Federal Reserve

FEDS Paper: Insurers' Investments and Insurance Prices

07/19/2024 Federal Reserve Central banks

Benjamin Knox and Jakob Ahm SørensenWe develop a theory that connects insurance prices, insurance companies’ investment behavior, and equilibrium asset prices. Consistent with the model’s predictions, we show empirically that (1) insurers with more stable insurance funding take more investment risk and, therefore, earn higher average investment returns; (2) insurers set lower prices on policies when expected investment returns are higher, both in the cross-section of insurance companies and in the time series.

IFDP Paper: Tax Heterogeneity and Misallocation

07/19/2024 Federal Reserve Central banks

Baris Kaymak and Immo SchottThere is substantial asymmetry in effective corporate income tax rates across firms. While tax asymmetries would reduce productivity in frictionless economies, they can improve efficiency in a distorted economy if taxes alleviate other economic frictions. We develop a framework to estimate to what extent tax asymmetries affect productivity in distorted economies.

IFDP Paper: Monetary Policy without Moving Interest Rates: The Fed Non-Yield Shock

07/18/2024 Federal Reserve Central banks

Christoph E. Boehm and T. Niklas KronerExisting high-frequency monetary policy shocks explain surprisingly little variation in stock prices and exchange rates around FOMC announcements. Further, both of these asset classes display heightened volatility relative to non-announcement times. We use a heteroskedasticity-based procedure to estimate a “Fed non-yield shock”, which is orthogonal to yield changes and is identified from excess volatility in the S&P 500 and various dollar exchange rates.

FEDS Paper: Targeted Relief: Geography and Timing of Emergency Rental Assistance

07/16/2024 Federal Reserve Central banks

Theodore F. Figinski, Sydney Keenan, Richard Sweeney, and Erin TrolandIn response to the COVID-19 pandemic, Congress established the Emergency Rental Assistance (ERA) program, which provided nearly $45 billion to prevent evictions and increase housing stability. We provide new evidence on the implementation of ERA by examining the fine-grained geographic distribution of ERA funds and the timing of ERA expenditures by state and local governments.

FEDS Paper: Why Have Long-term Treasury Yields Fallen Since the 1980s? Expected Short Rates and Term Premiums in (Quasi-) Real Time

07/12/2024 Federal Reserve Central banks

Michael T. KileyTreasury yields have fallen since the 1980s. Standard decompositions of Treasury yields into expected short-term interest rates and term premiums suggest term premiums account for much of the decline. In an alternative real-time decomposition, term premiums have fluctuated in a stable range, while long-run expected short-term interest rates have fallen. For example, a real-time decomposition of the 10-yr.

FEDS Paper: What Can Measured Beliefs Tell Us About Monetary Non-Neutrality?

07/12/2024 Federal Reserve Central banks

Hassan Afrouzi, Joel P. Flynn, Choongryul YangThis paper studies how measured beliefs can be used to identify monetary non-neutrality. In a general equilibrium model with both nominal rigidities and endogenous information acquisition, we analytically characterize firms’ optimal dynamic information policies and how their beliefs affect monetary non-neutrality.

FEDS Paper: HANK Comes of Age

07/12/2024 Federal Reserve Central banks

Bence Bardóczy and Mateo Velásquez-GiraldoWe study the aggregate and distributional effects of monetary policy in a heterogeneous agent New Keynesian model that explicitly represents the life cycle of households. The model matches the age patterns in the level and dispersion of labor income and financial wealth in the U.S. despite the absence of preference heterogeneity and portfolio adjustment costs.

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