappear, as residents’ memories of the “surprise” fade and they seem to only recall the actual storm surge several years after the hurricane
TL;DR: This article examined the importance of sovereign debt market liquidity in a New Keynesian environment with wage rigidities and financial frictions a la Kiyotaki and Moore (2012) and showed that sovereign bond market illiquidity can account for most of the output drop in Italy between 2011q2 and 2013q1.
TL;DR: In this article, the authors developed a structural model to explain how low inflation, low interest rates, and high primary budget deficits can coexist in a policy regime where the fiscal authority is non-Ricardian.
Abstract: Sargent and Wallace (1981) published "Some Unpleasant Monetarist Arithmetic" 40 years ago. Their central message was that a central bank may not have the power to determine the long-run rate of inflation without fiscal support. In a policy regime where the fiscal authority is non-Ricardian, an attempt on the part of the central bank to lower inflation may end up backfiring. I develop a structural model to illustrate this result through the use of a diagram. In addition, I use the model to explain how low inflation, low interest rates, and high primary budget deficits can coexist. I also use the model to explain why it is easier for a central bank to lower inflation than to raise it. I conclude with some recommendations for state-contingent monetary policy.
TL;DR: In this article, the authors used German residential real estate price data spanning 2007-2017 to find that shorter drive times to the A38 raised prices; and direct proximity lowered prices.
Abstract: Germany’s 1990 reunification necessitated highway connections between an underdeveloped region and a western country. The 2009/2013 German Autobahn highway A38 completion/additions alleviated congestion, enhanced connectivity, and increased pollution/noise. Using German residential real estate price data spanning 2007-2017, we find shorter drive times to the A38 raised prices; and direct proximity lowered prices. Our results exceed connectivity estimates of a German local roads study and some Western European highway studies, due to A38 newly linking the east/west of Germany. Our highway estimates are in the mid-range of German transit studies, implying German transit may impact real estate prices more than highways.
TL;DR: The distribution of innovation in the United States has become more concentrated and has shifted to the West as mentioned in this paper, which is the main cause of job creation in the US, according to the authors of this paper.
Abstract: The distribution of innovation in the United States has become more concentrated and has shifted to the West
TL;DR: In this article, the authors develop a framework on cross-border competition in markets for goods with negative externalities and provide evidence for optimal fiscal policy with a special focus on taxation.
TL;DR: This article found that demand for these securities may be up because investors are worried about longer-run inflation, and that they offer a hedge against inflation risks, which may explain the strong demand for them.
Abstract: TIPS offer a hedge against inflation risks, so demand for these securities may be up because investors are worried about longer-run inflation.
Abstract: This paper estimates the shadow price of equity for U.S. commercial banks over 2001–2018 using nonparametric local-linear estimators of the underlying cost frontier and tests the existence of “Too-Big-to-Fail” (TBTF) banks. Evidence for the existence of TBTF banks is found. We find that a negative correlation exists between the shadow price of equity and the size of banks in each year, suggesting that big banks pay less for equity than small banks. In addition, in each year there are more banks with a negative shadow price of equity in the fourth quartile based on total assets than in the other three quartiles. The data also reveal that for each year, the estimated mean shadow price of equity for the 50 largest banks is smaller than the mean price of deposits, even though equity is commonly viewed as a riskier asset than deposits. Finally, we find that the top 10 largest banks are willing to pay much more at the start of the global financial crisis and after the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 than the other periods. These results imply that these regulations are effective in reducing the implicit subsidy, at least for the top 10 largest banks. However, it is also evident that the recapitalization has imposed significant equity funding costs for the top 10 largest banks.