Federal Reserve

FEDS Paper: Linear Factor Models and the Estimation of Expected Returns

Cisil Sarisoy, Peter de Goeij, and Bas J.M. WerkerThis paper analyzes the properties of expected return estimators on individual assets implied by the linear factor models of asset pricing, i.e., the product of β and λ. We provide the asymptotic properties of factor-model-based expected return estimators, which yield the standard errors for risk premium estimators for individual assets. We show that using factor-model-based risk premium estimates leads to sizable precision gains compared to using historical averages.

FEDS Paper: Parental Employment at the Onset of the Pandemic: Effects of Lockdowns and Government Policies

Kabir Dasgupta, Linda Kirkpatrick, and Alexander PlumThe COVID-19 pandemic had disproportionate impacts on women’s employment, especially for mothers with school-age and younger children. However, the impacts likely varied depending on the type of policy response adopted by various governments. New Zealand presents a unique policy setting in which one of the strictest lockdown restrictions was combined with a generous wage subsidy scheme to secure employment.

FEDS Paper: Recovery of 1933(Revised)

Margaret M. Jacobson, Eric M. Leeper, and Bruce PrestonWhen Roosevelt abandoned the gold standard in April 1933, he converted government debt from a tax-backed claim to gold to a claim to dollars, opening the door to unbacked fiscal expansion. Roosevelt followed a state-contingent fiscal rule that ran nominal-debt-financed primary deficits until the price level rose and economic activity recovered.

FEDS Paper: Monetary Policy Shocks: Data or Methods?

Connor M. Brennan, Margaret M. Jacobson, Christian Matthes, Todd B. WalkerDifferent series of high-frequency monetary shocks can have a correlation coefficient as low as 0.5 and the same sign in only two-thirds of observations. Both data and methods drive these differences, which are starkest when the federal funds rate is at its effective lower bound. Methods that exploit the differential responsiveness of short- and long-term asset prices can incorporate additional information.

IFDP Paper: On the GDP Effects of Severe Physical Hazards

Martin Bodenstein and Mikaël ScaramucciWe assess the impacts from physical hazards (or severe weather events) on economic activity in a panel of 98 countries using local projection methods. Proxying the strength of an event by the monetary damages it caused, we find severe weather events to reduce the level of GDP. For most events in the EM-DAT data set the effects are small.

FEDS Paper: Reexamining the 'Role of the Community Reinvestment Act in Mortgage Supply and the U.S. Housing Boom'

Kenneth P. BrevoortConcerns have lingered since the 2007 subprime crisis that government housing policies promote risky mortgage lending. The first peer-reviewed evidence of a causal effect was published by the Review of Financial Studies in a paper (Saadi, 2020) linking the crisis to changes in the Community Reinvestment Act (CRA) in 1995. A review of that paper, however, shows that it misrepresents the policy changes as having taken effect in mid-1998, 2.5 years after they were implemented.

FEDS Paper: Difference-in-Differences in the Marketplace

Robert Minton and Casey B. MulliganPrice theory says that the most important effects of policy and technological change are often found beyond their first point of contact. This appears opposed to econometric methods that rule out spillovers of one person's treatment on another's outcomes. This paper uses the industry model from price theory to represent the statistical concepts of treatments and controls.

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