Federal Reserve

FEDS 2022-001: The Federal Reserve's New Framework: Context and Consequences

Richard H. Clarida | This paper discusses the Federal Reserve's new framework and highlights some important policy implications that flow from the revised consensus statement and the new strategy. In particular, it first discusses the factors that motivated the Federal Reserve in November 2018 to announce it would undertake in 2019 the first-ever public review of its monetary policy strategy, tools, and communication practices.

IFDP 2021-1333: Non-Linear Employment Effects of Tax Policy

Domenico Ferraro and Giuseppe Fiori | We study the non-linear propagation mechanism of tax policy in a heterogeneous agent equilibrium business cycle model with search frictions in the labor market and an extensive margin of employment adjustment. The model exhibits endogenous job destruction and endogenous hiring standards in the form of occasionally-binding zero-surplus constraints. After parameterizing the model using U.S.

FEDS 2021-081: Corporate Taxes and the Earnings Distribution: Effects of the Domestic Production Activities Deduction

Christine L. Dobridge, Paul Landefeld, and Jacob Mortenson | This paper investigates how corporate tax changes affect workers’ earnings. We use a dataset of U.S. worker-level W-2 filings matched with corporate tax returns and study the implementation of the Domestic Production Activities Deduction (DPAD). We find the DPAD tax rate reduction has a substantial effect on the distribution of annual wage earnings within a firm.

FEDS 2021-080: Equilibrium Unemployment: The Role of Discrimination

Juan C. Córdoba, Anni T. Isojärvi, and Haoran Li | U.S. labor markets are increasingly diverse and persistently unequal between genders, races and ethnicities, skill levels, and age groups. We use a structural model to decompose the observed differences in labor market outcomes across demographic groups in terms of underlying wedges in fundamentals. Of particular interest is the potential role of discrimination, either taste-based or statistical.

FEDS 2021-077: Entry, Variable Markups, and Business Cycles

William L. Gamber | The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms.

FEDS 2021-076: The Smart Money is in Cash? Financial Literacy and Liquid Savings Among U.S. Families

Neil Bhutta, Jacqueline Blair, Lisa Dettling | Most financial advisors recommend storing three to six months of expenses in liquid assets in case of an emergency. Yet we estimate that more than half of U.S. families do not have at least three months of their non-discretionary expenses in liquid savings. We find that financial literacy is strongly predictive of having three months of liquid savings, controlling for income, income variability, and even parental resources.

FEDS 2021-075: Does Access to Bank Accounts as a Minor Improve Financial Capability? Evidence from Minor Bank Account Laws

J. Michael Collins, Jeff Larrimore, and Carly Urban | Banking the unbanked is a common policy goal, but should this include access to bank accounts for minors? This study estimates how teenagers' access to bank accounts affects their financial
development. Using variation in state laws, we show policies that permit access to independently-owned accounts increase account ownership at age 16 through age 19, although by age 24 those

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