Federal Reserve System

About: Federal Reserve System is a other organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 2373 authors who have published 10301 publications receiving 511979 citations.

The response of hours to a technology shock: evidence based on direct measures of technology

Abstract: We investigate what happens to hours worked after a positive shock to technology, using the aggregate technology series computed in Basu, Fernald, and Kimball (1999). We conclude that hours worked rise after such a shock. (JEL: E24, E32, O3)

International Capital Flows and the Returns to Safe Assets in the United States, 2003-2007

Abstract: A broad array of domestic institutional factors ‐including problems with the originate-to-distribute model for mortgage loans, deteriorating lending standards, defi ciencies in risk management, confl icting incentives for the government-sponsored enterprises (GSEs), and shortcomings of supervision and regulation‐ were the primary sources of the US housing boom and bust and the associated fi nancial crisis. In addition, the extended rise in US house prices was likely also supported by long-term interest rates (including mortgage rates) that were surprisingly low, given the level of short-term rates and other macro fundamentals ‐a development that Greenspan (2005) dubbed a “conundrum.” The “global saving glut” (GSG) hypothesis (Bernanke, 2005 and 2007) argues that increased capital infl ows to the United States from countries in which desired saving greatly exceeded desired investment ‐including Asian emerging markets and commodity exporters‐ were an important reason that US longer-term interest rates during this period were lower than expected. This essay investigates further the effects of capital infl ows to the United States on US longer-term interest rates; however, we look beyond the overall size of the infl ows emphasised by the GSG hypothesis to examine the implications for US yields of the portfolio preferences of foreign creditors. We present evidence that, in the spirit of Caballero and Krishnamurthy (2009), foreign investors during this period tended to prefer US assets perceived to be safe. In particular, foreign investors ‐especially the GSG countries‐ acquired a substantial share of the new issues of US Treasuries, Agency debt, and Agency-sponsored mortgage-backed securities. The downward pressure on yields exerted by infl ows from the GSG countries was reinforced by the portfolio preferences of other foreign investors. We focus particularly on the case of Europe: although Europe did not run a large current account surplus as did the GSG countries, we show that it leveraged up its international balance sheet, issuing external liabilities to fi nance substantial purchases of apparently safe US “private label” mortgage-backed securities and other fi xed-income products. The strong demand for apparently safe assets by both domestic and foreign investors not only served to reduce yields on these assets but also provided additional incentives for the US fiservices industry to develop structured investment products that “transformed” risky loans into highly-rated securities. Our fi ndings do not challenge the view that domestic factors, including those listed above, were the primary sources of the housing boom and bust in the United States. However, examining how changes in the pattern of international capital fl ows affected yields on US assets helps provide a deeper understanding of the origins and dynamics of the crisis.