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 supply of skilled labour and skill-biased technological progress

Abstract: Rising inequality in the relative wages of skilled and unskilled labor in the 1980's is often attributed to skill-biased technological progress. This paper presents a model in which the adoption of skill-biased or "unskilled-biased" technologies is endogenous. Conventional wisdom states that an increase in the supply of skilled labor lowers the relative wage of skilled to unskilled labor. In this paper's endogenous growth model, an increase in the supply of skilled labor leads to temporary stagnation in the wages of unskilled workers and an expanding gap between the wages of skilled and unskilled workers. An increase in the supply of skilled labor accelerates skill-biased technological change, and, under plausible conditions, lowers output growth at least temporarily.

Regulation and Housing Supply

Abstract: A wide array of local government regulations influences the amount, location, and shape of residential development. In this chapter, we review the literature on the causes and effects of this type of regulation. We begin with a discussion of how researchers measure regulation empirically, which highlights the variety of methods that are used to constrain development. Many theories have been developed to explain why regulation arises, including the role of homeowners in the local political process, the influence of historical density, and the fiscal and exclusionary motives for zoning. As for the effects of regulation, most studies have found substantial effects on the housing market. In particular, regulation appears to raise house prices, reduce construction, reduce the elasticity of housing supply, and alter urban form. Other research has found that regulation influences local labor markets and household sorting across communities. Finally, we discuss the welfare implications of regulation. Although some specific rules clearly mitigate negative externalities, the benefits of more general forms of regulation are very difficult to quantify. On balance, a few recent studies suggest that the overall efficiency losses from binding constraints on residential development could be quite large.

Mismeasurement in the Consumer Price Index: An Evaluation

Abstract: A number of analysts have claimed recently that the consumer price index overstates the annual increase in the cost of living. This paper develops a framework for studying measurement problems in the consumer price index and systematically analyzes the available evidence concerning the magnitude of these problems. It concludes that the CPI overstates increases in the cost of living. The evidence suggests that the bias is centered on 1.0 percentage point per year. The extent of this bias is not known exactly. To take into account this uncertainty, the estimated bias is presented in terms of a probability distribution rather than a point estimate or range. We estimate that there is a 10 percent chance that the bias is less than 0.6 percentage point and a 10 percent chance that it is greater than 1.5 percentage points per year. CPI procedures overstate the rate of inflation for medical procedures that are subject to technological improvement. To illustrate this point and to show how better to measure medical care prices, the paper presents a prototypical price index for cataract surgery. This price index grows much more slowly than a price index for cataract surgery constructed using the methodology of the CPI. The paper discusses implications of CPI mismeasurement for monetary and fiscal policy as well as for other official statistics. It also offers some suggestions for improving the CPI.

Nonparametric Density Estimation and Tests of Continuous Time Interest Rate Models

Abstract: Nonparametric kernel density estimation has recently been used to estimate and test short-term interest rate models, but inference has been based on asymptotics. We derive finite sample properties of kernel density estimates of the ergodic distribution of the short-rate when it follows a continuous time AR(1) as in Vasicek. We find that the asymptotic distribution substantially understates finite sample bias, variance, and correlation. Also, estimator quality and bandwidth choice depend strongly on the persistence of the interest rate process and on the span of the data, but not on sampling frequency. We also examine the size and power of one of Ait-Sahalia's nonparametric tests of continuous time interest rate models. The test rejects too often. This is probably because the quality of the nonparametric density estimate depends on persistence, but the asymptotic distribution of the test does not. After critical values are adjusted for size, the test has low power in distinguishing between the Vasicek and Cox-Ingersoll-Ross models relative to a conditional moment-based specification test.