Federal Reserve Bank of St. Louis

About: Federal Reserve Bank of St. Louis is a other organization based out in St Louis, Missouri, United States. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 203 authors who have published 1650 publications receiving 46084 citations.

Reducing the Risk at Small Community Banks: Is it Size or Geographic Diversification that Matters?*

Abstract: Most community banks face relatively high levels of diversifiable credit risk because they have relatively few loan customers (idiosyncratic risk) and are not geographically diversified (local market risk). We simulate mergers among community banks to quantify the relative contributions of idiosyncratic risk and local market risk to the default risk assumed by community banks. We find that the greatest risk-reduction benefits are achieved by increasing a community bank’s size, regardless of where the expansion takes place. We interpret this result as evidence that idiosyncratic risk dominates local market risk, especially at rural banks. Community banks face enormous pressure to grow, yet the pressure to geographically diversify is limited. As a consequence, larger community banks are likely to replace smaller community banks, but their focus on relationship lending will not disappear.

A Leisurely Reading of the Life Cycle Consumption Data

Abstract: A puzzle in consumption theory is the observation of a hump in age-consumption profiles. This paper studies a general equilibrium life-cycle economy with capital in which households include both consumption and leisure in their period utility function. A calibrated version of the model shows that a significant hump in life-cycle consumption is a feature of the equilibrium. Thus inclusion of leisure in household preferences may provide part of the explanation of observed lifecycle consumption humps.

The Propagation of Regional Recessions

Abstract: This paper develops a framework for inferring common Markov-switching components in a panel data set with large cross-section and time-series dimensions. We apply the framework to studying similarities and dierences across U.S. states in the timing of business cycles. We hypothesize that there exists a small number of cluster designations, with individual states in a given cluster sharing certain business cycle characteristics. We …nd that although oil-producing and agricultural states can sometimes experience a separate recession from the rest of the United States, for the most part, dierences across states appear to be a matter of timing, with some states entering recession or recovering before others. (JEL: C11; C32; E32)

Targeting vs. Instrument Rules for Monetary Policy

Abstract: Svensson (JEL, 2003) argues strongly that specific targeting rules first order optimality conditions for a specific objective function and model are normatively superior to instrument rules for the conduct of monetary policy. That argument is based largely upon four main objections to the latter plus a claim concerning the relative interest-instrument variability entailed by the two approaches. The present paper considers the four objections in turn, and advances arguments that contradict all of them. Then in the paper's analytical sections, it is demonstrated that the variability claim is incorrect, for a neo-canonical model and also for a variant with one-period-ahead plans used by Svensson, providing that the same decision-making errors are relevant under the two alternative approaches. Arguments relating to general targeting rules and actual central bank practice are also included.