Federal Reserve

FEDS 2021-066: Bill of Lading Data in International Trade Research with an Application to the COVID-19 Pandemic

Aaron Flaaen, Flora Haberkorn, Logan Lewis, Anderson Monken, Justin Pierce, Rosemary Rhodes, and Madeleine Yi | We evaluate high-frequency bill of lading data for its suitability in international trade research. These data offer many advantages over both other publicly accessible official trade data and confidential datasets, but they also have clear drawbacks.

FEDS 2021-065: Desperate House Sellers: Distress Among Developers

Eileen van Straelen | Using granular data on home builder housing developments from the 2006-09 housing crisis, I show that builders spread house price shocks across geographically distinct projects via their internal capital markets. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. Financially constrained firms are more likely to cut prices of homes in healthy areas in response to losses in unhealthy ones.

FEDS 2021-064: A Structural Measure of the Shadow Federal Funds Rate

Callum Jones, Mariano Kulish, James Morley | We propose a shadow policy interest rate based on an estimated structural model that accounts for the zero lower bound. The lower bound constraint, if expected to bind, is contractionary and increases the shadow rate compared to an unconstrained systematic policy response. By contrast, forward guidance and other unconventional policies that extend the expected duration of zero-interest-rate policy are expansionary and decrease the shadow rate.

FEDS 2021-063: When Uncertainty and Volatility Are Disconnected: Implications for Asset Pricing and Portfolio Performance

Yacine Aït-Sahalia, Felix Matthys, Emilio Osambela, and Ronnie Sircar | We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic and may be potentially disconnected. We solve a representative investor's optimal asset allocation and derive the resulting conditional equity premium and risk-free rate in equilibrium.

IFDP 2021-1331: Between College and That First Job: Designing and Evaluating Policies for Hiring Diversity

Soumitra Shukla | Despite widespread caste disparities, compensatory hiring policies remain absent from the Indian private sector. This paper employs novel administrative data on the job search from an elite college and evaluates policies to promote hiring diversity. Application reading, written aptitude tests, large group debates, and job choices do not explain caste disparities. Disparities arise primarily between the final round, comprising non-technical personal interviews, and job offers; the emergence closely parallels caste revelation.

FEDS 2021-062: Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

Jeremy B. Rudd | Economists and economic policymakers believe that households' and firms' expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.

FEDS 2021-061: Can the Federal Reserve Effectively Target Main Street? Evidence from the 1970s Recession

John Kandrac | Modern central bankers confront a challenge of providing economic stimulus even when the policy rate is constrained by a lower bound. This challenge has led to substantial innovation by policymakers and a proliferation of new policy tools. In this paper, I offer evidence on the efficacy of a new tool known as funding for lending, which provides banks with subsidized funding to make additional loans.

FEDS 2021-060: Liquidity Provision and Co-insurance in Bank Syndicates

Kevin F. Kiernan, Vladimir Yankov, Filip Zikes | We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures.

IFDP 2021-1329: The Pitfalls of Using Location Quotients to Identify Clusters and Represent Industry Specialization in Small Regions

Mariya Pominova, Todd Gabe, Andrew Crawley | This paper examines the use of location quotients, a measure of regional business activity relative to the national benchmark, as an indicator of sectoral agglomeration in small cities and towns, and as a measure of industry specialization that might impact the number of new business startups in these places.

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