Working Papers
Stimulating discussion and critical comment on research in progress.
2013
- WP 13-09
- Policy in Adaptive Financial Markets—The Use of Systemic Risk Early Warning Tools
- How can a systemic risk early warning system (EWS) facilitate the financial stability work of policymakers? In the context of evolving financial market dynamics and limitations of microprudential policy, this study examines new directions for financial macroprudential policy. A flexible macroprudential approach is anchored in strategic capacities of systemic risk EWSs. Tactically, macroprudential applications are founded on information about the level, structure, and institutional drivers of systemic financial stress and aim to manage the financial system risk and imbalances in two dimensions: across time and institutions. Time-related EWS policy applications are analyzed in pursuit of prevention and mitigation. EWS applications across institutions are considered via common exposures and interconnectedness. Care must be taken in the calibration of macroprudential applications, given their reliance on quality of the underlying systemic risk-modeling framework. (PDF)
- WP 13-08
- Close but not a Central Bank: The New York Clearing House and Issues of Clearing House Loan Certificates
- The paper examines the New York Clearing House (NYCH) as a lender of last resort by looking at clearing-house-loan-certificate borrowing during five banking panics of the National Banking Era (1863?1913). In that system, adequate aggregate liquidity provision was passive and dependent upon member bank borrowing. We document bank borrowing behavior using bank-level data for clearing-house loan certificates issued to NYCH member banks. The historical record reveals that the large New York City banks behaved in ways that resembled those of a central bank in 1884 and in 1890, but less so in the more severe crises. (PDF)
- WP 13-07
- The Long-Term Employment Impacts of Gentrification in the 1990s
- This paper explores the degree to which gentrification impacts local labor markets. It begins by describing the nature of employment change in one archetypical gentrifying neighborhood—Chicago’s Wicker Park—to motivate the central hypothesis that gentrification is associated with industrial restructuring. Next, a detailed analysis is presented on the long-term employment changes in neighborhoods that have experienced gentrification during the 1990s across a sample of 20 large central cities. This analysis shows that employment grew slightly faster in gentrifying neighborhoods than other portions of the central city. However, jobs in restaurants and retail services tended to replace those lost in goods-producing industries. This process of industrial restructuring occurred at a faster rate in gentrifying areas. Thus gentrification can be considered a contributory and catalytic factor in accelerating the shift away from manufacturing with urban labor markets. (PDF)
- WP13-06
- On the Non-Optimality of a Diamond-Dybvig Contract in the Goldstein-Pauzner Environment
- I show, under intuitive conditions on the risk-averse utility function, the nonoptimality of the Diamond and Dybvig (1983) contract in the Goldstein and Pauzner (2005) environment. If marginal utility at zero is low enough, then Goldstein and Pauzner (2005)’s claim about the optimality of the Diamond and Dybvig (1983) contract is true. When it is not, the optimal contract insures the patient depositor against a project default. The contract may exhibit risk-sharing with the impatient depositor. Unlike when Goldstein and Pauzner (2005)’s claim is correct, relative risk aversion greater than 1 does not necessarily make the optimal bank contract run-prone. I present a condition under which it is. Read more
- WP 13-05
- Moving to a Job: The Role of Home Equity, Debt, and Access to Credit
- Using credit report data from two of the three major credit bureaus in the United States, we infer with high certainty whether households move to other labor markets defined by metropolitan areas. We estimate how moving patterns relate to labor market conditions, personal credit, and homeownership using panel regressions with fixed effects which control for all constant individual-specific traits. We interpret the patterns through simulations of a dynamic model of consumption, housing, and location choice. We find that homeowners with negative home equity move more than other homeowners, in particular when local unemployment growth is high—overall, negative home equity is not an important barrier to labor mobility. (PDF)
- WP 13-04
- Liquidity Provision during the Crisis of 1914: Private and Public Sources
- Caught between the end of the National Banking Era and the beginning of the Federal Reserve System, the crisis of 1914 provides an example of a banking panic avoided. We investigate how this outcome was achieved by examining data on the issues of Aldrich-Vreeland emergency currency and clearing house loan certificates to New York City institutions that identify borrower and quantity requested for each type of temporary liquidity measure. Combined with balance sheet data, we illustrate how temporary liquidity borrowing was essential for maintaining transactions volumes among New York City financial intermediaries. We highlight a signifi cant role for clearing house loan certificates that is distinct from the influence of Aldrich-Vreeland emergency currency issues. (PDF)
- WP 13-03
- It’s Not Just for Inflation: The Usefulness of the Median CPI in BVAR Forecasting
- In this paper we investigate the forecasting performance of the median CPI in a variety of Bayesian VARs (BVARs) that are often used for monetary policy. Until now, the use of trimmed-mean price statistics in forecasting inflation has often been relegated to simple univariate or “Philips-Curve” approaches, thus limiting their usefulness in applications that require consistent forecasts of multiple macro variables. We find that inclusion of an extreme trimmed-mean measure—the median CPI—significantly improves the forecasts of both headline and core CPI across our wide-ranging set of BVARs. While the inflation forecasting improvements are perhaps not surprising given the current literature on core inflation statistics, we also find that inclusion of the median CPI improves the forecasting accuracy of the central bank’s primary instrument for monetary policy—the federal funds rate. We conclude with a few illustrative exercises that highlight the usefulness of using the median CPI. (PDF)
- WP 13-02
- Human Capital in the Inner City
- Black males in the United States are exposed to tremendous violence at young ages: In the NLSY97 26 percent report seeing someone shot by age 12, and 43 percent by age 18. This paper studies how this exposure to violence and its associated social isolation affect education and labor market outcomes. I use Elijah Anderson’s ethnographic research on the ”code of the streett“ to guide the specification of a model of human capital accumulation that includes street capital, the skills and knowledge useful for providing personal security in neighborhoods where it is not provided by state institutions. The model is estimated assuming either selection on observables or dynamic selection with permanent unobserved heterogeneity. Counterfactuals from these estimated models indicate that exposure to violence has large effects, decreasing the high school graduation rate between 6.1 and 10.5 percentage points (20 and 35 percent of the high school dropout rate) and hours worked between 3.0 and 4.0 hours per week (0.15 and 0.19 σ). (PDF)
- WP 13-01
- Do Public Pension Obligations Affect State Funding Costs?
- States’ unfunded pension obligations to their current and retired employees have exploded in recent years to levels that are estimated to be between $750 billion and $4.4 trillion. In theory, this massive debt should have implications for states’ ability to meet their financial obligations and a measurable impact on funding costs. Yet, we find no evidence that municipal bond markets are pricing the risks to states’ fiscal health arising from these large obligations. (PDF)